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Big Leap Forward for Post Covid Recovery

We can definitely say that this budget is not a populist one and is futuristic with a focus on development for the next 25 years. — Dr. Ashwani Mahajan

 

With relatively comfortable position of Union Government’s exchequer, it was obvious for middle class to expect some relief in personal income tax, farmers to get a hike in ‘Kisan Samman Nidhi’ and corporate sector to get even unwarranted relief in taxation. However, the Finance Minister belying all such hopes, retained status quo and decided not to go for populism and refused to fall into the arguments of corporate’s mirage of investments. By now the government has fully realised that despite all efforts of luring corporates the necessary investment is not forthcoming from them, and the country cannot afford to wait for them any more. In view of the decline in economic activities during Covid, it was imperative to raise investment in the country, especially in the infrastructure sector, to take the economy on the path of fast mode recovery.

If we see budgets of the last two-three decades, the governments had been washing their hands off from capital expenditure. It seemed that perhaps the entire responsibility of capital investment was of the private sector. It was thought that foreign investment can make up for every shortcoming, be it investment, technology development, employment or export. But despite all the efforts for the last almost one decade, public as well as private capital investment has been on decline, as percent of Gross Domestic Product (GDP).

However, there has been a change in the thinking of the government in the last few years and it has started investing capital in many sectors including infrastructure, with a ultra huge target of infrastructure investment of 100 lakh crores in 5 years, including from private sector. Need was also felt to increase both public and private investment to revive the economy hit by Corona. Due to Corona, the government’s finances were in doldrums, both due to dip in revenue and because of commitment for much higher expenditure on relief, health, including vaccination and also the stimulus package for the economy. It was not possible then, to raise funds for investment. But thanks to the 9.2 percent growth in the current fiscal year, there has been a significant increase in GST receipts as well as direct taxes. Taking full advantage of this fiscal space, capital expenditure (capex) was increased in the current financial year and in the coming year also a provision of Rs.7. 50 lakh crores has been made, up by 35 percent compared to current fiscal, which is 19 percent of the budget. This is probably the highest ever Capex in the last 30 years.

In this situation, while avoiding populist policies, the Finance Minister has opted to provide sufficient allocation for ‘PM Gati Shakti’ Project, which aims at coordinated development of various types of infrastructure so that the country’s work efficiency is increased and logistic cost for businesses be reduced. Provision has been made for various types of infrastructure including digital infrastructure, infrastructure for education, drinking water and housing for the poor. We can definitely say that this budget is not a populist one and is futuristic with a focus on development for the next 25 years.

Agriculture development

Since the years of Green Revolution, chemical farming was promoted in the country, due to which agricultural production did increase in the country, but at the same time, the cost of farming also increased and unwanted chemicals including pesticides entered our food plate. For some time, the emphasis of the government has been towards chemical-free farming. Provision has been made in this budget for promotion of natural farming, zero budget farming and organic farming, taking forward the goal of chemical-free farming. We have been going through excessive production of food grains and shortage of oilseeds, due to which the country’s dependence on imported edible oils is very high. Provision has been made in the budget to rectify the same by encouraging production of oilseeds. Although the farmers’ agitation is over, to improve the condition of the farmers, provision was needed to ensure remunerative price for their produce, which has got place in the budget.

Protection of domestic industry

In the era of globalization, protection had become a dirty word. Due to the obsession for globalization, tariffs were constantly reduced, causing unprecedented increase in imports, especially from China. The manufacturing sector of the country was almost destroyed. Our API industry was finished due to the gimmicks adopted by China, the electronic industry almost died in its infancy, the chemical industry was also badly hit. How the small scale industries suffered, is known to all. Country was imposing nearly 10 percent of average tariff, which was hardly one fourth of bound tariffs rates in WTO. Even before Corona, in his budget presented in February 2018, the former Finance Minister of the Modi government, Arun Jaitley, had announced hike in tariff from 10 percent to 20 percent, for protection of India’s electronics and telecom industry. After that this prudent policy of protection continued. During the Corona period, the government outlined the goal of self-reliant India, modifying its own ‘Make in India’ policy announced earlier. Production Linked Incentives (PLI) scheme was launched by identifying 14 sectors which have been affected the most due to imports. Last month, a $10 billion support was also announced to manufacture semiconductors in the country. All this happened for the protection and promotion of the industries of the country.

Continuing this policy in the present budget as well, the government has announced hike in tariffs. A special allocation of Rs 19,500 crore has also been made in the budget to promote the production of solar energy equipment in the country.

Though, push for capital expenditure and protection and promotion of domestic industry is also likely to create employment, limited efforts towards promotion of small scale industry is a cause of major concern in the budget. Promotion of self employment in the country, should be the first priority for both central as well as state government. For this Entrepreneurship Development Programs (EDPs) can help. Further government can infuse more funds and seed capital for small businesses to motivate youth to start their own enterprises. Entrepreneurship Development Centre (EDCs) can also be established in each district of the country. In this regard enhanced lending to MSME sector by extending the guarantee cover for such loans is a welcome move.

Although, the budget has taxed the income from the virtual digital assets at the rate of 30 percent and gift of virtual digital asset will also be taxed at the hands of recipients, looking at the dangers of national security, the menace of money laundering and other related dangers emanating from the transactions in cryptos ban on private crypto currencies is the only solution. However, the announcement of the issue of Central Bank Digital Currency (CBDC) is a welcome move.            

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