My Angle on the Union Budget 2019

I would rate the budget presented by FM Piyush Goyal, a solid 4 out of 5. The budget managed to do the difficult dance between fiscal prudence and a sustainable, stable but progressive tax policy. More importantly, it provided security to two of the weakest links in India’s growth story i.e. the unorganised work force and the marginal farmers.

It is a common gripe amongst taxpayers that they do not get the benefits of paying taxes which they pay honestly (or otherwise) but various data sources suggest that we have one of the lowest tax revenues to GDP ratios in the world at ~11%. Compare that to Mexico who at 16% was the lowest amongst the OECD countries and most of these countries in this list are developed economies unlike India, where even the most basic infrastructure is being developed. The developing and growing economy is being supported by 6.8 crore taxpayers paying 120+ crores, which is dismal. Until we get to 30% tax revenues to GDP, we as tax payers will continue to bear this burden.

Unlike previous governments, I am happy with the way this governemnt has invested and spent my tax rupees and the change it has brought is visible. In the last 12 months, I visited at least 15 cities that can be classified as Tier 2 or beyond and I travelled to these places by planes, trains and automobiles. I have witnessed the benefits that these infrastructure investments have brought for the people who live in Bharat. Some of the areas that have seen the biggest ROIs are:

  • Connecting North East India with the rest of the country via rail & highways
  • The massive highway construction program
  • Upgrading the intra-city railway network, cleaner and better-equipped railway stations
  • Faster, more efficient and punctual intra-city railway services
  • Sanitation, electricity and home construction coverages

No money has been spent mindlessly. Almost all major urban centres are set to have intercity metro services, the defence spending has improved our security infrastructure and we now have a space programme that will put an Indian in space, with technology that will be developed within the country. These are all developments that I, as a taxpayer, am extremely proud and shall continue to support, with my tax rupees.

In the same vein, the Rs. 6,000 rupee direct cash transfer to farmers should be looked at as the start of an experiment that has its roots in the immortal words of late Rajiv Gandhi who had inferred that only 15% of the money given for welfare of the poorest and weakest sections of society actually received those benefits. This statement was made in 1985 and since then, the situation has barely gotten better.  In fact, the elected representatives have looted everything from seeds, urea and fertilisers that were meant for farmers. So a direct deposit of Rs. 6,000 would actually be equal to Rs. 40,000 benefit that the government would’ve had to dole out in order to achieve the same outcome. The only people that are making the most hue and cry about this are those that have made a living on such ill-gotten gains. However, this time the money will not be fattening the pockets of middlemen who have stolen my tax rupees. Instead, this will be the beginning of the process of plugging the gap. I am supportive of the initiative because the direct benefit transfer has saved us over Rs 90,000 crores according to UIDAI as well as the ancillary gains of the accurate welfare amounts reaching the intended recipients have been significant. Therefore, with this direct income support, it will be yet another nail in the coffin of the middlemen.

My only real grouch with the budget was the lack of support to the VC ecosystem, especially the VC funds. Other than the Rs.10,000 Crore fund of fund allotment (which is extremely difficult and complicated to avail) there hasn’t been any incentive for investors to put money into VCFs. Investing in VC funds is a new phenomenon for most investors, therefore, a tax incentive like offsetting tax on capital gains from real estate or listed securities by investing into SEBI registered VCFs would have provided a boost for investors. Secondly, reducing the tax on gains from VC funds to those from listed equity funds or even lower would have been a positive move.

However, in the end, the government did it’s best to support the ones that needed it most and modestly rewarded those who have contributed to the nation. There was a clear message that the government will encourage consumption but in a way that it directly benefits the targeted beneficiaries. I (as a taxpayer) am extremely satisfied and hope that the successive governments learn and follow the same path.

Lobbying for lower taxes can wait.

20/2019

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One thought on “My Angle on the Union Budget 2019

  1. Interesting commentary Anirudh. I do agree with almost every point. However, I don’t agree that VC funds need tax benefits. Any tax benefits should go to the poor. VC funds are supposed to look into their maths and ensure their beta stays positive. It is the same as any other investment. VC funds rarely invest in social benefit. As such, money making enterprises do not deserve tax benefits. Rather we should look at investing into basic income guarantee for every Indian.

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