FEBRUARY 1, 2019
NEW DELHI – The ruling Narendra Modi government has milked its last chance to woo voters.
After losing key state elections, it was expected to introduce several populist measures in its annual budget today (Feb. 01). And that’s just what it did. With only a few months to go for India’s general elections, interim finance minister Piyush Goyal announced several measures to win over farmers, salaried employees, the real estate sector, and even startups.
Here’s a look at what has given a section of the Indian population a reason to rejoice in the government’s populist 2019 budget—and who still has unresolved complaints:
Salaried employees: The government is well aware that no elections can be won if the middle class, a sizable portion of the Indian population, remains unhappy. So from the next financial year, income of up to Rs5 lakh will be exempted from tax as opposed to Rs2.5 lakh cap right now. Goyal claimed around 30 million middle-class taxpayers would get relief from this change.
“This is a massive relaxation and will provide benefit without eroding the tax base of about 7 crore taxpayers,” said Suresh Surana, Founder of RSM Astute, a tax consultant firm.
Last year, the government had introduced a standard deduction clause: Salaried people, who used to get deductions for medical expenses (a maximum of Rs15,000) and for transport allowance (Rs19,200), would have to pay a standard deduction of Rs40,000. This did away with the hassle of a lot of paperwork, but still translated into meagre savings. Now, that has been hiked to Rs50,000.
The government will also provide tax relief to individuals owning more than one house.
Secondly, if you own two homes, with the second one lying vacant, it is currently assumed that you earn rent from that second one (regardless of whether you do or not). And that rent is taxed. This stipulation has been now knocked off. However, in case one owns more than two homes, then the same clause kicks in for the houses other than the first two.
All taxpayers who keep a sizable part of their money in banks accounts will also get a breather. Till now, interest income of up to Rs10,000 was tax free; now that limit has been hiked to Rs40,000.
Farmers: India’s agrarian crisis has been worsening. And the aggrieved farmers form an important voter base.
So the government has announced the Pradhan Mantri Kisan Samman Nidhi, a quasi universal basic income scheme for farmers who owns up to 2 hectares of farmland. The average farm size in India is about 1 hectare, according to the 2015-16 agricultural census. So now an estimated 120 million land-owning farmer households will be given Rs6,000 annually ($84.5). The amount will be directly transferred into their bank accounts in three tranches.
However, this still may be just a stop-gap arrangement and more needs to be done.
“Subsidiaries are short-term measures. Long term measures need to be taken. (For instance) Agri capitalisation needs to be done immediately,” Rakesh Bharti Mittal, vice-chairman and president of Confederation of Indian Industry, told India Today. “I also believe the private sector needs to be incentivised to include the farming sector.”
Real estate sector: Builders have been grappling with declining sales, delayed projects, and rising inventory. Now, they have a reason to cheer, thanks to Goyal. The period for taxing unsold inventory in real estate has been extended up to two years. “This is a welcome move and will benefit the housing sector, as currently there are more than 6.73 lakh unsold units across the top seven cities,” said Anuj Puri, chairman of ANAROCK Property Consultants.
The industry had also been demanding a reduction in tax rates which had spiked after the introduction of the goods and services tax. “There were promises of reduction on GST burden on homebuyers, but no announcement of actual relief was made,” said Puri.
Watch: Budget 2019: Populism vs economics?
(Video provided by NDTV)
Startup India: India’s startup community held high hopes from Budget 2019. They expected “a faster and easier method for procedural clearance and licence approvals,” said Kumar Abhishek, CEO and co-founder of Amazon-backed fintech company ToneTag. Abhishek also expected “an increase in allocation of funds towards the adoption of new technologies such as AI and blockchain.” Although the government shared plans for a National Centre on Artificial Intelligence, coupled with Centres of Excellence, there were no concrete allocations or timeline.
Moreover, the government did little to help the sector’s skills crunch or further its funding needs. No allocations were made to higher education to improve the talent pool. Nor was capital gains tax for venture capitals reduced, “which could make India the preferred investment destination for VCs,” said Surajit Das, co-founder and CEO of daily office commute app Routematic.
One key area that entrepreneurs have long been struggling to get clarity on is angel tax—a 30% levy on funds invested by individuals in unlisted firms at a share price higher than the fair market value. A survey of over 200 districts revealed that 73% of Indians wanted the angel tax fully abolished.
Last May, the government scrapped it but only under a set of stringent conditions where investors provide their know-your-customer (KYC) documents and startups they funding for are certified by a government body or listed with an approved incubator. No further clarity was given on the situation in today’s budget.
The lack of clarity and consistency on angel tax “can cause a complete collapse of initial financial support for startups to start thereby making the entire startup India initiative redundant,” warned Rajan Navani, who serves as the chairman of the Confederation of Indian Industry (CII) National Council on Future Businesses.
Jobs: India has almost become the poster boy for jobless growth. Unemployment reportedly hit a 45-year-high of 6.1% in 2017-18, according to a National Sample Survey Office’s (NSSO’s) periodic labour force survey (PLFS)—a claim that government think tank NITI Aayog denied, but not before it set the alarm bells ringing.
This a far cry form the Modi government’s promise of creating 10 million new jobs every year before the last elections and has become a ticking time bomb for the government.
Despite this, Goyal successfully managed to evade the raging jobs debate by not approaching the topic even once. Instead, the government patted its back on the job scenario in India as it slyly tiptoed around the main debate.
Electric Vehicles: India was harbouring mighty electric vehicle ambitions, wanting to sell only the environmentally-friendly transport in the country by 2030. But its dreams keep running into the wall because of a lack of infrastructure and affordability.
This budget season, Goyal mentioned “India will drive on electric vehicles with renewables becoming a major source of energy supply” in his vision for the next decade, but the government was mum on how exactly it plans to do that.
“The budget was largely silent on concrete incentives for EVs but we hope that in the next FAME policy, the government will spell out incentives for all stakeholders in the EV ecosystem—manufacturers, charging infrastructure providers and operators,” said Sunil Gupta, managing director and CEO of car rental company Avis India. He’s also hoping for the abolition of customs duty on components for assembly of lithium batteries for EVs in India and promotion of green-field EV battery capacity.