TIOL - COB( WEB) - 930
JULY 25, 2024

By Shailendra Kumar, Founder Editor

THE essence of Union Budget is essentially the Union Government's 'bahi-khata'! And, like the ledger account of any small business or even a household, two major streams fork out as receipt and expenditure. If we dive into taxonomy, many other sub-streams pop up such as revenue receipt, capital receipt, revenue expenditure, capital expenditure, revenue foregone and many others. Since the revenue of the State is the State, citizens are generally expected to respect that! Phew, they can certainly crib about a fresh bout of tax burden in private and also in the media in a democratic political framework. However, ideally, the attention of the nation should be more on the expenditure side, which clearly reveals the direction of development in the economy and the society at large. But it does not happen in our case except for a motley crowd of politicians who tend to question certain budget allocations on narrow geographical ground or even party-based partisan politics rather than on solid principles or even long-term pathway for nation's development.

Anyway, let's swerve towards the Union Budget 2024. Like all other budgets in the past, this one is also a curate's egg. How much good or bad it is, it hinges on the eyes of the beholder! For me, there are many bold and kosher proposals such as doing away with the angel tax, the equalisation levy, a task force for drafting new Income Tax Act, allocations for innovations and R&D, hefty outlay for space economy, job creation, green energy and many more. Though it was a fine balancing act for the Finance Minister who had no wiggle room to infringe on the 'Coalition Dharma', but I would like to 'crib' on broadly three proposals - two of taxation and one of expenditure. On the direct tax side, the FM has recast the income bands rather than tinkering with the tax rates. The highest tax rate of 30% would now apply to income above Rs 15 lakh. I am pretty sure that this decision has been taken on the basis of insights culled out of structured data with the CBDT.

However, looking at the global comparables, highest tax rate is inevitably imposed on high net-worth individuals (HNIs). The standard benchmark for a person to qualify as an HNI is the liquid assets worth at least USD one million. Unfortunately, for the world's 4th largest economy which is on the cusp to turn the third largest, the income threshold to qualify as 'HNI' has been pegged at Rs 15 lakh! Rings in our eardrum like a black humour! A monthly earning of Rs 1.25 lakh elbows a taxpayer into the highest tax rate slab! Crib, crib, and crib, if one goes by the soaring cost of living in large urban settlements! Though I do fathom the coin-toss situation for the Finance Minister but ideally, a higher income band should be exclusively carved out for HNIs. Of course, with a higher tax rate! Given the skyrocketing income inequality in our society, such a positively discriminatory income band would have been equally good for the photo-ops and the image of the NDA government. After all, income tax is the only fiscal instrument in the taxation armoury to strike an illusion of equity in any society! Let's not overlook the growing HNI data. India's ultra-high-net-worth individuals (UHNWI) with a neat sum worth over USD 30 million is projected to shoot up by 59% in the next five years. In terms of numeric, it would be over 20,000 by that time as per Knight Frank report. The number of billionaires would also jump from 165 to about 200 by 2027. What about millionaires? India has about 8 lakh millionaires and this is going to double by 2027 - 107% growth rate! Taking a cue from rich economies like the US which has 37% highest tax rate and 45% in the UK, the FM should have raised the income band as well as tax rate for HNIs. Rs 15 lakh threshold looks lese-majeste for the economy which logged over 25% growth rate and collected close to Rs 10.5 lakh crore personal income tax last fiscal!

The second tax proposal, I would like to gripe about is that of recasting of capital gains regime. Though such an overhauling was long overdue but it was not expected to be re-clothed with apparent grains of unfairness. How? Doing away with the cost inflation index for property without a corresponding change in the cut-off year for valuation would trigger pain and a sense of injustice to a large number of honest taxpayers who may be living in paternal house or may have purchased one decades back. The cut-off year for valuation purpose and computation of cost of the property was earlier 1981. After a long and unexplained hiatus, the CBDT had changed it to 2001. As per the un-amended provisions, if somebody had bought a flat or a house in 2002 for Rs 70 lakhs, and against certain exigencies in life or to move into a bigger house for a large family, if he sells the same for Rs Two crore, by applying the cost inflation index which may peg the cost of the house to Rs 1.6 Crore, the capital gains for taxation purpose would be only Rs 40 lakhs. And one was required to pay 20% long-term capital gains tax on it.

