Union Budget unplugged: Will tax relief boost consumption? | Ep 142

[00:00:00] Finance Minister Nirmala Sita Raman presented her 8th budget on Saturday, and the middle class could not be happier. With an income tax exemption for incomes up to Rs 12 lakh, the Finance Minister hopes to boost the dampened consumer sentiments and boost the economy.

[00:00:33] Welcome to the show, Kandan. Thank you. Thank you for having me. So, Kandan, under the new tax regime, the individuals earning up to Rs 12 lakh will not have to pay tax at all, right? So could you first outline the major tax reforms which were given by the Finance Minister in today's budget? This was on the expected lines in the sense that everybody, every expert that we spoke to who wrote a column for us

[00:01:00] and even in the brokerages were expecting some kind of tax reforms. But the Finance Minister would go up to giving a tax rebate or deduction up to Rs 10 lakh was something that the market or at least brokerages were expecting. No one was expecting this Rs 12 lakh. This Rs 12 lakh actually came as a complete surprise. So I think it was Rs 7 lakh prior to this, right? Prior to this, it was Rs 7 lakh. Now it has been in a historical jump, has been increased to Rs 12 lakh.

[00:01:28] Now, what Nirmala Sitaram has done is that now the resident individuals with a next taxable income up to Rs 12 lakh will now have no income tax on it. So added to that is Rs 75,000 of the deduction. Now, something that you have to remember that this is not a deduction that is announced in the new budget.

[00:01:51] So if your annual income is above Rs 12 lakh 75,000 for a salaried income, taxes will be calculated based on the new slams for the coming assessment year. Yeah. Okay. Now, according to the budget now for any income beyond the rebate limit that is Rs 12 lakh 75,000. Up to Rs 4 lakh it will not, the taxes will be nil.

[00:02:13] So, from Rs 4 lakh it is 5 lakh. And from Rs 8 to Rs 12 lakh it is 10%. And Rs 12 to Rs 18 lakh it is 15%. 16 to Rs 20 lakh it is 20%. And 20 to Rs 24 lakh it is 25%. So the maximum rebate that any salaried income will get will now be from Rs 25,000 to Rs 60,000.

[00:02:38] Okay. So, then again you have what you have to also understand that this rebate because this is not an exemption or reduction, this rebate will not be available for any special income like capital gains. Capital gains, right, right. So, this actually gives a complete boost to the middle class, to the salaried class. They will have more disposable income.

[00:03:02] And what we expect is that or what the economists expect is that because of the sluggish economy, because of the sluggish consumption, this boost will increase investment, increase savings as well as increase consumption. Okay. So, that is going to help the economy in the longer run.

[00:03:22] So, actually the finance minister mentioned that around, they are losing out on around Rs 1 lakh crore because of, you know, these reforms which they have made in the income tax slabs and in terms of the standard reduction and all that. But if you are looking at it, you are actually shifting Rs 1 lakh crore from the capex to the consumers, right. You are making a choice there. But this again, it comes up to, you know, less than 1% of the GDP if you are looking at the larger picture.

[00:03:50] So, will this actually create a multiplier effect, you know, as expected or does it also need other policies like the monetary policy or, you know, some other boost to make sure that the multiplier effect actually takes place and there is a trickle down which happens? One of the monetary policy effect that he has already spoken about is a fiscal deficit target, which is kept much lower than what is expected. We will come back to that later.

[00:04:16] I do believe that it will have a multiplier effect because the consumption will increase. The boosting of this consumption economy, which has been very sluggish to such an extent that one of the marketers were saying that people are not even buying the full 100 grams of toothpaste. They are opting for 24 grams of smaller versions of toothpaste. Now, if you look at the shelves of supermarket, you can see 10 rupee toothpaste and 20 rupee toothpaste. Something that we have not been seeing.

[00:04:46] Yeah, that is a sachet culture. That is a sachet thing. That is something that you get in a hotel. Right. Free of course. Now, you can buy that. So, that is the amount of people restricting their buying. Now, that will be opened up. And that will have definitely will have a multiplier effect.

