The multi-pronged attack on black money that demonetisation and this budget represent is a most crucial effort by Narendra Modi’s government, and to a huge extent, India’s future depends on the degree to which this succeeds
It goes without saying that all of us had a rather large wishlist of things that Finance Minister Arun Jaitley should have done on the savings and investment front. None of those have made it to the budget and yet I can’t help saying that this is a good budget.
There are just a couple of changes in the savings and investment area, but both are of limited importance. One is a change in Long Term Capital Gains has been removed, but not the one that investors were scared of. You’ll recall that ever since the Prime Minister spoke against this zero tax back in late december, there was widespread expectation (despite the Finance Minister’s assurance) that this tax will be brought in. That hasn’t happened, and it would appear that the PM’s irritation has taken a backseat to Mr Jaitley’s soothing words.
The other change is that the Rajiv Gandhi Equity Savings Scheme has been given a quiet burial. I doubt whether anyone will lament this convoluted and thoroughly useless scheme that was a product of muddled thinking in Pranab Mukherjee’s finance ministry.
The next big story of the budget is the kind of tax reduction that has been done. The focus of tax-breaks at the lowest end of the taxpayer slabs as well as at the smallest companies is characteristic of this government. This brings significant relief to the largest number of people and businesses at least cost to revenue, and that’s the way it should be.
The most interesting part of the speech was the detailed, data-driven exposition on how India is largely a non tax-compliant country. He made this point convincingly. From what the FM said in the speech, it’s clear that demonetisation has triggered a huge effort to expand the direct tax base. The round-trip of banks that all cash in the country has made, and the rich set of data that has generated will prove to be invaluable. If this is done well, then the country will enjoy the fruits of the demonetisation labour on a permanent basis. Of course, all this depends on whether this is done in the regular way that revenue officers work, or if there is some special effort at working in a clean and efficient way.
The non tax-compliant state of India has come about because of an entrenched nexus of tax-officials, chartered accountants and business owners. Breaking this is the hardest part of fixing India, but this is the best chance of actually doing so till now. In fact, I’m absolutely amazed at the solid beginning that the Modi government has made on fixing political financing, which would have been considered even more difficult.
The multi-pronged attack on black money that demonetisation and this budget represent is a most crucial effort by Narendra Modi’s government, and to a huge extent, India’s future depends on the degree to which this succeeds.
The writer is CEO, Value Research
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