If you can’t feed them, amuse them
The political drama following the presentation of the Railways Budget by Dr Dinesh Trivedi was nothing short of bizarre “ I was looking forward to some show of gumption by the political leaders who stood by him. The Railway Budget was progressive, and promising, the proof being that the Railway Unions have threatened to oppose any rollbacks by the government.
Coming on the heels of a sensible though sensational budget, the Union Budget shattered all hopes of a display of similar courage by “ surprise, surprise! – the very people waxing eloquent about the bold steps undertaken by an erudite leader with the party they like to hate but can’t do without. The Union Budget-2012 belies the immense political and economic acumen of Pranabda, who I have always maintained, is the best Prime Minister that India never had. His lamentation about being constrained by coalition dharma cuts no ice with me because his colleague with the Railways could stick to dharma and his conscience, political diktats notwithstanding.
Let me look at it from the common man’s perspective first. The FM has taken away with his right hand what he gave with his left, and he did not give enough to begin with. The income tax exemptions are not in line with the rise in income levels. The raising of income tax exemption limit to Rs 2,00,000 is, at best, perfunctory.
The concurrent increases of service tax and excise duty are likely to shoot prices further up, thus offsetting any tangible benefit to the man next door. The ideal exemption limit should have been Rs. 3,00,000 and the slabs thereafter should have reflected the levels of income especially past the implementation of the 6th Pay Commission.
Now let me assess the things that are enablers both for the country and the common man the most: education, healthcare and access to information. On the education front, the budget did bring some smiles but stopped short of radical changes. Fair increases (close to 25%) have been provided to the Sarva Shiksha Abhiyan and Rashtriya Madhyamik Shiksha Abhiyan, while Rs. 1000 crore has been allocated to National Skill Development Fund. Given that India would see the highest increase in the working age population in the next 20 years, the budget allocation for skill development seems too modest. Further, no special status has been accorded to the Education sector. A special status to the Education sector along the lines of SEZs, with substantial tax benefits to those investing in Education and Skill development, especially in backward regions, was the need of the hour.
On the health front, there was no increase in allocation to healthcare. The provisions for weighted tax deductions on R&D are vague, and on the face of it, do not suggest anything substantive. On the other hand, bringing hospitals under the negative list of the service tax net and tax exemption of Rs. 5000 for preventive health checks are moves in the right direction. Once again, given the cost of preventive health checks, this amount could have been Rs. 10,000 to incorporate a comprehensive health check, and possibly Rs. 20,000 for people above the age of 50 to allow checks twice a year. Similarly, no exemptions have been provided on import of medical equipment. While the increase in the quantum of deduction of the Income Tax Act with respect to capital expenditure incurred in construction of new hospitals and the medical insurance premium paid by senior citizens is a positive move, the reluctance in awarding the same high status to the healthcare sector, as enjoyed by infrastructure industry, is baffling.
Let us now take a look at the Information sector, and in particular the telecom sector. While infrastructure funding for cellular towers, optical fibre cables and cables has been provisioned along with mobile tracking for fertilizer subsidy, no tax benefits have been awarded to the telecom industry which is headed towards higher operating costs and depleted margins. The raising of service tax from 10% to 12% will once again raise costs which would be passed on to the consumer, making penetration into rural markets tougher. Further, there are neither fiscal incentives for digitization, nor any tax/duty exemptions/concessions on satellite TV equipment, resulting in absolutely no incentives for the industry.
Looking at things industry-wise, the manufacturing sector seems to be the biggest beneficiary of them all, and rightly so. Relief ranging from 2.5% to 7.5% has been provided for sectors such as steel, textiles, branded readymade garments, low-cost medical devices, labour intensive sectors producing items of mass consumption and matches produced by semi-mechanised units. Full exemption provided to automatic shuttle-less looms and automatic silk reeling and processing machinery as well as its parts, bodes well for the SMEs. Similarly, waste paper, LCD and LED TV Panels and parts of memory card for mobile phones, have been fully exempted.
With an increase in allocation by 18%, the agricultural sector seems to be an area of priority, but without effective storage and distribution systems the effects of this increase may not be efficiently harnessed. Furthermore, the feel-good effect of these measures will not percolate down to the common man for these goodies would be more or less offset by the increase in service tax.
However, there is some cheer for those services that have been brought under the negative list. These include healthcare, services provided by charities, religious persons, performing artists in folk arts, sportspersons and classical arts, individual advocates providing services to non-business entities, independent journalists, and services by way of animal care or car parking.
The one industry, among the services, which has a reason to rejoice, is the entertainment industry, given that entertainment and amusement services have been brought under the negative list. Further, the film industry has been exempted from service tax on copyrights, relating to recording of cinematographic films. All in all, the FM’s mantra seems to be: œIf you can’t feed them, amuse them!
Overall, the budget seems to lack a coherent vision. The projected fiscal deficit of 5.1% (although high), the accelerated growth forecast of 7.6% and the projected growth of 6.1% in revenue non-plan expenditure seem to be a little too optimistic, given the fractured political set-up at the Centre and the past history of rollbacks when it comes to subsidy reduction. Further, there is no word on the logistics cost, and without addressing these, the projected growth rate seems to be more of a dreamy aspiration. The National Manufacturing Policy had aspired to achieve 25% share of GDP in the next 10 years, but the Budget has laid out no concrete steps to address this, let alone achieve it.
What the next budget needs to do is to accord the status of infrastructure to both education and healthcare, commit to FDI in retail and aviation, deregulate diesel prices, reduce subsidies, address the issue of logistics, invest in storage and distribution facilities, and revisit the IT structure.
The need of the hour is leaders who can create a vision and then draw a roadmap towards that vision, a map which is unalterable and which is not rolled back at the first instance of opposition. Further, they need to understand that retrospective laws (case in point, Vodafone) go against the grain of natural justice and do more damage to the economy by deterring foreign investors. We need to run a tight ship but we need to do so in a fair and just way.
While I agree with you that education & healthcare need to be accorded the status of infrastructure, providing “a special status to the Education sector along the lines of SEZs, with substantial tax benefits to those investing in Education and Skill development, especially in backward regions…” runs the risk of a large number of ‘non-educationists’ entering the field of education with ‘tax-benefits’ on their mind, with the attendant risk of ‘education’ & ‘skill development’ taking a back seat, while ‘business’ & ‘bottom-lines’ take precedence! We have seen a lot of examples in smaller towns & cities where a large number of colleges and institutions have cropped up – only because they make ‘good business sense’, and not really because the owners/promoters care too much about ‘education’.
Unless we have an adequate system to ensure professional management & accountability towards the final output quality of students from every such institution, it would be akin to creating more hospitals where a lot of people receive ‘treatment’ (which means ‘good business’) – but very few get actually ‘cured’.
On incentives to the manufacturing sector – our recent economic stability is rather too dependent on the ‘service sector’, and in turn – on ‘business’ and ‘consumption’ from the West – and benefits the educated class more, thus increasing the economic gap between the haves & have-nots. The ‘manufacturing sector’ needs greater support as it will not only boost indigenous availability of quality goods (thus reducing imports), as well as directly/indirectly benefit the transport, labour, raw material/mining, tech R&D sectors etc. and cover a much larger cross-section of the population in the long run. While a BPO or a software centre can be up and running in a few weeks, industrial capacity build up in the manufacturing sector needs much greater time & investment – hence the need for support.
Sadly, the taxation policy is yet to evolve to a stage where it can stop “robbing Paul to pay Peter!”