The Interim Finance Minister’s Interim Budget carried two surprise announcements. The first was the liberal relief for small direct tax payers. Income up to ₹5 lakh will be completely exempt.
The saving of ₹12,500 will applicable across all tax slabs. Standard deduction has been raised to₹50,000 from ₹40,000. The salaried class will be in seventh heaven.
The minimum taxable income is far higher in other countries. After adjusting for tax exemption in PPP dollars, the tax exemption limit in other countries are given in the accompanying table.
Barring Malaysia and Thailand, the tax exemption limit is much higher in other countries. The FM has done the right thing in raising the tax exemption limit and abolishing the 5 per cent rate.
The Rich and the Super Rich
Thomas Piketty, the eminent French economist, highlighted that the inequality in India in income and wealth is at its highest today since 1922 when the Income Tax Act was first brought in. He has calculated that 22 per cent of the National income accrued to the top 1 per cent income earners.
The income of the top 0.001 per cent grew 30 times faster than the income of the bottom 50 per cent between 1980 and 2014.
Though we got rid of British Raj, we are condemned to suffer Billionaire Raj.
Farm income support
The other important Budget announcement was the agricultural income support — The Pradhan Mantri Kisan Samman Nidhi Scheme — which will provide direct income support of ₹6,000 per year to farmers with land holdings up to 2 hectares.
The income support will be transferred directly into the bank accounts of the beneficiary farmers in three equal instalments. The annual expenditure will ₹75,000 crore. This is no doubt welcome.
Some months ago, Ashok Gulati and Carmen Cahill published a study of India’s farm policies for ICRIER-OECD.
Among 52 major economies, Indian farmers got a negative 14 per cent price support from government between 2000-01 and 2016-17.
Indian cultivators were taxed by depressed Farm-Gate prices, diluted marketing storage and credit opportunities.
On the other hand, Norwegian farmers with 60 per cent price support are best off. OECD cultivators get 20 per cent support.
The report reckons that Indian farmers have been milked for ₹45 lakh crore in implicit taxes over 17 years.
Many economists have pointed out that demonetisation shattered the agricultural economy. But big business houses received incentives, reliefs and concessions by way of corporate taxes, tax breaks for special economic zones to the tune of ₹1,56,000 crore in 2016-17. Farmers at the same time got impoverished and committed suicide.
The unorganised worker
The best part of the Budget Speech is to be seen in Para 37 where the FM refers to the sweat and toil of 42 crore workers in the unorganised sector working as street vendors, rickshaw pullers, rag pickers etc. They will now be provided comprehensive social security coverage for their old age apart from the health coverage provided under Ayushman Bharat and other schemes.
The mega pension yojana for the unorganised sector of workers with monthly income up to ₹15,000 will provide them a monthly pension of ₹3,000 from the age of 60 years on a monthly contribution of a small affordable amount during their working age.
The monthly contribution will be ₹55 per month rising to ₹100 per month from the age of 18 years.
The government will deposit equal matching share in the pension account of the worker every month. This will cover 10 crore labourers and workers in the unorganised sector in the next five years. It will be one of the largest pension schemes of the world.
One disappointment can be that the manufacturing sector does not get much of a support. Manufacturing has a low share in India’s economy, which results in low job creation.
Services sector contributes the maximum. Problems are accumulating for the manufacturing sector. The angel tax issue, labour disputes, competing locational rivalry, land acquisition problems — none of these issues have been addressed in the Budget. Excuse can be it is vote on account.
But all the achievements boasted by the Modi regime relate to memory of today and the vision he outlined is only a dream for tomorrow. What about today?
Ramanujam is a former Chief Commissioner of Income-Tax, and Sangeetha is a Chennai-based advocate