Disappointing for middle class, but good for economy

The budget had estimated gross tax collection in the current year FY21-22 at Rs 22.17 lakh-crore. However, in this budget there is an increase of Rs 3 lakh-crore, and the revised estimates say that the actual tax may be Rs 25,16 lakh-crore

The budget implements the strategy of the Government of India to invest in infrastructure, consolidate finances and ensure that the economy is on a high growth path. The budget shows certain starting and very important statistics.

The budget had estimated gross tax collection in the current year FY21-22 at Rs 22.17 lakh-crore. However, in this budget there is an increase of Rs 3 lakh-crore, and the revised estimates say that the actual tax may be Rs 25,16 lakh-crore.

The government has released its figures for tax collection until December, and if one takes the total gross tax collected until December from Rs 19.28 lakh-crore, including the tax levy in January, February and March of last year, a gross of Rs 6 , 85 lakh crore, you will get Rs 26.13 lakh crore, which is Rs 1 lakh crore more than the revised estimate.

It seems that the government has been very careful and conservative in calculating the tax for this year. The government could have made a more realistic assessment, and used that extra amount to help people, which it did not succeed in doing.

For the current year, although corporate tax collection is estimated at Rs 6.35 lakh-crore against Rs 5.47 lakh-crore, it will be much higher, given the growth in tax collections in December. Even the estimate of income tax of Rs 5,195 lakh-crore could be exceeded in the budget.

Until December, the tax collection has shown an increase of more than 40 percent, and the trend of higher taxes will continue because corporate tax, corporate profits in the December quarter are much higher than the September quarter, and they have been higher than every quarter for the last four quarters.

Looking at the expenses, they have gone up by Rs 2 lakh crore in the revised estimate, and next year they expect to go up with only Rs 1.05 lakh crore. The purpose of disinvestment was Rs 1.75 lakh-crore, but it has been brought to Rs 78,000 crore; perhaps the LIC disinvestment target of Rs 1 lakh crore will also be reduced to say Rs 50,000 crore.

In the following year (FY22-23), investment has been brought to Rs 65,000 crore. In all likelihood, the government will increase that amount of disinvestment.

Market loans are budgeted at Rs 12.05 lakh-crore, in the revised estimate, and it is reflected at Rs 10.46 lakh-crore, and next year is an increase to Rs 14.95 lakh-crore.

The redemptive factor of the budget was the massive increase of 30.4 per cent in capital expenditures from Rs 5.54 lakh-crore to Rs 7.5 lakh-crore. In addition, the incentive for the state to increase the capex has gone up from Rs 15,000 crore in the revised estimate to Rs 1 lakh-crore. So, we can safely say that this budget focuses on enormous expenditures in capex, which will have a significant impact on the growth of the economy much faster. The government will continue its focus on health, water supply and rural housing by making higher allocations.

As far as the startup sector is concerned, it is a mixed bag. The tax on the sale of unlisted shares has been reduced from 37 percent to 15 percent, but the discrimination against Indian investors who have to pay 20 percent capital gains tax on investment in unlisted companies such as startups remains, while foreign investors only pay 10 percent. This is very disappointing.

The government has extended the tax exemption from three to 10 years to one more year. But this has hardly any effect. Very few startups have benefited. Only 500-600 startups are approved for this.

It is one of the regulations where the government makes high announcements, but ensures that not many people can take advantage of it by making the conditions very difficult. It is better to remove this tax exemption so that one does not feel that the government is doing anyone a huge favor. The government has talked about setting up a commission for the venture capital sector to ensure that all the hassle involved is reduced. The government is also making sure that there is increased spending on drones, on technology, and the use of technology platforms for education, for health and other items.

That said, the technology focus is indeed very strong. Overall, one can say that the economy is in very good shape, the economy will grow this year with more than Rs 30-35 lakh-crore (i.e. $ 466 billion at Rs 75 / USD) in FY 21-22, that’s incredible.

For the next year, the economy could grow by about 12 percent to perhaps around Rs 260 lakh crore. This year, GDP will be $ 3.15 trillion, and next year we could be $ 3.5 trillion. Overall, the economy is on a path of high growth, and infrastructure spending is going up. Many social programs are done.

The government has kept the tax rate stable, except for small deductions. It could have taken this enormous increase in tax collection to give relief to the middle class, and created a three-plate structure instead of the current seven-plate structure, but the government has ignored the middle class who suffer a lot have due to job losses, and higher health expenditures, which are driving down their savings. Certainly disappointing for the tax-paid middle class, but overall positive for the economy.

The author, TV Mohandas Pai, is chairman, Aarin Capital Partners. Views expressed are personal

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