By Dr. Joseph Rasquinha
The 2019 Budget is a candy shop that attempts to offer sweets customised to your liking. There is almost everything for almost everyone. The Government has attempted to redress the wrongs in the system that have come out in the last few years. Examples are the removal of the tax issues for startups, the electronic invoice system, the simplication of the tax regime, the protection of the Make int India scheme by including imports, and, the benefits for personal tax, electric vehicles, expenditure on infrastructure, and extension of the threshold on corporate tax from 250 to 400 crores.
Entrepreneurs, tax payers, manufacturers, retail traders, small business, the salaried class, and, the people, in general, will like this budget and find it positive. But as an Economist who looks at the greater picture, I am very worried - bordering on the disturbed. India needed a budget with some very, very hard decisions. We desperately need to reform a number of our sectors urgently as there is a huge gap between the Government’s intentions which seem to be positive and the ground reality. We saw the Government can address difficult areas. They did it with the Tax and Scrutiny. However, the major problem of banks is not addressed. The only way to kickstart the economy is to ensure that businesses go forward and create jobs and wealth. And if you look at the details, I can’t see businesses doing this at all. In fact, to be a Cassandra, I see the situation worsening. Why?
Because what will businesses create wealth with? One is credit. But the banks have regressed so much in giving loans that this route is almost closed. With bank recapitalisation at 70,000 crores which is 1/2 what farmers have got in loan waivers and with banks having an estimated 4 lakh crores in bad loans still in play, the banks are not going to give any loans in the future without almost dictatorial conditions. Another route for a business to create wealth is to rotate their money as many times in the year to get value. But most of the SME’s are in the cash business, particularly in the unorganised sector. With a TDS of 2% on cash transactions of 1 crore in a year, this means that if my average billing is around 15 lakhs a month, I am paying a TDS of 2% for just running my business, it is an extremely negative conundrum to handle. GST is still high for many sectors and with the oil price surcharge, it is likely prices will go up.
I think that India is headed for more hard knocks, particularly the wealth and job creators who are the SME’s and unorganised businesses. The Government with its strong majority can make some unpopular but required decisions. Let's hope they do so at the earliest.
Dr. Joseph Rasquinha, is a PhD in Economics from St. Andrews University, Scotland, considered the Best Business School in the UK in 2018. He is the CEO of Blueleaf Cyberspace. He has also written two books and multiple articles in economics.
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