India’s rural consumers and the urban poor are squeezed between rising cost of living and low wages. However, Finance Minister Nirmala Sitharaman’s latest budget was a continuation of last year’s plan to spend more on building modern infrastructure. Calls for tax cuts and immediate injection to boost consumer spending were largely ignored. With five states going to polls within a month, ignoring the poor and the middle class may be a big gamble. But Sitharaman has chosen to place her faith in good economics over prudent politics.

Going by a positive Economic Survey which reflected a healthier state of economy in the sense that GDP growth was slightly above pre-pandemic levels, and revenue collection had shown robust growth, it was expected that the budget would not be too taxing and could be growth oriented. Also because of Covid-induced fears, not many reliefs were expected in the budget. Nonetheless, people had hopes of enhanced Standard Deduction, enhanced deduction for medical expenses, reduction in GST on health care policies, enhanced deduction for interest on housing loans, etc. But it did not happen.

The Finance Minister’s 9,701-word speech ~ shorter by 43 per cent than last year ~ did not succumb to any pressure to go for populist moves despite the state elections. Rather it focused on taking care of various sectors. This is not a budget which will enthuse a person on the streets. To an individual it would appear to be a boring budget. But at times the facts are appreciated later. The middle-class which had the most interest in the speech were the most disappointed.

But India Inc. has appreciated the budget as a developmental one. There were a few changes to the import duties that could make edible oils, apparel, and paints cheaper. But the Minister ignored the call for tax cuts and rebates to cover for rising cost of living, both due to rising prices of everyday items as well as the added cost of vaccination, and medication for families affected by Covid-19 infections. The rise in rural wages has been slower than the rate of inflation for much of the last 12 months.

A weak labour market coupled with high inflation pose a certain level of difficulty for most people. But the FM continued with charting long-term plans to modernise the country’s infrastructure with more roads and highways? ~ through a dedicated programme called Gati Shakti ?~ build more protection for local manufacturers of electronic products, solar equipment, imitation jewellery and more emergency loans for small and medium-sized businesses. The Budget has laid emphasis on improving infrastructure and consequentially hopes for creation of 6 million jobs over a period of five years.

Capital Expenditure has gone up from Rs 5.5 lakh crore to Rs 7.5 lakh crore, a jump of more than 35 per cent. This is extremely important in view of dismal private investment over the last five years. Creditably, despite such huge capital expenditure, fiscal deficit has been restricted to 6.9 per cent against revised estimate of 6.8 per cent. National Highways are to be expanded by 25,000 kms in the next year. This will give a boost to cement, steel, and other sectors besides creating employment for skilled and unskilled workers. Introduction of 400 new Vande Bharat trains and 100 PM Gati Shakti Cargo Terminals must be appreciated.

Kisan Drones will help in assessment of crops, seeds, fertilizers spread etc. Besides, one nation one land registration, one product one station are other appreciable moves. FM recognised it is high time we identified and recognised special products or service unique to a district or region. That would not only yield sentimental value would also in turn have high potential for commercial success. For example, a silk saree made in Varanasi, silver ornaments made in Cuttack, and so on.

A major proposal on SEZ laws to make States important stakeholders augurs well for Centre-State relationships. Similarly, the plan for roll out of E-Passport during coming fiscal is an important move. In addition, 5 G awaits auction, and it will enhance the speed of telecommunication. Concern for time lost by children during Covid is seen in encouragement to supplementary classes. One Class, one TV Channel will be expanded to 200 channels for various regional languages. These are much needed affirmative measures. Creation of a digital university is a welcome reform.

Emergency Credit Lending Guarantee Scheme (ECLGS) stands extended by one year and Rs. 50000 crore is set aside for the hospitality sector. Establishment of 75 Digital Banking units in 75 districts by SCBs is a giant step towards seamless banking in the districts. In the defence sector more than 58 per cent of supplies are to be procured from indigenous vendors to give a boost to Atmanirbhar Bharat. More money ~ Rs 48,000 crore ~ has been set aside for subsidised housing projects and to Rs 60,000 crore has been earmarked to bring tap water to more homes before the end of March 2023.

