A SNAFU called “Budget India” 2015

A SNAFU called “Budget India” 2015

Now that the dust has settled and all the financial analyzers have mass mailed the good, bad and ugly of the Indian Budget for 2015; I have a smile on my face. It’s not because I am in any kind of "I told you so" mood (read my previous blog); or that any of the announced policies will help me save much on my taxes. I am pleased at the fact that the Indian Finance Minister (FM) had not been swayed by either domestic or international pressure to declare excessive reforms or giveaways or tax breaks that are great for swaying the stock markets to reach a new high and make a few investing punters excessively rich. The market did ride a wild roller coaster on budget day; and once the fine print was read with a magnifying glass, a sense of “calm” seems to have prevailed with quite a few saying "this could work". The budget presented was by and large realistic; a "patch the weak chinks" and "repair" the Indian economy one. No point in presenting a high on sound low on delivery tale to the people; though this one has some high drama built in it too.  

Budget day is an annual fun or fear day for the 1.2 billion Indians depending on which income divide that person is slotted in. The Nation seems to go into an economic uncertain phase 30 days prior to D-day as though observing some kind of an inauspicious moon phase. This year was a bit different. Rather than follow the same routine that would govern India’s financial destiny for some 365 days; the FM actually took a bold step in unfolding a road map for the next 5 years on how the Modi government intends to run the finances of this Nation. Having set the broad tone of intent, the next 4 speeches should - in my mind - be more on “Accountability” where the Country would like to hear what actions were taken and the outcome of the same with steps for course correction where applicable.

There is enough out there on the net on what this year’s budget will or aims to do for India, so there is not much that I will say about it; except that, the government seems to be sticking to a plan to revive India’s economy based on certain core “SNAFU” principles in a slow but sure fashion; namely:

1.       Safe and Socially Secure India; specially its borders, women and senior citizens.

2.       Neat Clean and Green India; be it energy, environment, streets, homes or even its economy.

3.       Accelerating India; be it infrastructure, manufacturing or agricultural growth.

4.       Financially sound India; be it its Corporate(s) or the people employed in any sector.

5.       Unambiguous India; be it its policies for inviting capital or tax laws.

(Intent being Situation Normal All Fired Up - Shame on you for thinking otherwise).

There is a better than average chance that these initiatives just may succeed to take India into an orbit of double digit growth; and hopefully the FM will not have to tweak the index year again to make his magic number happen. Why the doubt? Because many of the great initiatives the Govt. wants to put in place appear self defeating.

Let me give an example. In July of 2014, the government announced the “Sukanya Samriddhi” account as part of the “Betti Bachhao Betti Padhao” (save daughter – educate daughter) initiative to correct the gender imbalance as well as ensure a better future for girls in the Country. Rightly, no better incentive than economic to make it happen; and so the government offered 9.1% tax free interest on accounts opened by parents in the name of their daughters. But, the minute this account became part of Sec. 80C of Income Tax; it got into a pool that include pension and other tax saving investments to compete with. For this initiative to succeed, it should have been kept out of the 80C ambit with an annual investment cap that would not burden the exchequer more than required. I cannot figure out why and how this scheme is allowed for girls only up to age 10? Does the FM feel that after that age the girl child’s future is well taken care of? Further, this concept should have been stretched. It’s not just parents who need to be incentivized to bring up daughters; what about ensuring the well being of daughters-in-law? Now this is the most vulnerable class of women in most cases. Just think. On the economic front, the in-laws never really transfer or create property in the daughter-in-law’s name to keep her under “control”. If then, the daughter-in-law wants “out” of a bad marriage, she has an uphill task in getting anything. Even her parents don’t want her back. She needs some form of economic protection too.

Since I am in the advising mode; it was nice to see the FM’s encouraging policies to drive people towards saving more for their post retirement life, as well as “investing” in the increasingly expensive health insurance. There are certain extra concessions for those over age 80. No issues at all. However, in my view; people over the age of 80 should be taken out of the tax net completely. First; a person of this age has already done his/her bit in terms of serving the Nation and its economy. Not many people get to cross this age. Those who do cross are seldom in a state of health to support their own selves financially or avail the best (read expensive) medical treatment. In most cases, their children of these octogenarians see them as a liability and their living as an impediment to inheriting their valuable property; and it’s not uncommon to read stories of ill treatment and worse being meted out to the super-seniors by their very own. Now, turn them into a valuable economic asset for their family and all this may actually change. Children will ensure a happy and healthy long life of their parents and pray that they live up to a 100. Now bring the super-senior age down to 70 and virtually all our Parliamentarians would be out of the tax bracket (officially).

