Budget speeches of Finance Ministers (FMs) of Union Governments, particularly their initial paragraphs, are written in good prose. This is true in the case of the presentations of Nirmala Sitharaman, FM, on 1st February, 2022. Disregarding this exception, the rest portion was business-like and prosaic. It was unusual that despite the election eve in some politically sensitive states, the provisions of the budget were non-populist. One cynical comment is that the present political establishment can afford to ignore any dose of populism based on economic activities and performances. They have mastered other devious methods to sway the minds of their electorates. So, for example, the expectations of the middle and salaried class in improved tax slabs of Income Tax were belied. Another comment may be that the present political establishment is focussed on the path already chosen and declared in the last one decade. These commitments include fiscal management, privatisation and urbanisation.
India is committed to Fiscal Consolidation by bringing fiscal deficit as a percentage of GDP to below 4.5% by 2025-26. It is not an easy task. It was 9.2% in Actuals 2020-21 and is projected to be 6.9% in Revised Estimate (RE) of the current year and it is targeted to be 6.4% in Budget 2022-23. Left leaning economists including Prof. Arun Kumar have been consistently saying that such commitment relating to fiscal management should be ignored so that more funds are available for social sectors, ensuring more cash in the hands of consumers so that economy may grow by the mechanism of increased demand, as against supply side economy that India is currently following.
The policy of privatisation including Public-Private-Partnership (PPP) and disinvestment continue. It is true that this policy was initiated by earlier political establishments, who are now in opposition benches of the Parliament, but its pace has increased manifold and its contour has witnessed dramatic changes. So much so that the much talked about, rather hyped, scheme of high level of capital expenditure in the proposed budget has been placed in the name of benefitting private investment. The FM has described this intention in plain terms. She said, “Capital investment holds the key to speedy and sustained economic revival and consolidation through its multiplier effect…. the virtuous cycle of investment requires public investment to crowd-in private investment. At this stage, private investments seem to require that support to rise to their potential and to the needs of the economy.” [Paragraph 99 & 100 of the speech]. This help-them-to-help-us policy is noteworthy.
Another interesting feature of the budget is that it recognises interest-free loan. While presenting a scheme for financial assistance to states for capital investment comprising an outlay of 1lakh crore, the FM said, “These fifty-year interest free loans are over and above the normal borrowings allowed to the states.” [ibid, para 113] One may wish that this may usher in a new dimension in financing.
The budget speech provides detailed scheme for urban development in next 25 years, saying that half of our population is likely to be living in urban areas. An orderly urban development is of critical importance. This will help realise the country’s economic potential, including livelihood opportunities for the demographic dividend. For this we need to nurture the megacities and their hinterlands to become current centres of economic growth. [ibid, para 68]
This is an extension of the earlier announcements of smart cities. This is in line with the current discussions in development economics about the need of urbanisation for economic developments. The utility of this model of economic development for India need to be deliberated. The migration of population towards cities may be considered more as something to be checked than to be encouraged or taken as a normal thing. The suitable model of economy may be to encourage reverse-migration by providing basic needs of education, health and infrastructure for economic activities in local areas.
A number of proposals in the budget particularly those relating to income tax returns and ease of revising tax returns are positive. Measures relating to plugging in revenue leakages are also noted. Such improvements are continuing every year. A very interesting area where a clear-cut line of action has been taken is the case of digital transactions. India has risen to the occasion and shown the world the way ahead in this area. Economies of the world are facing onslaught of this mode of transactions, including bitcoins, defying or by-passing control of nations and their central banks. This issue was hotly debated in India too and has had its reverberations in the Supreme Court. This budget clarifies that digital rupee will be issued by Reserve Bank of India using blockchain and other technologies. Other modes of virtual transactions have been classified as digital assets, instead of currency, as such.
Any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent. No deduction in respect of any expenditure or allowance shall be allowed while computing such income except cost of acquisition and loss from transfer of virtual digital asset cannot be set off against any other income. Further, provision of TDS at the rate of one per cent is made on transfer of virtual digital assets. Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.
This is an important development with far reaching consequences. So, virtual transactions will be treated as those relating to assets. It means that their possession and transaction based on them will not be illegal in India. However, the provision of TDS, heavy tax on their transactions and gifts will be discouraging, making their possession non-viable.