Budget 2020: Opportunity from Adversity

Last Updated 30 January 2020, 08:21 IST

By Joseph Rasquinha

In the darkest days of World War II, Winston Churchill, the British Prime minister was totally confident of victory. When questioned on his logic, he said that Britain was too big to lose. It had too many resources and avenues available which Hitlers Germany just could not compete with. India is in a similar situation today. We are too big to collapse and have too many resources in terms of people, industries and services which would enable us to weather the really turbulent storms. Even in worst case scenarios, we have a backup of differential growth in different areas of the country. So a Bangalore can grow at an amazing 8%, while a region next door, a few hundred kilometres away is struggling at a minus growth. As present indicators indicate that India is headed for very difficult times over the next 12 months, regions of growth like Bangalore, NCR and a few other areas are sufficient to provide an antibiotic to prevent a major recession.
Ironically, the present economic situation has provided the government an opportunity that even its significant Lok Sabha majority has not been able to offer! In its quest to kickstart growth and get the economy back on even keel, the budget can make some radical moves. These opportunities lie in:
GST is done and dusted and we cannot turn back the clock, as that will create even more chaos. Previous budgets and the GST council have regularly tinkered with GST slabs, and that is a recurring effort which will continue. However, although the original idea of GST is still good, the implementation and rationale in a country like India will probably necessitate a decade of experiments to get it completely right. The country cannot wait so long and if nothing is done will create more difficulties with small businesses who are already struggling to conform. So the budget has to do 2 things urgently:
a) Increase the GST waiver of companies who have to pay GST from the present 40 lakhs to 1 crore. This will ease the pressure on small business who create most of the jobs in the country today. According to Google, prior to de-monetisation, there were 50 million SME’s in India, with most of them employing around 5-7 people on average. This is around 300 million jobs from this sector almost 60% of our total workforce.
b) Remove any filing of returns for any company who has to pay GST upto 1 crore, even if they are already filing. Small businesses are already struggling with their core businesses, and fling returns, even occasional ones are an added difficulty which detracts from their core activities


The SME’s here are not just the ones who are registered. Although Startupindia has registered over 30,000 SME’s, these are in the organised sector. The concern is for the 50 million SME’s who are in the unorganised sector and constitute 90% of the SME’s in India. Many of them are in distribution, services and other ancillary sectors. While a large segment of them have already closed down, they are the lifeblood of the economy and if the country has to go forward, this sector has to be re-started. Options before the budget are:

a) Allow cash transactions of 1 crore in this segment. Although there is a danger of black money mushrooming as a result, at present the need is to revitalise this sector and in this segment a lot of transactions are in cash particularly purchases and sales. As to black money, this can always be monitored through property transactions, spending, and other instruments.
b) Just like in startupindia, these small businesses can register and can be allowed to indulge in cash transactions upto 1 crore. For those who don’t register, then add a higher surcharge on cash transactions, which is already being done for amounts beyond 20 lakhs at present.
Corporate & Income Tax
The budget opportunity here is the threshold for corporate tax should be removed completely for companies at 1 crore turnover. At present corporate tax paid is a lesser slab at around 25%, but this is not enough. By removing tax completely, it will boost business confidence and enthuse businesses to move forward.
Income tax should also removed completely for anyone who has an income below 42 lakhs. That is a monthly income of Rs. 3 lakhs. Let's be honest, even if you earn 1 lakh a month in todays economy, the savings are marginal as expenses are skyrocketing. By removing personal income tax completely upto 42 lakhs, you will increase savings across the board and even ensure that expenditure on the economy increases by this level of income earners.
However, all these measures will lead to a large revenue shortfall. But the Indian economy today needs some radical policies and not quick fixes. The policies mentioned above will not only boost the economy along but catapult India into a bracket on its own worldwide! But how to fix the revenue shortfalls that will occur from these initiatives? This is where the opportunity lies.
You have to start taxing rich farmers. Given, they are a powerful vote bank, but there are also a very, very large number of them and by connecting family holdings, taxing them would cover the large dent made in the budget by the increasing the income tax threshold to 42 lakhs and removing corporate tax till 1 crore.


New Investment on social sector schemes have to be completely stopped this budget. Rather, audits have to be done on making the process more efficient, particularly to ensure the allocation of resources go towards the best use of the projects. Investments on infrastructure and other areas that will boost the economy will be undertaken as they are traditional means to get an economy going, so there is no need to mention them here.
Government Expenditure
The budget also has a great opportunity to curtail government expenditure on various departments and reduce unnecessary staff and completely remove various perks held by various officials across the board. Just as the government restricted the red light beacon on official cars to few officials, it should restrict perks and other expenses to very senior officials only. This will also plug any gaps in the budget due to revenue shortfalls. Because if the economy slides further, curtail on expenditure will happen automatically, but then that is a negative trend which we don’t want to see happening.
Banks are an atom bomb that is waiting to explode. They have enormous NPA’s and levels of efficiencies and confidence are at all time low. In terms of priorities, the economy is at a critical juncture and we cannot afford any bank reform at present. We have to first restore the economy. So the Government in this budget has to ignore the banking sector and address more critical issues. If banks fail, they fail.
These are the opportunities that Budget 2020 can make use of. The difficulties the Indian economy is facing is also proving the best chance to make some groundbreaking initiatives which will have as much an impact as the GST to not only kickstart the economy but take it to the next level.

(The writer is a Ph.D. scholar in Economics from St. Andrews University, Scotland)

(Published 30 January 2020, 08:12 IST)

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