Indians are known to jump into the river Ganges to wash away their past sins. In the bargain, the river has become an environmental disaster. The PM has the clean up of this river as a pet project having promised it to the people of Varanasi who made sure he wins his seat from there. While the budget has a policy for its clean up in place -  how about using the fruits of the "Sins" (dirty – slush money) to clean up this and other mighty rivers that are a source of water and life for this Nation? I think the Govt. should come up with a punitive amnesty where a person can declare unaccounted wealth by investing in “Clean and Green India Infrastructure" zero interest (non discounted) bonds with a 7 year tenure which will be used for cleanup of the environment – be it water, air or land.  This would pretty much work like Cap Gain bonds where those interested in avoiding Capital Gains Tax would invest in such instruments. Else of course, pay the penal price for disclosure and legitimizing the assets. I really wonder, how would public servants declare their ill gotten wealth? Is this Country headed for a shut down if the FM is to be believed that he will spare no one? So for now at least; till there is clarity on the policy for cleaning up the underground dirty economy; a great majority of the 1.2 billion people must be shitting rocks - it’s truly a state of SNAFU (yes, that one which we all know) that most are in.

Rather than brooding over such highly intellectual matters on which my mind has little comprehension and where my voice will never be heard; let me make this blog a bit more useful by including a summary of the highlights of the Union Budget 2015-16 presented by Finance Minister Mr. Arun Jaitley with my two bits on the side:

·         No change in personal Income Tax slabs – Had the recommendations of the original DTC (Direct Tax Code) been implemented the tax base and tax compliance would have been far greater than it is today.

·         Health Insurance Premium deduction hiked from Rs. 15,000 to Rs. 25,000; for senior citizens to Rs. 30,000 – Hopefully the insurance companies will not see this as an opportunity to increase premiums substantially again.

·         Transport allowance exemption hiked to Rs. 1,600, from Rs. 800 per month – Something is better than nothing and at the lowest rung quite useful.

·         Additional 2% surcharge on people earning over Rs. 1 cr; to fetch Rs. 9,000 cr – I guess many bosses will use this stick as a carrot to keep their keymen below the magic number.

·         Wealth tax abolished – Super Sensible

·         Direct Taxes Code (DTC) dropped – It was a stillborn from day 1.

·         Rs. 50,000 deduction for contribution to New Pension Scheme – Pragmatic way to get savings up.

·         To lower Corporate Tax to 25% over next four years – Ends uncertainty.

·         GAAR implementation deferred by 2 years to April 2017 – No comments

·         Service Tax rate hiked to 14%, from 12.36% - Good and bad. Good as it makes even those who don’t pay taxes contribute and bad for those who are already paying 34%+ in taxes. It’s actually going to be 16% if the 2% Cess kicks in. So is this a precursor to a GST to be set at 16%?

·         2015-16 growth between 8-8.5%, double digit growth feasible – Promise no tweak in index year?

·         Retail inflation close to 5% by March, room for monetary policy easing – Food inflation is near 100%. Have a heart Mr, FM

·         To achieve fiscal deficit of 3% of GDP by 2017-18. Fiscal Deficit target 3.9% in 2015-16, 3.5% in 2016-17 – Requires sacking a lot of corrupt fat and tightening the belt on wasteful expenditure by those who we call “Leaders”.

·         Revenue Deficit to be 2.8% in 2015-16 – No one believes it but that’s fine.

·         Current Account Deficit for 2014-15 to be below 1.3% of GDP – I hope someone has not employed the same advisors and bean counters that Greece did to get it into the EU?

·         To introduce comprehensive law to deal with black money – Good – great – but sadly the only way to do it successfully is an amnesty scheme.

·         Benami property transaction bill to tackle black money transaction in real estate soon. – With most builders-developers supposedly being backed by… I am sure it’s obvious; will this really happen?

·         100% deduction for contribution to Swachh Bharat, Clean Ganga projects – How will these initiatives be monitored and by whom? Seems like a lot of good money will flow into the toilet and flow out into international waters through the rivers making them dirtier.

·         GST to be put in place by April 1, 2016 – if so, why was excise duty not matched with rate of service tax right away?

·         Internationally competitive direct tax regime to be put in place to incentivize saving – All ears.

·         Rs. 25,000 crore for Rural Infrastructure Development Bank. – Superb

·         Rs. 70,000 crores to Infrastructure sector – Does anyone believe that with hounding of corporate India with a black money and forex witch hunt this will be achieved?

·         Tax free bonds for roads, railways, irrigation projects – Interest rate will decide if this will be a success.

·         GST and JAM trinity (Jan Dhan Yojana, Aadhaar and Mobile) to improve quality of life and to pass benefits to common man – LOL – really – how? Fake accounts – fake aadhar – and corrupt mobile men?

·         Housing for all by 2020 – Is someone assuming a static population?

·         Govt. to create universal social security system for all Indians. – What about the illegals?

·         Sovereign Gold Bond, as an alternative to purchasing metal gold – For a person still wanting to keep money hidden – METAL rules.

·         New scheme for depositors of gold to earn interest and Jewelers to obtain loans on their metal accounts. – Then will the Sovereign Gold Bond earn interest too?

·         To develop an Indian gold coin, which will carry the Ashok Chakra on its face, to reduce the demand for foreign coins and recycle the gold available in the country – At the end of the day, Gold will still have to be imported for minting these.

·         Forward Markets Commission to be merged with the Securities and Exchange Board of India – Good, more synergetic regulatory agencies should be merged.

·         PAN card mandatory for purchase above Rs 1 Lacs – Actually, spends on credit and debit cards made mandatory for all goods and services priced above Rs 25K and for a good measure the Govt. may throw in extra reward points.