Budget 2019: How can budget boost confidence of farmers, common man

July 1, 2019 12:31 PM

Union Budget 2019 India: India’s vision is to become the world’s third largest economy by 2030 and a $5 trillion economy by 2025.

Budget 2019, Union Budget 2019 India, Budget 2019 India, Budget 2019-20, farmer, common manUnion Budget 2019 India: This time the FM Sitharaman needs to make sweeping changes to ensure India remains the fastest growing economy in the world.

Dr Naliniprava Tripathy, Harsh Alipuria

Union Budget 2019 India: India’s vision is to become the world’s third largest economy by 2030 and a $5 trillion economy by 2025. To accomplish it, a big challenge in front of the new government is to espouse a balancing act to recuperate savings, improve farm productivity, drive consumption, bring the fiscal deficit under control and providing requisite incentives to boost the economy. The first big task in front of the new government is to roll out a budget, which would give the fledgling economy a much-needed enhancement and put a stop to the rising unemployment levels, which currently pegged at over 6%.

Another major factor in consideration for the budget would be the fiscal deficit of 3.4%, and it would be interesting to see the next year’s target considering the cash crunch in the financial sector and lack of investments. Hence, massive investment has to be made to create jobs, and infuse confidence in the Indian Investors. The headline of the interim budget was the monthly allowance for farmers and the conditional increase of the income tax slab to 5 lac rupees. However, the FM at that point of time tried to maintain the status quo considering the elections were on the horizon. This time the FM Sitharaman needs to make sweeping changes to ensure India remains the fastest growing economy in the world.

Also read: Budget 2019: GST on insurance same as GST on alcohol; Is it justified?

Here we look at the major sectors and section of people and what would be their expectations from the budget.

Investors: Investor confidence and the movement of the two-benchmark indices reflect a lot about what is going on in the economy. The upturn in Nifty and Sensex after the NDA government swept the Lok Sabha seats was a signal of that. A similar trend was also observed after the 2014 results were declared. A positive budget will no doubt have a good impact on the confidence amidst the gloomy statistics of growth and unemployment numbers.

The high Securities transaction tax has prevailed for a long time now. Lowering STT would be very positive for investor sentiment. The reduction of STT or the restoration on the rebate, which was withdrawn in 2008 by FM Chidambaram, remains the most significant demand. The tax on LTCG last year also dampened investor confidence. The government should look to tackle that caveat as it eats into the profits earned on the appreciation of a good investment.

Common Man: PM Modi and this BJP government have resonated with the common person like no one else in the previous few decades. Even after the shock and the inconvenience of demonetization hasn’t deterred the ordinary person from voting for PM Modi. Now all eyes would be on the new Finance Minister if she can reward the common man’s trust with favorable policies. Most Indian taxpayers are having high expectation about tax rebate and standard deductions. It has been widely believed that the tax exemption limit of 2.5 lacs will be increased to 3 lacs to boost the demand.

Also read: Budget 2019: 7 key expectations of women from Nirmala Sitharaman’s Budget

This increase in the limit will put an additional 2500 rupees in the pockets of the common man, increasing the spending power. Additionally, it would be ideal for increasing the limit of exemption through investment tax deductions made under 80C of the Income Tax Act. Currently, the limit stands at 1.5 lac rupees and is expected to go to 2 lacs. However, this will have a twin effect of increasing the demand but also, putting the pressure on the fiscal budget of the country. To push the economy further, relief should be given to individual taxpayers to strengthen investments and to imbue more currency into the economy.

The income deduction towards interest paid on home loan limit is quite low in comparison to the cost of the borrowed loan. It is also equally important to relax in restriction of setoff losses from house property to increase the investment in an additional house property, which can become an income-yielding asset and help in disposal of current inventory.

Farmers: The agrarian sector is the highest employer for Indians by a vast margin. The employment opportunity provided by this sector has helped our country overcome many of our problems. Nevertheless, whenever the sector is in trouble, a quick fix of loan waivers and cash transfers is meted out. With the mandate on its side, it is high time to stopped resorting to these measures and look for structural reforms that would catapult the sector into the prosperity it deserves. Initially, the government should try to consolidate the fragmented market. The intermediaries make up most of the profits, leaving both the consumers and the farmers shorthanded. A lot of the produce is wasted in the storage facilities, which should be efficiently exported, to ease the pressure on the storage facilities as well as make up some ground on current account deficit.

Another essential reform would be to focus on the infrastructure. It is a startling fact that even in the 21st century, India experiences, floods, and droughts at similar times in different part of the country. Water management and irrigation facilities need a push to sustain the output and the well being of the farmers.

Finance Sector: The financial sector is going through a crisis with liquidity being a significant factor. PSUs and NBFC are both facing cash shortages, which is hampering their growth visions. There is a need for better governance, capitalization, and consolidation to save the ailing sector. Government is planning on injecting 1.06 lakh crore rupees into the distressed finance sector, where public sector banks are battling NPAs, and the NBFCs are facing an unprecedented cash crunch. Greater clarity over the role of Bank Boards Bureau would also help in boosting the overall temperament of the industry.

The corporate tax rate is currently 25%, but only applicable to those companies, whose turnover up to Rs250 Crores. However, a single tax rate can be imposed on all companies in India, including partnership firms and limited liability partnerships at par with other Asian Economics. The government also required to enhance the index of ease of doing business to make Indian as an investment destination hub and shoot up economic progress.

Dr Naliniprava Tripathy is Professor (Finance), IIM Shillong and Harsh Alipuria is Alumnus IIM Shillong, working with a Consulting Firm. The views expressed are the authors’ own.

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