The shadow budget proposed by The New Indian Express (TNIE) is making waves for its bold approach to steer India towards sustainable growth. By prioritizing long-term goals over immediate fiscal consolidation, this budget dares to upset markets and allows the rupee to fall if necessary, aiming to keep India on a steady growth path.
Lowering Tax Rates for Households
One of the key highlights of the shadow budget is the proposal to lower tax rates for low- and middle-income households. This move is designed to provide relief to those who have been struggling with stagnant real incomes, thereby boosting saving and spending. The rationalization of capital gains taxation is also expected to simplify the tax structure and promote long-term investments.
Rebuilding Growth Amid Economic Stress
The Indian economy is currently facing significant stress, with households experiencing stagnant incomes and reduced savings. MSMEs are still recovering from the impacts of demonetization, GST rollout, and the COVID-19 pandemic. Large companies, although back on their feet, are hesitant to invest due to poor domestic demand. Moreover, the country’s exports need a significant boost to regain momentum.
A Bold Approach to Fiscal Policy
Oscar Wilde once said, “Anyone who lives within their means suffers from a lack of imagination,” and this sentiment is echoed in the shadow budget. Instead of focusing on fiscal consolidation, the budget aims to restructure capital gains taxation, avoid increasing GST contributions, link corporate tax rates to employment and productivity, and raise the revenue share for states to pre-pandemic levels. This approach is crucial as states play a vital role in providing education, health, housing, and sanitation services.
Increased Resource Mobilization
The shadow budget proposes additional resource mobilization of Rs 60,000 crore for states and Rs 50,000 crore for the Centre, increasing the gross tax revenue to 12% and its share to 8.1%. The plan to link corporate tax rates to specific goals is expected to result in higher realizations, raising it to 3.5% of GDP from 3.18%.
Strategic Resource Allocation
A standout feature of the shadow budget is its strategic resource allocation among ministries. While continuing to invest in economic and social infrastructure projects, the budget suggests reworking the transport policy to avoid funding vanity projects like bullet trains and underutilized highways. Instead, the focus should be on decongesting cities and improving railway services.
Prioritizing Education, Health, and Employment
The budget advocates increasing allocations under PM-Kisan and enhancing funding for higher and school education to improve teaching quality, infrastructure maintenance, and transition contract employment to government service. Creating large-scale employment and prioritizing investment in education, health, sanitation, public housing, and public distribution are essential steps for India to transition from a lower-middle-income country.
Redesigning Capital Gains Tax Structure
To discourage speculative investments in financial and real-estate markets, the shadow budget proposes redesigning the capital gains tax structure. This includes increasing the holding period for financial assets to 5 years and residential properties to 7 years. Treating capital gains and income on debt similarly to equity investments is also recommended.
Corporate Tax Rates Linked to Employment and Innovation
The shadow budget suggests that corporate tax cuts should be conditional, linking them to employment-generating investments that focus on value creation through innovation. This strategy aims to drive margins through productive means rather than labor or regulatory arbitrage.
Addressing Non-Tax Revenue
Non-tax revenue, primarily from RBI and PSU dividends, has been a significant contributor. However, the budget acknowledges that relying on these surpluses is not sustainable in the long run. Reinvesting dividends from Public Sector Banks (PSBs) back into their growth is a more prudent approach.
Conclusion
The TNIE shadow budget emphasizes the need for bold and imaginative fiscal policies to rebuild India’s growth capacity. By focusing on long-term investments and strategic resource allocation, it aims to create a robust foundation for sustained economic development. While markets may experience short-term disruptions, the proposed measures are designed to foster a resilient and dynamic economy in the long run.
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