The equity markets wanted the budget to boost people’s purchasing power because some of the country’s biggest consumer product makers like Hindustan Unilever, Marico and Britannia have struggled to find buyers. There was no extra love for hotels, travel operators or real estate developers reeling under tremendous stress due to Covid except to the extent mentioned above. Once the speech ended, markets went into a tizzy for a variety of reasons. The fear, which lasted about 20 minutes, was a mix of disbelief and disenchantment.

As the supply of money in the economy shrinks, interest rates tend to go up, which is what people are worried about because if the government borrows so much then interest rates will go up. But the market made its peace soon enough. After all, there was the promise of profits in the future through highway contracts, production-linked incentives, improved logistics networks and a 35 per cent jump in capital spending by the government. There was the promise of a digital rupee, backed by the Reserve Bank of India? ~ although profits from other cryptocurrencies (referred to as other digital assets) would be taxable at 30 per cent ? ~ and the launch of 5G networks to look forward to in the coming year.

One aspect of the Budget is the sharp drop in disinvestment target ~ from Rs 1.75 lakh crore set earlier to Rs 78,000 crore for the current year, and Rs 65,000 crore for the next. “The emphasis is on completion of transaction and implementation. And, if we keep too high a target, sometimes, it also distorts the market. Nothing stops us from achieving a disinvestment as per the plan,” Tuhin Kanta Pandey, Secretary, Department of Investment and Public Asset Management, told the media.

No discussion on the Budget is complete without some discussion on Tax. This year the budget has laid emphasis on reducing litigation, plugging loopholes, and providing clarity on certain matters. It is proposed that in case any appeal is pending before High Court or Supreme Court on a point of law, appeals on the same point may not be filed by the department for subsequent year(s). It is also proposed to allow filing of updated returns within two years of the end of an assessment year paying additional tax of between 25 and 50 percent depending upon the time taken to file an updated return. This would facilitate assessees to file updated returns in cases where they have claimed some deduction wrongly or have failed to include certain income in the original return. But no updated return would be allowed to reduce the tax liability or claim higher refund or enhanced loss.

The FM also clarified that wherever deduction of cess and/or surcharge on income tax is being claimed as business expenditure based on a legal opinion, it would not be allowed as it has the character of income tax. It is also made clear that in case any expense is incurred to earn exempted income, such expenses will not be allowed to be deducted for tax purposes. The budget also seeks not to allow set off of any undisclosed income detected during search, survey or otherwise against any carried forward losses as there can be no premium on dishonesty. It is proposed to go behind the source of credits in the books of assessees.

MAT on Cooperative Societies is to be reduced from 18 to 15 per cent to bring it at par with companies. Similarly surcharge on income tax for cooperative societies is to be reduced from 12 to 7 per cent. Deductions for contribution to NPS by State governments for their employees will be brought at par with Central government employees; thus, deduction for contributions up to 14 per cent will be allowed in both cases.

The period to avail tax incentives for manufacturing and start-ups has been extended by one year Mobiles, chargers, cut and polished diamonds, gemstones, clothes, yarn, steel scrap and large TVs are likely to become cheaper. Umbrellas may become costlier. GST regime is all set to become stricter particularly from viewpoint of claiming ITC and this is one point which could hurt the interests of MSMEs.

The government got kudos from top CEOs for its vision and its courage in planning for the next 25 years. It is indeed commendable that despite record debt (30 per cent of sources of funds in budget are from debts and liabilities and 20 per cent of the expenditure is towards interest) the government is committed to spend with a view to create demand and to build a new, futuristic India. However, the praise from CEOs usually resonates in a small part of the population. With five states going to polls, ignoring the poor and the middle class may be a big gamble.

(The writers are chartered accountants)