Taxing question: What does Jaitley's budget have for middle class
The economy needs to be kick-started and incomes of individuals need to grow, so that the aam aadmi can make meaningful contributions towards our pension funds, writes Saonli Hazra.ht view Updated: Feb 28, 2015 19:59 IST
A few days back, a bemused tourist, while looking at India Gate asked me, "Nice gate, but where is the building"? I cannot help but draw an analogy to this year's budget. Nice budget, but where is the money for me to spend?
I have a modest income. I also run the household. And like most consumers, have been postponing buying decisions and waited for the budget. I admit the Finance Minister did come across as visionary, who incorporated flexibility and gave a feel-good factor. The buck sadly stopped there.
Aam Aadmi is the flavor of the month. So when the Finance Minister announced that "An individual taxpayer will get tax benefit of Rs. 4,44,200", I felt elated. They say that the devil lies in the details. Sure enough it did. There was a hike in the deduction on health cover premiums by ten thousand rupees, deduction towards pension contribution was increased to 1.5 lakh rupees from one lakh rupees now, extra deduction of 50,000 rupees towards New Pension Scheme was allowed and the transport allowance was doubled. Except the last part that increased my disposable income by 800 rupees every month, where is the money. And this meagre amount too will go away unknowingly when the weekend dining happens and bills for our utilities come--thanks to the service tax increase. This government and Aam Aadmi…the saga continues.
I am not an economist, but have learnt a few things. For one, nearly two-thirds of the GDP comes from consumption expenditure and about one-third comes from investment expenditure. With the later having turned flat and bottomed out, consumption expenditure needed to be kick started. Just like one looks for oxygen cylinders if the patient is likely to be in the ICU and not buy a new suit to give the patient a feel good factor and encouragement to recover fast, the budget needed to increase the disposable income of the middle class Indians, not guide them towards pension planning (which is all very good like the new suit). After-all the average age of Indians today is around 25 years.
The onus therefore is on turning the investment cycle around. With corporates over-leveraged, the government has to kick start the economy. I had also learnt that only 20% of government expenditure is capital expenditure (when it should be the other way around). The two big questions are: does the government have the money and secondly, why has the government taken onto itself all the responsibility for turning the economy around? The answer to the first question comes from the leeway it has given itself by postponing the fiscal deficit target by a year, which to me is good. The target is surely not sacrosanct and accords the much needed room for spending. But the second question-- perhaps this is "Modi-Istyle".
A budget after elections is expected to shun populism. This budget surely did. Sadly for me it defies economic logic too. It is actually simple. The economy needs to be kick-started and incomes of individuals need to grow, so that we can make meaningful contributions towards our pension funds. Amen.
(The writer works from home, and is a home-maker. The views expressed are personal.)