This is not a big bang budget. Nor is it particularly boldthough the government says it is walking towards the vision for a decade inwhich the five- year stop is a five trillion dollar economy with 8 per cent GDPgrowth. It is not immediately clear how this will be achieved, particularlywhen savings are down, banks are saddled with bad debt and the corporate sectoris weak, the last two mostly because of their own excesses though a variety ofreasons get cited. Even in the best of times and in the most mundane oftargets, going from zero to 90 is one thing; from 90 to 100 is quite anotherball game. GDP similarly is not a linear graph that keeps growing. It’s adynamic story with many moving parts, not all of which are under the control ofthe FM. In the current times, pushing growth is already a challenging task whenso many parts remain stalled. So when no big idea stands out to get out of thecurrent rut, the reactions can be very negative. We saw that all over. The BSESensex shed 400 points (the proposed increase in minimum public holding inlisted entities from 25 per cent to 35 per cent being one reason), economistsare asking what’s new in this and sectoral leaders looking for theirsector-specific relief in the short term will be disappointed.
Yet, in the very lack of the big bang probably lies some ofthe strength of the budget. Some interesting signals stand out. First amongthem is a tax on the super-rich. Individuals having taxable income from Rs. 2crore to Rs. 5 crore and Rs. 5 crore and above will now see their effective taxrates go up by around 3 per cent and 7 per cent respectively. This sends out aclear message that the rich must pay more, or in the words of Ms. NirmalaSitharaman, “those in the highest income brackets need to contribute more tothe nation’s development.” If this is a political philosophy, then we shouldsee some interesting directions emerge in the coming years of a government thatsits on so strong a mandate. This is not likely to be appreciated either by thesuper-rich (which include many BJP supporters) or by the free market thinkerswho probably expected a very different recipe from a government not cut in thesocialist mould.
The proposal to levy a 2 per cent TDS on cash withdrawalexceeding Rs. 1 crore from a bank account is another positive. It would beinteresting to know how many such withdrawals take place already. The TDSthough can be easily circumvented by withdrawal from multiple accounts. Themeasure reinforces the government’s resolve to move toward a less-cash economy,but with a focus on making it difficult to do high value transactions in cash.The proposal to increase duties on petrol and diesel by a steep Rs. 1 per litre(Prices in Mumbai jumped up Rs. 2/litre) and to increase custom duty on goldand other precious metals from 10 per cent to 12.5 per cent tells us that thegovernment will tap the upper segments.
Another surprising move for many will be the push forelectric vehicles (EVs), which really aren’t on the market, at a time the autosector with its conventional vehicles is said to be saddled with inventory andis crying out for relief. It was good sosee the FM argue that the environment is a critical consideration (she evenused the term “suspended particulate matter” and concerns arising from it inher post budget press conference) to insist that we must push towards a greenereconomy and the incentives for electric vehicles were a step in that direction.As the FM said, “Considering our large consumer base, we aim to leapfrog andenvision India as a global hub of manufacturing of EVs.” The GST rate on EVswill fall drastically from 12 per cent to 5 per cent, among other benefits liketax benefits that will lower the cost of buying these vehicles. Here is a bigdisruption coming in the auto market. Asthe Society of Indian Automobile Manufacturers said after the budget, the boostfor EVs is good but it will not help the auto sector mired right now in a deepslowdown. Which actually is a good thing, and the only way to boost EVs andgive India a chance at becoming a hub for EV manufacturing.
One big step is the handing over the regulation of NDFCs tothe RBI. There are almost 10,000 NBFCs registered with the RBI. Their combinedbalance sheet is of the order of Rs. 30 trillion. About 30 per cent of theirborrowings come from banks. A crisis in this sector is a time bomb that canexplode. Some would argue that it has already exploded. All kinds of fears havebeen expressed about the practices in the sector. Some of the stories emergingare nothing short of shocking. The RBIwill have to gear up to handle its responsibilities and call out the NBFCs thatstand in violation of norms. They must be separated from those that are soundand need support. This will have to be done quickly, transparently and with duediligence. One is not sure if the RBI can ramp up, given that its record inbank supervision itself is not always the best. While incentives to the sectorsin trouble are good, it is important to call out those who have looted thesystem and contributed to the mess that the sector is in now. In that sense,the long-term vision of a USD 5 trillion must include a war on those who playwith the money of the people, but will the government take this on as afull-blown agenda?
(The author is a journalist with The Billion Press and afaculty member at SPJIMR. Views are personal