TIOL - COB( WEB) - 850
JANUARY 12, 2023

By Shailendra Kumar, Founder Editor

THE much-awaited annual 'Budget-fest' is nigh. And for the Union Finance Minister, the scheduled gabfest is unlikely to be a well-trodden path for a swarm of reasons. The 'atmospheric river' of global economic woes has wrecked grounds with dam-buster intensity! After the Russian invasion of Ukraine, a parade of economic storms has walloped all the macro-stability emblems of the global economy. It is horrifyingly sinking under the weight of deep economic scars and low productivity! And its knock-on effects are going to turn even the Indian economy anaemic in 2023! Time to pull oneself up by own bootstraps! Although I would not like to chime in with catastrophists or even grumbletonians but it is certainly going to be an uphill trek to the 'Mummery Cliff' and there is no denying if the Union Finance Minister gets a sense of vertigo - perhaps, more dizzying than the previous budgets! The tumult of commodity prices trapped in an inflationary whirlwind would continue to produce pounding headache! Volatile energy prices are likely to produce a train wreck scenario across the world. Good time is indeed as slippery as an eel! No more fête champêtre now! 

Above all, let's recall the 3rd para of last year Budget Speech where the FM referred to an Omicron wave. The world is on the cusp of yet another wave gathering steam and virulence, of course, horizontally so far! Two sub-variants of Omicron seem to be sweeping through many parts of the world - BA 5 and XBB.1.5. XBB is the fusion of two Omicron BA.2 variants. Its grandparental strain, XBB, and its parental strain XBB.1 are responsible for the recent surge in parts of Asia. XXB.1.5 has begun to trigger an alphabet soup of symptoms in the US and Europe. Virologists say that it evades immunity gained from the previous infections and also boosters. It is 60% more infectious than earlier variants although hospitalisation rates remain dismal thus far! India has so far detected seven cases but since genome-sequencing has become a pastime activity, India is much closer to the brink of yet another disruption!

Against the silhouette of polycrisis, political sagacity warrants that the Finance Minister sticks to the voyage the Modi Government has carved out for the Amrit Kaal. Though eggheads au fait with India's economic health card, may advise the FM to walk her 'walk' in tandem with the RBI's monetary policy which is squirming in pain to reign in stubborn inflation - a real danger but the economy definitely needs more than jejune thoughts! Modern economists tend to favour fiscal tools working in consonance with monetary measures to choke off demand giving rise to inflation but even then the tax purse needs to be loosened to gird the chosen sectors which contribute to generate maximum jobs. Employment-generation needs to be nourished to keep off the risk of recession. One such sector is the real estate which needs a special package of financing and also demand. For propping up demand, the sliver of Rs 2 lakh exemption for housing loan needs to be raised to Rs 3 lakh along with a hike in the Section 80C limit of Rs 1.5 lakh. Given the plummeting trend in the national gross savings, if the Sec 80C limit is raised to Rs 2.5 lakh, it would do both - a gentle elbow to consumption and also savings. Similarly, Sec 80D limit needs an uptick for health insurance. This makes more sense against the rising threat of not only Covid and other diseases but also the limitation of the Exchequer to allocate jumbo-hike in the health sector budget. Similarly, a marginal hike in exemption on education loan u/s 80E is also called for to lend crutches to the aspiring generations.

If the switchover to electric vehicles is to gather a strong jolt of momentum in India, the government needs to be a bit more generous in raising the quantum of tax spigots. China which was to end tax subsidy on EVs, has recently reversed its decision in the long-term interest of the economy. India needs to incentivise its acceleration not only to reduce import of fossil fuels bruising the external sector balance-sheet but also cut down vehicular pollution which has turned into a killing machine. Such a sop would spark quicker, greener transformation of the automobile sector which accounts for a major chunk of the manufacturing sector. The minimum the FM can do is to extend the period of present relief of Rs 1.5 lakh on EVs for three more years. Roof-top solar sector also needs more attractive package if India is indeed serious about its solar energy milestone by 2030! Transition to greener future is indeed conchy and costlier but certainly inescapable!

A little higher exemption threshold is undebatably deserved by the rising swathe of pensioners who appear to be struggling to support themselves and also their unemployed, dysphoria-infested children. A Rs 5 lakh exemption limit for above aged 80 looks a bit derisive! All these measures would also suffice the pre-general elections expectations of the voters besides not being counter-productive to the measures to curb inflation. Capital gains should command special attention of the budget-makers this year. The entire spectrum of capital gains on various categories of assets is in a festering mess. It needs to be completely recast if we go by the observations of the former Revenue Secretary, Mr Tarun Bajaj, who had, in many words, admitted the haphazard evolution of the capital gains tax regime at TIOL Awards event. Anomalies are so glaring today that it is 10% on listed stocks against 20% on unlisted shares. Too vinegary! There is a need to provide clean regime which provides level-playing field.

Let me now leg fast to the MSME sector - a chronic pain-sufferer on the look-out for 'cannabis' like the 20% Americans. An unsavoury number of small businesses had perished during the initial waves of Covid. Their recovery metabolism is very slow and our policy makers are caught like a stunned mullet on this front! Let's admit that the biggest job multiplier in the economy is not in fine fettle! Though the Union Budgets in the past had supported them in terms of easy credit but they are still struggling to access banks and alternate finance. Loan-rating from credit rating agencies has been imposed as a bone-crushing condition by the banking sector. For a loan of Rs 5 Cr, they are subjected to the rigours, generally used for large borrowers by the rating agencies. As a result, their failure gets frescoed on the wall even before they receive formal intimation! In contrast, the global trend is to club them with retail sector borrowers. But the government has, perhaps because of the rising NPAs, asked banks to treat all borrowers with a pair of piercing eyeballs and exaggerated caution. Secondly, banks often tend to behave like a shylock and impose hefty pre-payment charges even after the Government has asked them not to do so!

Last but not the least is my recommendation to laser-focus on dispute resolution in both - direct and indirect taxes. After introduction of faceless scheme, the pendency of cases has embarrassingly piled up on income tax side. Then, there are still too many old cases of demonetisation and others pending before various appellate fora. In the past few years, the search and seizure cases have also skyrocketed to stratosphere and thousands of them would like to buy peace by squaring off their liabilities. In case of service tax, thousands of fresh SCNs have been issued based on income tax records post-GST. Similarly, lots of Customs cases have also accumulated over the years. Ideally, the FM should bypass the doctrinaire approach and embrace "breeze and squeeze" approach to mop up oodles of extra revenue by offering not an amnesty but a "Charm-Oozing" scheme. However, the word of caution is - Avoid 'strands of greedflation' and target 'shrinkflation' of cases for easy revenue in a year which would be battling multiple strands of recession! 2023 is the right year for a grab bag of delightful candy on the taxation front! Will FM really bite this silver bullet! If I catch a straw in the wind, she will probably cut a swathe and this would have much-needed placebo effect on the economy! Nevertheless let's gird for tough time ahead! No more gambolling! Uggh!