The corporate buzzwords like zero-based budgeting and outcome budgets find resonance in the Union budget too, but one wonders whether they are used in the platitudinous sense just to instigate desk-thumping during the budget speech. Zero-based budgeting is all about making a fresh appraisal of the entire situation as against the tendency to tinker with the existing figures by adjusting them for inflation and so forth.
But it is too late for the upcoming budget because such an exercise without being bogged down by baggage requires at least three months of freewheeling discussion by the budget makers. What, however, can be done is to use the budget exercise to make a few paradigm changes in our policies and principles that can end dithering and show the government means business.
The Centre’s disinvestment policy appears to be marked by muddled thinking and flip flops. One thought the bold move to sell the entire stakes in Air India to Tatas would be the template for future disinvestments. But there was a deafening silence in the entire last year. If anything, there appears to be a shift towards reviving ailing PSUs, as evident from the ill-advised move to infuse ₹11,440 crore into Rastriya Ispat Nigam Ltd.
RINL is neither a strategic PSU like BARC or ISRO nor is it a well-run undertaking. It is better gotten rid of from the government stables. Don’t throw good money after bad is an economic diktat that must be heeded. Let RINL be sold strategically to a private sector steel-maker for whom it could be a perfect fit. Ditto for government hotels owned by the ITDC, the land they are sitting on alone can fetch a fortune to the exchequer.
The results of the 2024 Lok Sabha elections hopefully have a chastening effect on the Narendra Modi government, though his party, the BJP, has since recovered some ground in Haryana and Maharashtra. People want jobs, period, and not crumbs. Monthly allowance to women might have enabled it and other rival political parties to bag their votes but such largesse are just palliatives for them and more dangerously erode the already parlous government finances.
The government itself can volunteer and tell the Supreme Court that freebies are indeed bribes. And if the Apex Court does stop the freebies, barring education and healthcare, to the BPL segment, the Modi government’s stock will go up. On the employment front, it is clear that the lowering of the corporate tax rates even below the individual tax rates has not goaded the corporates to make fresh investments. The truth is, manufacturing is stagnating at 16% of the GDP for long.
People simply don’t have enough money to spend, which explains why the corporates are loath to set up new factories or expand the existing ones. Salaries have stagnated except for the honchos who draw astronomical sums, taking advantage of the invidious percentage of profits regime. Honchos can get 5% of the profits, which explains the unseemly spectacle of honchos getting astronomical sums even as their second in commands are fobbed off with a pittance. For honchos of loss-making enterprises, there is a minimum salary regime.
The upcoming budget must bring an end to the winner-takes-it-all corporate salary regime. Consumption would pick up only when more money is put in people’s purses as against honcho purses. To wit, if rupees one crore is given to a honcho he would, at best, buy one fancy car but if the same is distributed fairly among the garden variety employees, at least 5 to 6 cars would be purchased.
The contribution of direct taxes to total tax revenue climbed to 56.72 percent in 2023-24, the highest in 14 years. While this is a healthy trend, the tax GDP ratio itself remains a pathetic 10% or so. Indirect taxes like GST and fuel tax impact the poor more, as these are, by definition, regressive. Direct taxes have to play a greater role targeting the HNI, or high net worth Individuals.
The revival of wealth tax and estate duty would not only send the right messages but would also send the exchequer’s cash registers ringing happily. Wealth tax was abolished in 2015 on the specious ground that the revenue therefrom was not even sufficient to meet the administrative expenditure thereon. The collections were low thanks to the focus being only on six assets that left out bank balances and shares. A comprehensive wealth tax and estate duty regime, targeting the super-rich, can not only bridge the class divide but also fill the government coffers.
Trusts are another set of holy cows. There are profitable colleges and hospitals run by public trusts that thumb their noses at the taxman. The tax exemption to such trusts is on the weak alibi that they exist for altruistic purposes. The truth is they line the pockets of their authors even while fleecing their customers, namely students and patients. Vested interests are thwarting reforms on this front, but the government must smell the coffee and wake up. The BCCI, the richest trust in India, doesn’t pay taxes. Is the promotion of cricket alone put India on the sports map of the world?
The presumptive tax on 6% of a small trader’s turnover, up to 8% if the receipts are through the digital mode, is hugely concessional, as in India the retail margin is the highest in the world, often in the range of 30% to 40%. The scheme should be scrapped, and the tax authorities must gun after rich, non-taxpaying traders armed with the data obtained from the GST authorities, for example. Instead, the tax authorities gun after the salaried class by asking for rent receipts, etc.
The salaried class is the best complier, thanks to the TDS regime that makes their employers practically their assessing officers. They generally don’t play ball with their employees, lest they are hauled over the coals. In short, reaching out to the hard to tax categories and using all the tools in the direct taxes kit is the urgent message to the finance minister in the run-up to the budget 2025.
Agricultural income is another holy cow that has acquired the Teflon quality. There is no reason why the rich kulaks should not pay tax, just as there is no reason why people laundering their ill-gotten income by camouflaging them as arising from agriculture shouldn’t be asked to pay income tax. Yashwant Sinha did well to tax rental from farmhouse marriages, but his good work hasn’t been continued
S. Murlidharan is a freelance columnist and writes on economics, business, legal and taxation issues
