The Union Budget for fiscal 2018-2019, has Modinomics written all over it. Modinomics is a socio-economic philosophy that seeks to benefit the last man standing, the marginal farmer, the committed home-maker, the enterprising youngster, the salaried middle class, the rapidly growing MSME sector that is shaping Make in India, the average Indian rail commuter and, of course, the senior citizens who now stand to benefit, thanks to no TDS on interest income accruing from fixed deposits. Do note that the target of removing 4,267 unmanned railway crossings, the move to shift from blackboards to digital boards, an outlay of Rs 1,400 crore for food processing sector and another Rs 500 crore for mega food parks, Rs 2,600 crore allocation for micro irrigation under the Pradhan Mantri Krishi Sinchai Yojana, impetus to solar energy and the Save Ganga project, reflect how this Budget has married financial rectitude with holistic view that covers just about everything... from ease of living to conservation of natural resources to empowering Digital India and the great Indian middle class.
While it is true that personal income tax slabs underwent no change, let it not be forgotten that in the last three years, the income tax threshold slab was raised to Rs 2.5 lakh, Section 80-C limit was raised to Rs 1.5 lakh and home loan exemption limit too was raised to two lakh rupees. That said, the Government has brought back Standard Deduction with a limit of Rs 40,000. Remember, in a highly insensitive move, the UPA dispensation did away with Standard Deduction in the Budget for 2005-2006.
Those who argue that the rise in health and eduction cess from three per cent to four per cent, negates the benefits of Standard Deduction, are missing the point. The material impact of the one per cent rise in cess will hardly be 0.3 per cent. Also, what should come as a major relief to working women, given the gender gap in pay structure, is the reduction in EPF contribution from 12 per cent to eight per cent, while retaining the Government’s contribution to 12 per cent.
Moving away from personal income tax, what needs to be underscored is the reduction in corporate tax rate to 25 per cent, for corporates with a turnover of Rs 250 crore. This is a transformational move that will give a huge impetus to the MSME sector which today accounts for more than 95 per cent of the total business activity, 45 per cent of manufacturing output, 40 per cent of exports, employs more than 100 million people spread across more than 46 million MSME units and yes, accounts for more than eight per cent of the GDP! Large corporates would ideally need to ensure better tax compliance to avail of lower tax rates. Due to the various exemptions available, effective tax rate for large corporates in any case is 23 per cent and not 30 per cent which is just the headline number.
No discussion on the Budget is complete without talking about the fiscal deficit. The Union Budget pegs that number at 3.5 per cent of GDP for fiscal 2017-2018 and at 3.3 per cent of GDP for fiscal 2018-2019, which is remarkable, because it shows this Governments resolve to continue on the path of fiscal consolidation, without compromising on plan expenditure. Also, the move to limit Central Government’s debt to GDP ratio to 40 per cent is commendable. What pundits have chosen to ignore is that, since GST revenues of only months have been accounted for, even if one assumes an additional Rs 80,000 crore in the 12th month, conservatively speaking, that gives a cushion of more than 0.53 per cent of GDP to the Government!
An interesting feature that deserves applause is that the Government is making definitive moves at generating higher revenues from indirect taxes and not direct taxes, which is the right manner in which every global economic superpower has evolved over the years. In fact, studies have shown that direct tax multiplier is minus 1.02, which means that for every Rs 100 collected by way of direct taxes, the overall negative impact on a rapidly expanding economy like India could be Rs 102. On the other hand Revenue multiplier is a positive 0.98 and Capital Spending multiplier is a positive 2.45, which means for every Rs 100 spent by the government, the positive impact on GDP on a country like ours, is Rs 245, which is big, by any measure. That being the case, the massive Rs 14.34 lakh crore by way of rural spending outlined in this Budget, will have tremendous multiplier effects that will boost both consumption and investment.
Critics who suggest that the Government will fall short of revenues to finance the blockbuster “Modicare” scheme that seeks to cover 50 crore people across 10 crore households, in a pathbreaking move towards universal health coverage, need to be reminded that an ever expanding economy pays for itself. Also, besides budgetary support, extra budgetary resources, continued stress on non-tax revenues like PSU disinvestment, that garnered a record one lakh crore in fiscal 2017-2018, with a Rs 80,000 crore target for fiscal 2018-2019, higher surplus available from taxing long term capital gains, floating RDBs, Rupee Denominated Bonds, given the massive confidence of overseas investors in Modinomics, are various options available. Also, the Government may explore the hybrid annuity model for “Make in Rural India”, which has shown a lot of promise in other related areas. Do also note that FIIs pumped in more than two lakh crore rupees in equity and debt in 2017 and another $110 billion by way of sticky FDI flows in 2015-2016 and 2016-2017.
A decaying Opposition will do well to know that 9,000 kms of national highways, six crore toilets built in fiscal 2017-2018, targeted eight crore free LPG connections with more than 3.3 crore connections have been given, bringing 60 crore bank accounts under Jan Dhan, a Rs 5.97 lakh crore outlay for infrastructure spending, skilling 50 lakh youth under the National Apprenticeship Scheme, empowering digital economy wherein one lakh gram panchayats in 2.5 lakh villages have been connected via broadband. Additionally, there is three lakh crore rupees outlay under MUDRA that has provided gainful self employment to 10.4 crore people, 76 per cent of which are women, with more than 50 per cent of the loans being availed of, by members from the SC/ST community. These are pathbreaking achievements. Modinomics believes not just in Naukri but in rozgaar, something which an electorally vanquished Opposition has not been able to fathom. MSP at 1.5x the input cost for farmers, is yet another example of this government’s commitment to institutionalise some of the key recommendations by the Swaminathan Committee. And higher MSP will not necessarily lead to higher inflation because the government has been assiduously working on removing supply bottlenecks, without crimping demand.
India, thanks to Modinomics, is today on the cusp of becoming the 5th largest global economic powerhouse. The Budget ensures that India maintains its enviable position as the fastest growing economy in the world, having cemented the “Make in Rural India” juggernaut with vision. Besides, it has embarked on the largest and most comprehensive healthcare/social security programme, that seeks to enrich and empower those vulnerable groups who truly make India, all that it proudly stands for.
(The writer is an Economist and Chief Spokesperson for the BJP, Mumbai)