The media has largely received the Central Government of India’s budget for Financial Year 2015-16 with tepid applause. Solid and steady but no big bang announcements is the general refrain. It is generally perceived as a mild disappointment. But far from being disappointed with such a response, Finance Minister Arun Jaitley would only be too happy to have his budget perceived as a non event. For it will give the ruling party BJP the political space they need to push through a paradigm shift in the way the Indian economy works.
One of the most significant announcements in the Budget is perhaps insignificant in terms of its bald monetary impact. Wealth tax has been abolished and it is to be compensated by imposing an additional 2% surcharge on the income tax collected on crorepatis. Jaitley argued this will give him Rs.9000 crore additional revenue in lieu of the Rs.1000 crore yielded by wealth tax. Chump change, one may call it. Not quite when you consider the difference in outlook such a move reflects. Abolishing taxes is a rarity in a country where new ones are normally invented every budget. The government has for the first time made a pragmatic assessment of the trade off between administration cost and revenue and decided that wealth tax has not accomplished its purpose. By abolishing it, they have also struck off one compliance from the taxpayer’s list. Meanwhile, they laugh all the way to the bank anyway vide the surcharge. Simplification of India’s tax regime has begun in full earnest and yet the event went barely noticed thanks perhaps to a combination of astute messaging by the government as well as the media’s pre-conceived notions about big bang reforms.
That abolition of wealth tax is not a one off is appreciated when you consider it as part of a ‘package’ that also includes a move to a lower rate of corporate tax sans exemptions as well as the much touted Goods and Services Tax, At least so far, the government appears to be moving fast on simplification. It fits in as part of the larger jigsaw puzzle: that of project Westernisation.
The other elements that were announced either in the Budget speech or in the days preceding and succeeding it were, in no particular order, introduction of universal social security, greater devolution of taxes to the state govts, monetary policy framework jointly framed by the Govt and RBI and the crusade against black money. I am still skeptical on the last mentioned element but the harshness of the penalties envisaged suggests a shift in the govt’s approach on this front too. The other elements clearly signal a departure from ‘legacy’ approaches to govt policymaking. By introducing social security, govt has strengthened the hands of Chief Ministers desiring to pursue labour reforms and blunted the Leftist rhetoric against the same. The monetary policy framework signals a clear shift to inflation targeting as opposed to the multiple indicators approach of the past where the inflation-growth trade off was ambiguous and discretionary.
By packaging the budget in a form familiar to those who regularly peruse Indian budgets, govt has masked its clear cut preference for running a tight ship, for voluntarily reducing its fiscal space (and ceding the same to the states) so that it can get out of areas where it does not find it feasible to be involved and for a simpler tax regime as opposed to one that, on paper, upholds ‘social justice’. Pragmatism has replaced an Indian notion of idealism that was usually restricted to govt white papers and seldom observed in actual practice.
It is ironic that the proudly nationalist BJP have embarked on a project that will alter the way the Indian economy operates and bring it closer to the Western model. Simpler taxes, inflation targeting, federalism, social security, does that not sound familiar? Or perhaps this model is also to be found somewhere deep inside an ancient Indian text that yours truly is blissfully unaware and for which India ostensibly allowed the West to claim credit! However it may be, I am at least a bit excited and shall be watching further developments with keen interest.
Pictured life 