1. Budget 2016: More economic surplus for citizens

Budget 2016: More economic surplus for citizens

The Budget day arrives shortly. The issues facing the country are manifold—a shortage of demand in the market, sharp fall in the domestic savings rate and the bad financial position of the public sector banks.

Updated: February 17, 2016 4:42 PM

The Budget day arrives shortly. The issues facing the country are manifold—a shortage of demand in the market, sharp fall in the domestic savings rate and the bad financial position of the public sector banks. Without demand, the industrial sector would create more stress for the banks. Education and health sector needs immediate attention primarily because lack of education and skills impact growth. The need is to increase the economic surplus of each citizen of the country. This can be done by lowering customs, excise duty and service tax. There is no doubt that lowering excise duty and service tax would impact revenue but then there is a case for making good the shortfall by disinvestment or sale of assets such as spectrum, mining rights, etc. Increase in economic surplus with each citizen would lead to increased demand in the economy.

The economic surplus with each citizen would lead to increased domestic savings. A push to domestic savings can be given by increasing the deduction under the I-T Act from R1.5 lakh to R2.5 lakh. There is a need to cut the interest rates but as the government does not offer any social security and as these savings are necessary for individual’s old age, there is no scope for cutting the interest rates.

Economic surplus and demand also increases from job creation. The priority areas in this country are health and education. There is a need to increase the number of nurses and doctors in the country especially in the rural areas. There is a need to allow deduction from tax investments in schools, skill development, health education and hospitals by the private sector. Tax incentives and easier loans towards construction of homes and infrastructure may also generate employment. India’s major employers are the MSMEs. They are large exporters also. It is necessary to nurture them by giving them incentives and loan facilities so that job creation increases.

Agriculture is the largest employer in India. Productivity needs to be increased. Tax incentives may be given to seed, pesticides and seed companies.

Agricultural markets have to be made efficient by excluding intermediaries. There is a move to lower the corporate rates and remove exemptions. But taking into account the current scenario, it would not be advisable to do it especially as the effective tax rate is only 23%. There is a need to rationalise the personal income tax structure. Further, in view of the disparities in the income of people in different areas, there is a necessity to give backward area allowance to these poor areas. Also, in view of the disparities in the society between high income and poor people, inheritance tax may be introduced.

The finance minister’s job is a difficult one as he has to match revenue and expenditure. But in difficult times, it may be necessary to spend more than the revenue collected so that growth continues.

R Prasad

The author is former chairman of the Central Board of Direct Taxes

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