By guillotining this time-tested and fairness-promoting tool, what the Finance Minister has done is to tax the entire difference in the original cost of the house and the present market value @ 12.5%. In other words, for the above-stated house, one needs to pay tax on Rs 1.3 Crore unless one buys another house and takes shelter under other provisions of the I-T Act. Ironically, the house owner is going to be penalised for a fault of our economic system which failed to curb inflation resulting in untold miseries for the middle class. And this is after announcing in the budget speech that one of the key constituencies which is going to benefit from this budget is the middle class! Secondly, if such a change was construed to be unavoidable, the base year should have been re-fixed to 2015 or even 2011 to lessen the quantum of injustice to all those who have purchased houses decades back! I wish that the government pays heed to it and takes steps to undo the unfair treatment at the stage of passing of the bill! So far as hiking of STCG and LTCG rates go, it has probably been done to cool down the overheated stock markets! However, I do not think that it would really succeed in its goal. Probably, the subterranean purpose was to mop up extra revenue and it would certainly succeed here!

The third and non-tax issue relates to our agriculture sector. Since Independence, Agriculture sector and farmers have been in the bull's eye of our budget-makers. Jaw-dropping quantum of allocations has been made in every budget but even then, our productivity is horrifically low and the miseries of our farmers continue to pile up! We have a third more land under cultivation than China but the value of our yield is only a third of China! Our agri sector employs almost half of all Indian labour force - about 26 Crore, but it accounts for only 15% of GDP and 12% of exports! Our IT sector employs 1% of workforce but contributes 7% of GDP. Our yields are much lower than the global average for all produce! If we manage to raise it to even the average, India would be a mega power in global commodity markets. So, the billion-dollar question is - Why? My diagnosis is - our policy-makers should stop treating it as a funnel for welfare schemes! We need to see it as an engine of growth for the economy. To do so, we need to have a long-term roadmap of growth. The government needs to identify 100 districts in the first phase and give them everything - high-yield seeds, pesticides, fertiliser, pre-crop scientific lessons and post-crop marketing support and sources of irrigation. Let the income of farmers grow. It will be a good example for farmers of other districts as well as State authorities to focus on. In the next year budget, 100 more districts can be assisted.

It is true that even today, 50% of our land under cultivation looks towards the sky for rains but assisted districts can be a trail-blazer. And the transformation of tribal-dominated Araku Valley near Vizag is a live petri dish for other areas in India. The private company involved with the tribals deserves plaudits for persuading farmers to switch from loss-making crops to coffee which is now sold as branded Araku Coffee and the company has set up outlets in Paris, Mumbai and Bangalore. Income of these farmers has more than doubled and they are happy working hard to further raise their output. So, what they need are not subsidies and loan waivers but scientific knowledge, caring hand-holding and conducive eco-system to do well. The Centre as well as States need to rotate their eyeballs 180 degrees and see our agriculture sector as a powerful engine of growth which has the potential to expand the size of our GDP by spurring rural demand for goods and services. Fortunately, we have a highly knowledgeable Union Agriculture Minister, Mr Shivraj Singh Chouhan, who piloted the state of Madhya Pradesh and managed to raise the growth rate of agriculture from 3.8% to 7% in the past 18 years. He deployed traditional as well scientific knowledge and tools to enhance productivity which has enabled the SGDP to leap forward and the farmers' income has also doubled. If he is properly assisted and a free hand is given, he can re-use his magic wand to transform our agriculture sector at the national-level!

This is not to say that whatever the FM has given in this budget is not needed. Some of the measures announced are of vital importance but what I am trying to hammer home is to shed the attitude of adhocism and apply innovative methods to raise productivity and also income of farmers. Some of the steps like comprehensive review of agri research setups; introduction of climate-resilient varieties; catering of high-yield varieties, clusters for vegetable production near consumption bowls; a shift to natural farming and a special drive for oil seeds. All these efforts would help but not transform the sector unless knowledge-intensive approach is adopted to turn a sliver of our land into 'gold-producing' region which would, in turn, have demonstrative effect on other regions! I sincerely hope that India fires all such policy cylinders which are required to be fired to reduce dependence on imports and is finally able to feed all the mouths as we have also become the most populous country in the world. The only guiding principle for us should be - Let's stop giving 'fish' to our farmers and just focus on how to catch and cook a fish, it would feed them for a lifetime! Amen!