TIOL - COB( WEB) - 958
FEBRUARY 06, 2025

By Shailendra Kumar, Founder Editor

THE Union Budget hullabaloos are over. Those who just wanted to live in peace, they followed the Italian proverb - audi vide tase (hear, see and hold your tongue)! It was 'disgrazia' (disgraceful) in the words of many political parties! Anyway, many of us heard and read comments from political heavyweights, economic juggernauts, international trade mavens and, not to forget, the faceless taxpayers, who had been throwing gauntlet to the Finance Minister, for several years, to go beyond her orbit of chutzpah on the personal income tax front! When their optimism had remarkably been peeled off, the Finance Minister finally switched her turf from playing hardball to embracing the mojo of Keynesian macroeconomic tool-kit. And it was akin to the 'Dream Budget' of 1997, presented by Mr P Chidambaram and ably assisted by the then Revenue Secretary, Shri N K Singh. The curtain over the Budget Speech of the Finance Minister came down with high-decibel desk-thumping when she announced the exemption threshold of Rs 12 lakh under the new personal income tax regime! Indeed, no weekending taxpayer was expecting Ms Nirmala Sitharaman to rush where her predecessors feared to tread!

What, indeed, nudged her to go beyond the canvas of nation's expectations? Though political pundits may not be too far off from truth if they link the carnival-promising announcement to the polls slated in Delhi and later in Bihar but no less weighty reason was the nerve-racking slowdown in the economy. And one of the primary root-causes was the hole in the consumption bowl. Such a hole existed for the last couple of years but the demand curve sustained as consumers kept on nibbling away at their savings. During these years, the Finance Minister continued to betray little sign of concern but no more as many tale-tell signs of worsening malaise could not be overlooked. One of such pointers was the stubborn stagnation in the private sector capital investments. Since most sectors of the economy had reported mothballed installed capacity for the lack of demand, the situation was inevitably fraught with long-term risks. So, the government felt constrained to design an array of tailwinds, which could kill two birds with one stone! Thus was probably decided to trundle beyond the hem of sassiness!

Now, the predictable question is - Will the entire revenue foregone - about Rs one lakh crore, translate into demand in the fiscal 2025-26? Certainly not! Let's believe that it is merely a short-term sugar. It would hinge on the unfolding economic 'window' as the next fiscal is going be a year of recession. A large swathe of such moolah in the hands of consumers may be conduited towards repaying personal loans or home loans or even much-elusive savings. Let's presume that 50% of it may be spent on goodies. If so, which are the sectors which may show signs of perked up growth? My guess is that a major chunk may be splurged on white goods, electronic items, garments and other FMCG items. So, putting money in the hands of common taxpayers may not spur demand in all the sectors. Economy still needs fresh doses of positive jabs to sustain the projected growth trajectory. And one of them could be the monetary policy which may be relaxed in congruence with the goals of the fiscal policy. With the Finance Minister doing well on the fiscal consolidation path, the RBI would have little reasons to sit tight and keep playing chess with a 'pigeon'! Time to lower the headline interest rate has come, and it need not be deferred against the silhouette of imaginary risks.

Another positive but terribly-delayed decision which is worth taking note of, is the recast of TDS/TCS rates and thresholds. TDS is a frightening cause for 'trigger-happy' income tax department. It accounts for a major chunk of litigation either on the ground of rates or classification of services or thresholds. It accounts for a major slice of tax arrears and tax litigation. Harmonising and rationalising TDS thresholds are a sagacious move, indeed! Upping the threshold under Sec 194B and 194BB is another much-needed step which would reduce compliance burden for the industry. Making it applicable for a single transaction of Rs 10,000 and above is a foresighted decision. Since it covers all demerit services like gambling, betting, horse racing and many more of the similar nature, a clarification may be issued to bring in online gaming in the same basket as it is a sunrise sector and stands glorified as a game of skill as already ruled by several higher courts.

Let's now take a stroll away from the direct taxes and parse into the announcements relating to the Customs regime. It was, indeed, overdue and inordinately delayed. High tariff wall helps none in the globalised world. Excessive protectionism has shockingly not helped our 'Make in India' efforts. Rather it has only provided springboards for bouts of data-hallucinations! A case of building an industry on sand (Ironically, a Trumpian Dream)! At best, our such efforts may be bracketed as curate's egg! When live threats were slingshotted from across the Atlantic, a stabby realisation dawned on our policy-makers to recast the Customs tariff architecture. And it is, indeed, a welcome step. India has now only seven BCD rates - Nil, 5%, 10%, 20%, 30%, 40% and 70%. The high rates of 100% on motor cars and 150% on lab chemicals have been lowered to 70%. On most items, it is 40% or less. Since Customs revenue has been out of the reckoning for the Exchequer, it was logically not required to keep very high rates on a few items and provide ammunition to reckless maverick like Mr Donald Trump who finds tariff as the 'most beautiful' word in his lexicon! India has now nursed all his gripes. The decision to do away with multiple cesses is another prudent step in the right direction. More importantly, insertion of time limit of two years to finalise 'rotting' provisional assessments is a very positive step albeit exorbitantly delayed. The normal 'best practice' in the Customs department has, thus far, been to turn squinty after goods are given out of charge. And let the documents of provisional assessments adorn the walls of digital or physical archives. Unspecified time limit was always construed as infinite time limit - mostly at the cost of the Treasury!

It's time now to dwell a bit on the allocation for capex expenditure. If any country draws a lesson from the epic growth rate of China in the past two decades, the only steroid-like driver has been the capex. India has, in the recent years, been doing the same but like a caged tiger! Nothing astounding! 'Flood the sector approach' has been missing! Secondly, our performance on the capex front has not been a stunner albeit consoling! As against 20% increase for the current fiscal, we could deliver only 5%. The Budget 2025 has earmarked 17% nominal growth rate, which is likely to translate to barely 10%. Thirdly, we preferred saving close to Rs one lakh crore on the last year capex, and it was probably to help scythe the fiscal deficits in tune with the FRBM roadmap. Ideally, if there was a dearth of avenues to spend this money, the Union Government should have taken a bold decision to splurge this eye-watering sum under innovation and technology mission.

India's R&D spending is too banal and unimpressive - 0.65% of the GDP. If India's mission is to metamorphose itself into a developed economy, we should not forget the time-tested mantra - technology and innovations are the only real optical fibre to riches. Like the US and China, we as a nation, need to pump in monstrous resources into not only innovations and their applications but also foundational research like the one coming from DeepSeek, a Chinese start-up. We need to plug the faucet of brain drain. If we set up a new mission and hire our best talent from IITs and other engineering colleges and give them handsome salary with the freedom to come up with ground-breaking innovations, our young talent can produce the 'magical elixir'. It is the same talent which is being hired in droves by the Global Capability Centres which the Union Finance Minister intends to incentivise in tier-2 cities. Our talent is today lending brain to American tech companies which in turn sell their proprietary rights to Indian companies and earn embarrassing sums of royalty. This is certainly not a sure-shot path to a developed economy destination! India needs to do something 'outrageously' mind-blowing on the research front if it is aiming at escape velocity to swing into a high-speed orbit which alone can promise a high growth trajectory. I am afraid that the time to take such swashbuckling policy decisions is running out for us against the deadline of 2047! Time to bust the ring of hallucinations and, unerringly, treat the mission as a full-blown economic Armageddon! Amen!