The Mysterious Affair At The Ministry Of Finance

budget

OK, So I am really, confused. After listening to the Indian Finance Minister’s Budget speech yesterday, I dutifully have scoured a huge amount of reportage on the matter, and looked at the statement of the industry captains who issue the by-now-regular press releases with their thoughts. What strikes me is the almost-by-rote repetition of a few words – Focus on Farmers, MSMEs and creation of jobs.

I can completely agree with the first – this budget speech focused more on farmers than any since Chaudhary Charan Singh’s budget speech in 1978! MSP at 1.5 times the cost (never mind that there is a huge confusion on how cost is calculated in the first place by CACP), cluster based development of agro commodities, near doubling of the outlay for Food Processing and it goes on and on…

What I find strange is the issue of MSME. While everybody is saying that the FM has given a big boost to MSMEs, let us look at exactly what he has done:

- Reduced the Income Tax to 25 % for the companies with turnover of Rs 250 cr, from the existing Rs 50 cr.

- Rs 3794 crore to MSME Sector for giving credit support, capital and interest subsidy and innovations

Now, whichever way you see the above and interpret them, where do you see jobs being created? The FM also says in his speech that since the tax is now reduced to 25%, the businessperson will have more money to create jobs.

N prizes for guessing that the Hon’ble Minister has received his brief from someone other than his coterie of mandarins in North Block. Or have they? I mean, how does one create more jobs from the money at one’s disposal? Logic tells us that one can create more jobs by producing more, selling more and connecting with more people as buyers, sellers, distributors etc. Just because one saves a few dollars more through lower taxes, one isn’t really committed to give that money away as salary to more people or use it to invest in machines or raw material.

Another equally bewildering statement came from BJP President Amit Shah who claimed that the ‘budget proves wings to the aspirations of the poor, the farmers and the middle class.’ I have only one humble request to make. Please sack your speechwriter or press release maker, if you have one that is!

For, if ever there is one category of Indians you would not want to meet for the next week or month, it is the middle class. The Budget has given them a sop of at best Rs.6000 via the standard deduction formula while knocking off all other benefits that accrued from medical, transport bills amounting to about Rs. 34,000. In most other cases, you’ve squeezed their purses. Yes Sir! The taxes have increased.

Amongst the best example of this is the two rupees you reduced on petrol and diesel, two commodities whose prices hit the common man the hardest, given that it increases transport costs – something that doesn’t get mapped even in your own Wholesale Price Index basket. While going to town with this announcement, you subtly brought in an additional cess on fuel that effectively neutralizes any chance of a reduction in prices. Of course, the story of artificially keeping prices high in India when globally it was low, is another story that is long forgotten, and forgiven.

As far as the Rs 3,794 crore that the FM has allocated as above, I don’t know what it means. Is it government’s burden of Mudra insurance or is it something else?

The increase of turnover limit from Rs. 50 crore to Rs 250 crore, benefits only 3% of the companies, as per the Finance Minister’s own admission. Welcome as it is, when members of the house wanted him to reduce tax rates for other companies, he apparently asked “don’t you want the MSMEs to benefit”? It is as bizarre a logic as it gets. No Sir, we want everyone to benefit. Why would you assume that just because we are asking for more, we want someone else NOT to get the benefit?

As I said, my head is spinning.