One key aspect of the Budget which has been highlighted by India’s mainstream press is the tax cut for India’s salaried class earning up to Rs I lakh per month (roughly UK£930 or US$1100 in today’s money).
Rather than this inconsequential and inappropriate Rs 1 lakh crore tax cut, the money should have been spent to increase education or health expenditure as a percentage of GDP. That would have had much more impact of the kind needed. Government expenditure on Education has actually come down to 2.5% of GDP in this budget, whereas it needs to go up to at least 6% of GDP. At the same time, government expenditure on health is shockingly low, at the dismal rate of less than 2 % of GDP.
The tax cuts for this Rs 1 lakh a month salaried class middle class were the wrong thing to do. They will do little to increase consumption – and, since a lot of that will be on imported products, it is likely to increase the trade deficit of India, placing further pressure on the rupee in terms of depreciation as well as inflation. The salaried segment of the population which is benefited, consists of people who earn 6 times the average annual per capita income in India. Should they not pay taxes, in view of the fact that, in a developed country such as the UK, people who earn even 1/3 of average per capita income fall in the tax bracket, while in a developing country like Indonesia, people who earn the average per capita income pay taxes. India’s government, by exempting this particular class of employee, is saying that even people who are earning 6 times the average annual per capita income do not earn enough to consume or save, and therefore should not be taxed!
More important, from the calculations available, both in government sources and in other think tanks, etc., it is not clear if Budget revenue targets can be achieved with personal income tax cuts but no increase in corporate taxes or other progressive taxes. A clear and more certain way to achieve the Budget’s revenue targets would have been to increase corporate taxes while reducing GST which is regressive.
Fundamental Questions
Beyond the issue of tax cuts and related matters, is the fundamental question of whether the Budget addresses most of India’s structural economic problems in any significant manner.
First, the Budget does nothing substantial to address especially the 3 ‘U’s (unemployment, underemployment, unemployability) and 2 ‘I’s (ill-suited employment, informal unpaid work). Interestingly, the ILO does not consider informal unpaid work as employment at all! But this government strangely includes them in its figures for the “employed”.
Next, the Budget makes no attempt to address pollution and climate change challenges.
Further, interest payments are around 20% of all expenditures, higher than almost any other category, even higher than defense. How can that possibly be considered good by anyone?
Conclusion
Overall, this is an underwhelming and disappointing Budget. It is very short-termist in orientation, and seems to have been motivated principally with an eye on getting votes for Delhi and Bihar elections.
India’s window, demographic or otherwise, is receding and getting narrower to even make it to middle income status.
Currently, India is a “lower-middle income” country.
