The country had been going through an economic crisis with third-quarter GDP growth coming at 4.5%, the lowest in the last 5 years.
The consumer confidence had tumbled to the lowest level since 2014. The labour market is fragile with unemployment climbing to 45 year high of 8.5% in October 2019. The credit growth at 7.1% is the second slowest pace in the previous decade. There is a marked decrease in private investment as demand slowed down considerably. With a slowing economy and falling tax revenues, India was facing a fiscal crisis. The lack of credibility on the government’s data added to the problem.
With this backdrop, there was an unusual sense of expectation and urgency from the Union budget this year. Since Modi got a fresh mandate, there was a clear expectation that this will be a highly reformist and pro-growth budget. But, alas what a disappointment. The budget speech was unusually longer with lots of rhetoric but very less on the action.
Maintain the status quo; get some money from dis-investment (luckily, we have the LIC as the saviour whenever the government is in trouble); have some incremental allocation here and there; create an illusion of some tax cuts but end up with a complex tax structure; tax the rich more and more; and finally call it a visionary budget.
There was a total disconnect between the economic survey and the actual budget, this year. All this clearly shows that the government is living in its own make-believe world and is totally disconnected from reality.
On the startup front, there were a few changes. The ESOP taxation which happened at the time of exercise in the current regime had been shifted to a later stage giving some relief to the employees. However, this comes with some conditions.
This is applicable only for startups incorporated after 1/4/2016 and approved by the IMB. This reduces the number of startups which can benefit.
Also, the turnover criteria for eligible startups for tax concession had been increased to Rs. 100 crores from the current Rs 25 crores. The eligible period also increased to 10 years from 7 years. This is welcome even though incremental.
Apart from that, there were many statements made on new technologies like AI, ML, data analytics with no concrete plans to back it up. There were announcements on citizens’ tax charter and stopping tax terrorism. The problem is in the administration of these announcements. A slowing economy coupled with ambitious tax collection targets always ends in tax terrorism.
The FM also introduced a TDS provision for e-commerce transactions which will burden the e-commerce players with more compliance and impact the working capital for small merchants who deal with those marketplaces.
Overall, the budget speech with all its rhetoric gave that feel-good factor but gave that sinking feeling once completed.
This is one of the most disappointing budgets in recent years and clearly shows the lack of talent and understanding of the economy in the government.
(The writer is former CFO at Infosys Ltd.)