[00:05:04] Having said that, we definitely will have to look at the inflation and how the inflation, especially the food inflation going with the kind of ecological impact that is having with heavy rain in some parts and real heavy summers and some other and heavy snowing and heavy winter that the northern, North India is expecting will that have a disruptive effect on the food chain. Yeah.

[00:05:34] That is something that we have to look at. Look at. But from the current position, current scenario, we expect that the consumption will grow up across the world, not just in urban centers, but also in rural centers. Okay. Now, moving on, let's talk about the rationalization of TDS and TCS, which was also talked about in the budget today. So, it was done with the expectation that compliance rates would improve. So, what do you think on that regard? Yeah.

[00:06:02] So, there have been much more changes along with the slabs, income tax slabs. There's been changes in the TCS or tax collected at source and tax detected at source. One other thing that she spoke about, about the senior citizens, they also have a tax-free interest. Tax-free interest income limit has been increased for senior citizens from 50,000 to 1 lakh.

[00:06:31] Now, that again will have an impact on boosting the economy because for people who say, people who are living on pensions, suddenly they get something a bit more in terms of money to spend. That also will have an impact. Yeah. On TDS, the threshold of, TDS threshold on rental income has been increased from 2.4 lakh to 6 lakh annually.

[00:06:57] That again will benefit those who are living on the rental incomes. And similar is the case with remittances. Tax TCS threshold for remittances under the liberalized remittance scheme has been raised from 7 lakh to 10 lakh. So, and again, a higher TDS for non-pand holders, the provision for higher TDS will apply.

[00:07:19] With all these, actually what the government expects is that compliance will increase and more people, again, more money will be in the hands of people. And there will be more compliance and there will be more, slightly more disposable income at the hands of the people. Okay. So, now moving on. Now, the finance minister spoke considerably about agriculture, which is something which we are seeing after a few years, this much focus on agriculture.

[00:07:48] And if you're looking at the budget figures, which I have here, there is around 1.71 lakh crore, which is set aside for agriculture. And it is ranked fourth when you're looking at the expenditure of the government. And if you're looking at, there is another 2.66 lakh crore rupees, which is set aside for rural development. Now, this again is something which was a concern for a lot of economists, because the rural demand was slackening a lot. So, do you think this was a conscious decision?

[00:08:17] And do you think this is enough to boost the rural economy? Will this be enough to boost the rural economy is something that will, will the time will only will tell. Right. Yeah. Again, there is one more factor to it. What I say is that when BJP government in Maharashtra won the election, everybody said that it was 1,500 rupees money that they have actually given to the women that gave them the vote back. Right.

[00:08:46] There are many other issues, there are many other manipulations that people are talking about. But this was one of the biggest factor that helped BJP come back to power. Now that was somebody who hated the revity culture or the payment culture as they were calling it. Now, are saying that they are admitting to a fact that the need to be complete look at or rather relook at the rural economy.

[00:09:15] What she also specifically said that we are increasing the investment in rural economy so that migration is a choice, is not a necessity, but becomes a choice. Now, will that be the case? Will they be increasing this thing? Hopefully they do. And because of the investment in rural economy, there will be more, at least be more interest in staying back.

[00:09:40] Then again, it comes the other factor is that how are we going to look at the environmental impact? Right. Now, there are people who are in Kerala from Bengal who lost their land because of the typhoon. The typhoon just hit one or two typhoons that hit Bengal area, the Sundarbhan area. The entire agricultural land was inundated with salty seawater.

[00:10:09] Whatever money you put in, you cannot remove that. So how are we going to look at the climate change? That is not there in this economy or in this budget. We have specifically not spoken about it. Probably people will open our eyes to that. There was an amount which was set apart for artificial intelligence and all that. So I think even climate change should have been a major... Should have been a major... Specifically looking at the rural economy. Right.

[00:10:37] So how far this is going to affect, the time will tell. Yeah. But possibly from current scenario, yes, it will. Again, it will increase the consumption economy. Right. So now what about infrastructure development? There was around rupees 1 lakh crore outlay for infrastructure and development of urban hubs. But that is quite less, right? Compared to what infrastructure usually gets allowed. There was no talk about, you know, railways or trains or national highways,

[00:11:06] which is usually a primary focus in budgets. So if the issue is with the Indian economy is structural, isn't it necessary that a boost is given for infrastructural projects? Yeah, I agree with you. There was no big ticket infrastructure announcement in this budget. And that probably also the reason why the market stanked, because there was a 3% increase before the announcement started in the early traders.

