Budget 2020: What do we want?

Jobs.

That’s what the youth of the country cares about. Unfortunately, the number don’t look great. According to an SBI Ecowrap Report, India could create 16 lakh fewer jobs in FY20. This directly translates to lower tax collection, which the government is actually staring at, and consequently, lower consumer spending. With a 35% share in the total population, most of these young adults neither have a strong academic base nor any special skills that allow them to become immediately employable. The situation is alarming when you consider individual states, for example, the unemployment rate doubled from 5.91% (in 2018) to 9.95% (in 2019) in UP.

The current protests towards the CAA, led by students across the nation, aren’t helping anyone either. Instead, it is hurting India’s interests at home and abroad. The legislation is already affecting the ties with strategically important nations such as Bangladesh, Afghanistan and Saudi Arabia. Coupled with the slowing economic growth, images of protestors do not bode well with foreign investors looking to invest or set up shop here; all of which indirectly contribute to the creation of jobs.

The rural scenario is not doing much better. The government’s ambitious NREGA (National Rural Employment Guarantee Act) scheme, is plagued with issues like state underfunding, corruption, untimely payments and low wage rate; problems, which if faced alone, is manageable, but together, requires a major overhaul.

What can (should) the government do?

The upcoming Budget is unique, in the sense that it has to boost spending and growth whilst keeping the fiscal deficit number in control. In situations such as these, more focus should be laid on compliance rather than just allocating fresh resources to the schemes already in place. Innovative, water-tight ways to connect the farmers directly to the marketplace would be appreciated.

Much of the concerns with respect to the SMEs and MSMEs are due to distress caused by the complicated GST slabs and the arduous compliance. While the input tax credit should be paid attention to make sure the cost of doing business for these people do not rise, the government should ensure that competitiveness increases because of this tax structure.

Note: The issue of GST falls outside the ambit of the Budget and is specifically addressed by the GST Council. 

But what about the angel tax?

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After a lot of uproar from prominent industrialists, the government introduced measures last year that removed the mandatory Angel Tax from startups registered with the DPIIT (Department for Promotion of Industry and Internal Trade); however, a lot of startups do not fall under this ambit and it's only one of the issues troubling the sector.

A major issue which dampens the efficacy of all government schemes across the spectrum is the wide gap between Centre and State objectives. It is understandable that State finances have taken a hit due to lack of compensation received from the Centre because of GST shortfall, they should still be the frontrunners for the best implementation of the myriad schemes. Major hurdles arise due to regulatory and middlemen issues, which should be looked into first.

The Budget should look to incentivize internships and on-site vocational training through the States to the unemployed youth. It should also focus on the insurmountable vacancies in government departments.

Many have toyed with the idea of removing individual taxes altogether to spur growth. The reasoning comes with the logic that India, being a nation where compliance being an issue (only 7.4% adults file or pay income tax), indirect taxes, which everyone has to pay, makes more sense than direct tax. The Laffer Curve, as explained in this article, argues, why it doesn’t make sense to cut taxes in this budget.

With two days to go, it’ll be interesting to see how the government waves it’s magic wand to redirect the flow of conversation. Will the Budget make sense? Or will it be yet again, a year of deferred deadlines and empty promises?