What does the Budget do to you?

Instead of talking about the Budget, let's talk about you - The Common Indian taxpayer.

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Just like every year, this year had the one single excercise where one person would just be reading, and it would seem longer than the movie Irishman.
Okay, I know I’m going to draw some flak for that.

Probably the most uninspiring, dull speech, that just goes on and on and on about numbers just came out yesterday, and instead of online news articles which just go bonkers over the announcements, in this, we’d be looking at the Budget, and how it is going to change things for you and me, until the next Budget is out. The problem with people just exclaiming or going bonkers over any news that is out is that, in the excitement, you’d most probably not consider how it is going to affect you.

First things first, let’s start from what Economics is about. It is about people exchanging their labour for money. Demand drives the economy. So, no matter what you do with Supply, if you don’t have demand for your product, you can be pretty sure that your product would tank. That’s pretty much the problem we have at hand. As I’ve more elaborately put it in the older posts, any economic Slowdown with declining Inflation (on the Manufacturers side) means - There is no demand, and it isn’t a new sight for corporations to have extremely high levels of unsold inventory these days. This coupled with the several production cuts over the last couple years cries attention. This has made sure corporations lose a great deal of working capital and have turned into defaulters, turning the lack of demand in a highly leveraged environment, into a huge cause for concern for the Banking industry as well.

What can be done? Quite simple, anything to boost demand. or, even inaction. Yes. The Economy heals itself unless we meddle with it. Has it been done? - No. (Anyway, we’ve had a great deal of content about it already, and we’re not about critisicing any government per se, all we need at the end of the day is good policies that nurture the country)

How is the Budget going to affect you?

This was stated in the beginning of this post, “This is meant for the common Indian consumer”, who, is the most important person in the entire economy, for the common consumer makes sure demand stems up, and is responsible for the flow of cash in an Economy.

So, what do we get? That’s the most logical question right? Apart from a few loan tenure extensions for the MSMEs, and extra loans for farmers, there just isn’t anything here. Food inflation has soared recently, and is a heavy burden on the average Indian consumer. This budget doesn’t aim to directly take on the issue, but, rather goes with an integrated cold storage system, which should make sure there is no hoarding. Weather resistant crops are an option that are left unexplored for the larger part.

At the end of the day, all that the average Indian Consumer needs in todays’ environment is not cash, but, a way to earn. Unemployment among youths is soaring, not for lack of education, but, for lack of skills. The Skill-Job gap is just way too large, with over 60% of youths in Cities, between 21 & 24 unemployed. It is not that they are unemployed, but, the fact that over 80% of them are unemployable, as their skills don’t match the requirements. A nation-wide diploma based technical education system is the need of the hour. In this regard, an online employment portal for non-gazetted government jobs, in a move to reduce the corruption in recruitment process.

One thing that is for sure is that, we’d most probably not be able to hit the $ 5 Trillion mark anytime soon, as it’d require a YoY growth in GDP upwards of 13%, and we’re barely managing 3.7% even as per the revised estimates of the IMF.

Quite frankly, this Budget manages to hit the right spot when it comes to Startups, with a 5 year tax relief on ESOP and a proposed 3 consecutive years of tax holidays for startups turning over, under INR 100 Crores. There is this quite exciting new Tax Law, that is optional, but, does more harm than good (Not just to the taxpayer, but also to the country)

Any economy would grow faster, if people spend or invest rather than just save. Yes, with an investment, they take a risk, but, that risk is vital to nurture any economy. This was the reason behind all the tax sops investors got - “The reason being, the investors earned the money, and instead of spending for themselves, they chose to invest it, and are adding value to the economy”

Over the last 3 years, there are just these bad signs that clearly show how Investors are going to be treated. First up, there was the Long Term Capital Gains tax, and now, the transfer of onus of the tax on dividends onto the heads of the common man who wants a slice of investment action, and here’s something that isn’t talked about - Tax Deduction at Source for Mutual Fund returns!
So, an individual trusts the system to invest his/her hard earned money, and, the system says, “Sorry buddy, I don’t trust you that you’d file your Tax Returns though I have your PAN number, and I’d have to deduct tax at source, in advance.”

Investors, this is bad stuff for you. Be it your Mutual Funds, or Equities, now, you won’t get as much return.

Now, the new tax system is kept optional to test it’s adoption, and if people do adopt it, it would most definitely replace the current tax regime, as the aim is to rasterise the present tax tax system that just seems to have several cascading laws, exemptions and deductions. Priding itself on reducing the tax burden on the salaried class by a mere INR 40,000 crores, national investment interest would vastly come down. The reason I call it mere is because that amount is the reason for most people being made to invest in public provident funds or Equity Linked Saivngs Schemes. Things already don’t look so good, with the Equity Mutual Fund inflows trending south of 75,000 Crores in 2019 from a whopping 1,20,000 Crores in 2018 according to AMFI.

Now you know why the markets crashed today!

Let’s talk about Education and employment. Straight off, things look good, as for the first time, things seem to actually be workable solutions as skill development programmes are proposed. A good implementation alongside good training, can go a long way. But, if the new system of a fully online graduate level program is just another Graduate Program from a State run University, it just won’t work, and would lead to a greater dearth of skilled candidates. A good way to implement these could be by doing these on a PPP model, rather than instituting a ministry for it, for we’ve seen how that has gone all these years. The outlay of a Lakh Crore, is good, but, we’d have to wait for the Model law to be released to comment on it.

On the bright side, there is not going to be any Bailout of any failing Bank or finance institution, despite falling asset qualities, and the government is playing it right now. But, what is concerning is that, the RBI has expressed intentions to make

Taxpayers money can't and shouldn't be used to cover up for the bad decisions that banks have done.

Lets now come to the most debated area - Disinvestment.

Straight off, I must start off by saying, that, yeah, as much as we all like government organisations, that provide employment to even the otherwise incapable, A government is meant to govern. Not run organisations

Public Sector Undertakings in non-strategic sectors are more of a burden, than any benefit at all.

But, that’s where we draw the line. LIC just isn’t your everyday insurance company. To be frank, it doesn’t just insure the lives of people, it insures the government, and ensures growth of the entire Finance sector through both being the defacto “Investor of Last Resort” and, by being the home of the largest asset base in the country. Quite frankly, it contributes over 2.5 lakh crore to the Government’s kitty per annum just as it’s net profit, despite it making investments that just no one was willing to make.

The current disinvestment target for the year that ends on 31 March, which is 2 months away is a huge INR 65,000 Crores, and with us presently at INR 18,000 Crores, it needs to be seen if these revised estimates are also going to be like the previous year’s estimates which were never met. For the next year, an ambitious target of 1.2 lakh Crores is set. Primarily from LIC and Air India (That’s a big IF though). BPCL and IOCL are also on the disinvestment ship.

And… I… I really did hope to write more things which would be helpful for the Common Indian. But, there isn’t much to start with in my defence.

To put the closing remarks in, I’d like to state again that,

Increasing Corporate Surplus good, but, not when that is done at the cost of the Common Taxpayer.

This budget appeals to the corporations that need to improve their depleted reserves, but, it utterly fails, and rather disappoints at giving the already over-burdened end consumer nothing to rejoice about.
The way out of a demand slowdown is not to improve corporations that have faced the whiplash of slackening demand, but, to put more money in the hands those whose demand has fallen.

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