A tight budget : Modi’s expression of trust

It was a budget that came literally days before elections in 5 states. If he wanted to, Modi could have announced just about any freebie: a farm loan waiver, a universal basic income, anything. He didn’t.

He stuck to his guns on fiscal responsibility. It’s an expression of amazing confidence in the maturity of the masses. For right now, even more than ever before, Modi knows that his popularity is sky high. Even Rajdeep, while presenting India Today’s  “Mood of the Nation survey” said as much. Modi’s image has become like teflon. Three years into office, his face has become synonymous with the PM’s chair and no leader anywhere in the nation comes even close in stature.

There were the silly Sahara diary charges against him, leveled by Rahul Gandhi. With anyone else, these charges could have stuck or at least started a conversation. But with Modi, the people laughed off the accusations. There is hardly anyone in India today who thinks there is corruption in the Modi government. It’s his biggest asset.

There was the temporary pain caused by demonetization. Amid all the exaggerated criticism that followed his move, the one valid point I heard was about funding of political parties. Well, Modi just lowered the bar on anonymous donations to political parties from Rs 20,000 to Rs 2,000. It’s a fantastic talking point that bolsters Modi’s zero tolerance approach to corruption. BJP should run with it. But don’t expect much from this, for there is hardly anyone who needs convincing any more that Modi stands against corruption. Why else would a Prime Minister risk everything by making the population stand in lines for more than a month? Modi fights corruption. At any cost. At any risk. People see that. This is the leadership they wanted.

So what did I think of the Budget? Well, why are you asking me…did I say I am an economist 🙂 ?

 

Well, what we do know for sure is that the Sensex thought well of the budget with a massive 500 point leap.

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The Sensex had already rallied massively in the weeks leading up to the budget and the further 500 point jump on Wednesday means that investors certainly weren’t disappointed. Even if some journalists probably were. As Rajdeep would have said, the Sensex turned into a Bhakt 🙂

I propose a moment of silence to remember Rajdeep’s historic tweet from last year’s budget.

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From closing at 23002 on Feb 29, 2016… the Sensex stands at over 28,100 right now as I type. It’s a gain of over 5000 points in one year. Dear Rajdeep, your tweet will stand as the worst stock market prediction of all time 🙂

And did I mention that it was during the course of last year that 2 disasters struck the Indian economy?

First, we lost the kind guiding hand of Raghuram Rajan, the greatest economist to ever walk the planet. It was predicted that $100 billion of money would be pulled out of the Indian economy.  Second, we had demonetization, the fiscal earthquake that sparked metaphors such as “shooting the tires of a racing car”.

Net result of these two disasters: a stock market rise of 5000 points.

But what do I know? I am just a poor fool who knows how to add and subtract.

Jibes apart, the budget did give a big boost to medium and small scale enterprises by cutting taxes AND compliance burdens on them. This is closer to the “government as enabler” right wing economic model of governance, which Modi has been rather shy to embrace ever since he became Prime Minister.

The second thing is the cutting of taxes that boosts the income of the lower middle class. A savings of Rs 12,500 is a lot of money for the overwhelming majority of people in this country. The effective tax rate on the first Rs 5 lakh of income is now a nominal 2.5%. One might have asked for this number to be reduced to ZERO, but I see merit in the Finance Minister’s argument that a nominal tax rate is required for compliance. If the exemption had been raised to 5 lakh, too many people would have stopped filing taxes altogether. A tiny tax rate is needed, not for collecting revenue, but so that incomes are registered in government records. This rate should be reduced further from 2.5% to 1%, perhaps even below 1%…

The most shocking fact that came out in this budget is that there are a mere 78 lakh people paying income tax in this country of 125 crore! This means that every person who pays income tax in this country is supporting, on average, a family of 160 people 🙂  Something to think about…

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6 thoughts on “A tight budget : Modi’s expression of trust

  1. A tax cut of Rs 12500 for each & every tax payer is definitely a good thing. But many tax payers did get disappointed as the expectations built up by the TV channels & newspapers did not come through. We know very well Jetley is incapable of producing any fire works in the budget because he does not involve but is 100% dependent on babus in Finance Ministry. He could have brought a major disruption by introducing income tax on agricultural income beyond say 10 or 20L. If we need any legislation for the same, we could have done that through this money bill. Even if centre has to part with IT on agricultural income to respective states. still it is worth it, as this has been one of the major laundry for black money all over India.

