By K Raveendran
Finance minister’s ‘confession’ that she understands the pressures of the middle class as she herself belongs to that class of people and that she would continue to work for their welfare leaves hints to the direction in the Modi government’s last full-fledged budget before the 2024 Lok Sabha elections.
The finance minister has already indicated that she would ‘follow the spirit’ of the BJP’s earlier budgets. The focus on middle class also suits the political line of the ruling BJP, which essentially identifies itself with the influential, though not necessarily in terms of numbers, ruling class, much to the detriment of the more vulnerable sections of the society. It also suits the BJP that the size of the middle class has grown over the years. No wonder that the divide between the rich and the poor has grown much wider ever since prime minister Modi came to power.
Nirmala Sitharaman has stressed that the BJP government has not imposed any new tax on the middle class in any of her budget. Middle class expectations are mostly centred on tax breaks, particularly personal income. The fact that there have been no changes in the tax tabs in recent budgets has been a ground for discontent among the middle class, which is keen to see the limit of standard deduction go up from the present Rs 2.5 lakh to Rs 5 lakh. This is a keen point to watch for in Nirmala Sitharaman’s budget.
Trade bodies, including Assocham, have urged the government to increase the exemption limit for income tax to at least Rs 5 lakh so that more disposable income is left in the hands of consumers and the economy gets a consumption boost and further leg-up in the recovery. Assocham has further demanded that the 15 per cent corporate tax rate for new investments in manufacturing be extended to all sectors, including services.
As usual, the new budget is likely to make high-sounding claims about employment, but the government’s performance on this front continues to be dismal. According to the Centre for Monitoring Indian Economy (CMIE) data, unemployment rate rose to 8.3 per cent in December, the highest in 16 months, up from 8 per cent in the previous month. Urban unemployment rate rose to 10.09 per cent in December from 8.96 per cent in the previous month, while rural unemployment rate slipped to 7.44 per cent from 7.55 per cent, the data showed. This means that the government’s tall claims about improvement is ease of doing business and other indicators have not corresponded to any real improvement on the ground as far as employment generation is concerned.
Intense lobbying from pressure groups has been going on as the budget preparation has progressed and there are a number of areas where new initiatives are expected. Tax on digital transactions is a keenly watched area. In this respect, the budget is expected to indicate a road map for ushering in the ‘Pillar 2’ solution, which is part of OECD’s inclusive framework and the G20, to tackle the issue of taxation in a digital economy. The Pillar 2 solution has been agreed upon by 137 member countries, including India.
Cryptocurrency is another area that is keenly watched for clues from the budget. In the 2022 budget, the government had imposed a 30 percent tax on income made from trade of cryptocurrencies. The sector struggled in 2022, with trading volumes crashing as much as 90 percent after the introduction of the VDA tax last year. The sector, therefore, expects friendlier policies in this year’s budget, including rationalisation of the very high tax.
The venture capital industry has been going through a serious crisis as funding has come down by up to 70 percent compared to the previous year. Entrepreneurs looking forward to increased support from the government for the start-up ecosystem, where the country needs to make significant investments to develop indigenous capabilities for resilient future growth in the coming decades.
Similarly, the auto sector, particularly EV manufacturing, has big expectations from the budget. The country has the world’s fourth biggest auto market and 2022 had witnessed tremendous growth in the sector. From electric vehicle manufacturing to easing foreign direct investment (FDI) norms and starting a semiconductor mission, the auto sector has seen many firsts. The EV industry is seeking to consolidate these achievements and therefore wants more hurdles to its growth removed. (IPA Service)