The observations on the India Government Annual Budget

1. Budget to Boost Consumption and Investment
India has witnessed one of the slowest economic growth in the recent past . This is in the light of
Governmentannouncingmanyschemes includingseveral stimulus measures in the recent past and
the programmes like Make In India, Start Up India , Financial Inclusion and several others with a
viewtoaccelerate the Economicgrowth. Despite introducingmanysuchschemes,the growthof the
Economy started sliding down. The Prime Minister has announced the Vision of achieving $ 5 trn
economy and the government is geared to identify action plans to achieve this goal. To arrest the
fallingeconomicgrowth,government has introduced many stimulus measures at regular intervals.
The measures introduced so far are yet to give the desired result.
The issue of Economicgrowth isdue to fall inConsumptionbyIndividuals,investmentbyCompanies
and nowthe reducedinvestment from Government. The tax collected by government is also much
lower than the budgeted estimates. The interest rates in the economy are also the lowest in the
recent past. The consumption by Individuals were weak on account of reduced income growth,
reducedincome ,lossof jobs,reducedcompetitivenessof SMEs and fearof regulatoryaction( those
who have high income but fearing that spending will bring them under tax net ). Compared to
consumptiongrowthinthe range of 7% to 8.5% inthe previous half years, the consumption growth
in this year was only 4.1%. Even those who are having high savings are postponing their purchase
decisionsand wanttowait watch.The consumption value was also reduced by sharp fall in price of
manyof the productsdue to increasedsalesthroughe commerce channel andhypercompetitionin
several industries. This has reduced the margin of companies and in several cases resulting in loss.
Further , the tax collection potential was reduced and growth in GDP was affected due to volume
decline and price deflation in many product categories.
The governmenthastakenasmanyfiscal measuresaspossible inthe lastfew months. To boost the
consumption, the budget could consider the following measures. Once the Consumer demand is
revived, the factories will work to full capacity and they will start investing.
1. Personal Income Tax rate . Theycan change the slabrates for income tax.
The income slab for zero tax could be increased from Rs.2.5 Lakh to Rs. 3 Lakh. For 5% .
they could increase the tax rate from Rs.2.5 lakh – Rs. 5 Lakh to Rs.3 lakh – Rs. 6 Lakh. For
20% tax, the slab could be increased from Rs.5 lakh – Rs. 10 Lakh to Rs.6 lakh – Rs. 12 Lakh.
Above Rs. 12 Lakh, 30% tax could be applied.
2. Now investment in Pension funds of Rs.50,000 is exempt. This could be
increased to Rs.100,000.
3. The investments under 80C of income tax were at the same level of
Rs.150,000 for more than five years now and this could be increased to Rs.250,000. Since
most of the investments under this category go to support the long term investments,
increasing this limit will make the funds available for long term projects.
4. The elderly and retired make their investments mainly in bank Fixed
Deposits. The lowering of interest rates in the economy has reduced the interest on Fixed
deposits.Thishasreducedthe income forthose whohave depositsinthe banks. At present,
Rs.10,000 in the bank interest from Savings account is exempt from the taxation. This limit

2. could be increased to Rs. 25,000 per annum. In the limit, they could include Fixed deposits
also.
5. Education Fee. Now one of the major expenses incurred by tax payers
fromall categoriesiseducationexpense fortheirchildren.Now these expenses are covered
under 80 C. Today , an average expense of child will be anywhere in the range of Rs.7500.
For twochildren,itwill be Rs.15,000 a year.A specific section could be added for Education
fee and the limit could be Rs.15,000 per annum, Rs.7500 a child.
6. There is a scheme under which , elderly can deposit in tax free Fixed
deposits in banks. The limit for this deposit has been fixed at Rs.100,000. This could be
increased to Rs.250,000.
One of the reasons, why personal consumption is low is due to fear of being tracked by the tax
authoritiesand eventhose whowanttobuyproducts,theyare not buying. Most of the demand for
the Economy was coming from Informal sector and from the parallel economy. Even, those who
were not paying taxes were buying expensive products including Automobiles and Houses. This
source of demand has dried up.
One of the radical ideas, government could consider include , for the next two years, not to
introduce newfeatures forfilingof tax returnsandannouncingthe exemptionfrom adhering to KYC
norms for buying houses, automobiles, insurance products and others. This will go a big way in
stimulatingthe demandinthe Economy ,therebyincreasingthe overall tax income and accelerating
the GDP from the Present levels.
R. Kannan
HindujaGroup
(Viewsare hisown)