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    1. You want the Govt to start taxing agricultural income,barely a month before elections in largely rural areas?

      I guess some RW just have unrealistic standards

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  2. As an Indian, standing in line is in my fate. India is a country of lines. In old days of socialism and depravity, our day used to start with standing in a line for milk carrying Aluminium card/token. Twice a month we had to stand in line for kerosene, wheat, rice etc at ration shop. In short it is/was governments thinking that Indian log sudhrenge nahin jab tak unhe line mein nahin khada rakhenge. Agar line mein nahin khada kiya toh logon ko time milenga sochne ke liye. Is liye logon ko line mein busy rakho.So till today Indians have to stand in line for ricksaw, bus, train, cinema theatre, bank etc. etc. Demonitisation line was the mother of all lines. With this experience, one can stand in any future line.
    Hope demonitisation is able to serve the purpose intended.

    Regarding taxing of agricultural income, I think a start should have been made to tax the agricultural income of elected politicians (past and present) and their relatives. We know that current CM of HP is under investigation (for donkey years by our agencies) for showing Rs. 5 cr. as agri income. Read in news papers that this amount was earned by selling apples and that these apples were transported on scooter.
    Also, to save some government money, only the politicians who have retired from politics should be given pension. I do not understand why active politicians who are still in the business of politics be given pension.
    Can we expect politicians to make laws which will go against their interest?

    Regarding % of people paying IT, GOVT. (present and past) is spreading misinformation. I can say that all Indians are taxed. What is Service tax (ST)? It is IT under different nomenclature. With ST, even people earning thousand rupees per month ends up paying the Tax if he is using the basic services like telephone, electricity. One should remember that ST is a recent tax (about 20 years old?). Before ST, people earning thousand rupees were not paying tax. Also when only IT was levied in the past, govt used to provide toll free roads, free or subsidized medical care, subsidized education etc., etc. Nowadays Government has abdicated its responsibilities with regards to above and that people have to pay IT/ST, in addition to tolls, capitation fees; only to sustain government and its machinery.

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  3. We can discuss taxes till the cows come home, but the bottom line is, this generation of us Indians are better off than previous generation. Today, even a street sweeper is paid 12-15 thousand Rupees per month. Any way you slice and dice the numbers, this street sweeper will not exchange his/her position with the previous generation of worker doing the same thing. This is true for most people. Of course, now a days, you may find engineers unemployed and doing menial jobs while previous generation engineers got gainful employment easily. So there are some exception.

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  4. Comparing india’so about .65%, less than 1% paying income tax, USA collects tax from about 55% of their population even in worst economic situations. India was truly banana country so cost of collecting small amounts from large population, unlike USA, was more than collected money due to corruption and lack of substantial banking and digital economic system and typical parallel economy which suited very much to corrupt Congress and its illegitimate offspring parties or its fake opposition parties. It suited them to keep people poor, savage without providing civilized services etc. But cost effective, efficient non corrupt broad based at least 50% taxable population can lift the nation economically, civilizationally, innovatively, and full employment wise. The low income retired people, disabled, alternately educated unemployable people can make up truly poor who should not be able to pay income taxes and not 99.5%. The taxes are the collective tool of society for safety, security, prosperity, innovation and scientific research and developments, health and infrastructure, foundation of peace and progress. Think out of box for parity of dollar to rupee and Indian physical and mental resources discounted hundred times with slight of hand. No tax break trap. Add value to quality of life and wealth with wise use of collective tax concept

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