Budget for the Rich

The message of the Union Budget of 2015-16 is clear and unambiguous: the Modi government is not bothered about something as trivial as 90% of this country’s population. The real mission is to help the rich to become even richer. The talk was about the poor, but the numbers were for only the rich.

In the name of limiting the fiscal deficit to 3.9% of the GDP, essential social expenditures were axed. Despite all the talk of women empowerment, budget allocation for women (gender budget) has been reduced from Rs. 90,000 crores last year to Rs. 80,000 crores. For SC Sub-plan, the allocation went down from Rs. 43,000 crores to Rs. 30,000 crores. Tribal Sub-Plan’s funds were reduced from Rs. 26,000 crores to Rs. 19,000 crores. Integrated Child Development Scheme (ICDS) was not spared either. From last year, its allocation has been halved to just Rs. 8,000 crores. Funds for Health and Family Welfare were cut by more than Rs. 5,000 crores and those for Housing and Urban Poverty Alleviation were cut by Rs. 400 crores.

The budget also increased government’s dependence on indirect taxes for revenues. An additional amount of Rs. 23,300 cores in indirect taxes will be collected compared to last year. This will impact the ordinary Indians by increasing the prices of goods and services. The increase in service tax from 12% to 14% will also impact the self-employed population.

When it came to the ultra-rich, the finance minister seemed to have forgotten about the fiscal deficit. Despite the fiscal burden it would cause, he showered them with hefty tax cuts. Direct taxes, which are mostly taxes on the well-off, have been reduced by Rs. 8,315 crores. The rich are not only going to get the benefit from reduced direct taxes, but wealth tax has been abolished as well. Considering India’s top 1% owns 49% of country’s wealth, abolition of wealth tax establishes once more, the pro-rich credentials of the Modi government.

The corporate sector did not go unrewarded either. The taxes on corporates are going to be greatly reduced: from 30% to 25% over next 4 years. Further, foreign corporates, including institutional investors, have been granted substantial concessions. They would no longer need to pay minimum alternate tax (MAT). The implementation of General Anti Avoidance Rules of Taxation (GAAR), which was meant to curb tax avoidance of the MNCs, has been postponed.

If the government did not subsidize the rich in the form of tax concessions, the budget actually would have been a surplus budget - because the total amount tax concessions (Rs. 5,89,000 crores) is higher than the estimated fiscal deficit (Rs. 5,55,000 crores). Instead, in the name of fiscal discipline the subsidies to the needy are being cut.

All the talk of devolution of funds to the state governments turned out be a big lie. In a piece of clever gimmickry, the budget increased the share of states, in taxes and duties. But, it has simultaneously reduced center’s allocations to many of the schemes jointly funded by the center and states. As a result, states would receive an additional revenue of Rs. 64,000 due to increased tax share, but would also face an additional burden of Rs. 66,000 crores in compensating for center’s fund cuts in many of the schemes. In effect, states would be worse off by Rs. 2,000 crores in comparison to last year.

The budget is going to worsen the problems of the common man, already suffering from a slowdown in economic activity. Further, the reduction in social expenditure and increase in indirect taxes will also shrink consumption, leading to a reduction in economic activity. With effective demand reduced, no amount of concessions to the corporate sector will revive growth.

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