[00:11:34] But then they were listing out, when she was listing out all this thing, there was no specifically infrastructure driven policies this time. This was more into looking at giving more middle class, more teeth to buy products rather than investing in it. Now, one factor is that the government has not completely gone down from investing. They will be investing in the same level as last year.

[00:12:03] There is no increase in it as such we were expecting. That is going to be a problem. And that definitely will be looked into in the coming year, basically. Right. So now we briefly spoke about it earlier, but let's look at the fiscal consolidation, because that is also an important part of this whole budgeting exercise. This was reduced to 4.4, which shows that the government plans on sticking to the fiscal consolidation part. So what is your take on that move, first of all?

[00:12:32] And will this actually lead to a rate cut on the part of the RBI? Will they take it as a positive thing and then go forth with a rate cut? Is that possible? The rate cut part, I think they will still be a bit more hawkish because of the inflation, because of the higher food inflation, though it has come down from a very high level of 6 point something to 5 or between 4 and 5.

[00:12:58] But then again, they will still be looking hawkishly at the inflation before going for any rate cut. I don't expect them doing that at least in the next cycle. Right. Maybe in the coming cycle, if the government sticks to the plan. From earlier part in FI 2022, when the fiscal deficit actually went out of whack, because all across India, the government was spending money post pandemic recovery.

[00:13:29] From there, there was this consolidation plan that was set that in FI 2026, it will be brought down to 4.5. Now, senior economist was saying that they were also expecting it to be 4.5. Now she has projected it to be 4.4. That is actually along the lines of what the market was expecting, what economists was expecting.

[00:13:51] Now they have also set a specific target that the next net market borrowing estimated to be 11.54 lakh crore in the next financial year. What they are basically saying is that we are tightening our expenditures. We are tightening our borrowings. We are tightening our expenditure and we expect that the revenue will stay on the same level. Right. That is going to boost India's debt to GDP ratio.

[00:14:20] And that is also at the longer level, at the sovereign level, rupee also will also be benefited if they stick to this plan. Okay. They are from the last financial year, they have stuck to their plan. Hopefully they will do. So, I don't think RBI will, because of this tightening of well that RBI might go for a rate cut.

[00:14:46] That will depend on, I think that will depend on inflationary positions. And I think to wind up, let's look at what the states have got. So, did Kerala have anything to benefit at all from the whole grand scheme of things? We know that Bihar has a lot of benefits. So, again, because it is election-bound, you know, because of the alliance. So, what do you think about the statewide split or, you know, the benefits?

[00:15:12] There are many infrastructure plans that she has outlined along with the state. Yeah. So, some of them definitely are going to benefit Kerala specifically as we have written in our one of the copies about tourism. Yeah. That structure, that plans probably will help Kerala. And even health tourism. Even the health tourism and tourism basically. Right. Be it health tourism or be it other, the conventional tourism. That will help Kerala. Okay.

[00:15:42] But then how ready Kerala are is one question. And again, I, coming back again and again about the climate change, I am sorry to sound like a broken record. Again, the, one of the biggest attracting area for Kerala was Vyanat. Yeah. Vyanat was devastated just because of the change in climate or the change in rainfall. So, how are we going to look into that? And how are we going to safeguard the areas that we have?

[00:16:11] That is something no one is specifically talking about. Talking about, right. Am I completely dejected by the budget? No, I am not. I don't think that it was, it was meant to be a high infrastructure budget. It was meant to be a tax rebate budget, whether you call it gravity or not. But it was a tax boosting budget. Right. And she has done better than what was expected of her. What was expected. Okay. So, thank you so much, Kanan, for joining us today.

[00:16:38] And that brings us to an end of today's episode. This is On Manorama's Newsbreak, an explainer podcast, which is produced by Harita Benjamin. That's me. It airs every week and is available on all podcast platforms. So, do follow onmanorama.com for more such updates. Thank you.