The budget had estimated gross tax collection in the current year FY21-22 to be Rs 22.17 lakh-crore. However in this budget, there’s an increase of Rs 3 lakh-crore, and the revised estimates are stating that actual tax could be Rs 25.16 lakh-crore
The Budget carries on the Government of India’s strategy of investing in infrastructure, consolidating finances, and making sure the economy is in a high-growth path. The Budget shows certain startling and very important statistics.
The budget had estimated gross tax collection in the current year FY21-22 to be Rs 22.17 lakh-crore. However in this budget, there’s an increase of Rs 3 lakh-crore, and the revised estimates are stating that actual tax could be Rs 25.16 lakh-crore.
The government has released its tax collection figures till December, and if one takes the total gross tax collected till December of Rs 19.28 lakh-crore, and adds to it the tax collection in January, February, and March of last year, a gross of Rs 6.85 lakh-crore, you will get Rs 26.13 lakh-crore, which is Rs 1 lakh-crore more than the revised estimate.
It appears the government has been very cautious, and conservative in calculating the tax for this year. The government could have made a more realistic assessment, and use that extra amount to give relief to people, which it has failed to do.
For the current year, even though the corporate tax collection is estimated at Rs 6.35 lakh-crore as against Rs 5.47 lakh-crore, it will be much higher, looking at the growth in tax collections in December. Even the income tax estimate of Rs 5.195 lakh-crore could be exceeded in the budget.
Till December, the tax collection has shown an increase of more than 40 percent, and the trend of higher taxes will continue because corporate tax, corporate profits in the December quarter are much higher than the September quarter, and they’ve been higher than each quarter for the last four quarters.
If one looks at the expenditure, it has gone up by Rs 2 lakh-crore in the revised estimate, and next year they expect to go up by only Rs 1.05 lakh-crore. The disinvestment target was Rs 1.75 lakh-crore, but it has been brought down to Rs 78,000 crore; maybe the LIC disinvestment target of Rs 1 lakh-crore is also being reduced to say Rs 50,000 crore.
In the next year (FY22-23), disinvestment has been brought down to Rs 65,000 crore. In all probability, the government will increase that amount of disinvestment.
Market borrowings are budgeted at Rs 12.05 lakh-crore, in the revised estimate, and it is shown at Rs 10.46 lakh-crore, and next year is an increase to Rs 14.95 lakh-crore.
The redeeming factor of the budget has been the massive increase of 30.4 percent in capital expenditure from Rs 5.54 lakh-crore to Rs 7.5 lakh-crore. In addition, the incentive for the State to increase the capex has gone up from Rs 15,000 crore in the revised estimate to Rs 1 lakh-crore. So, we can safely say this budget is focusing on huge spending in capex, which will have a significant impact on growing the economy much faster. The government continues its focus on health, water supply, and rural housing by making higher allocations.
As far as the startup industry is concerned, it is a mixed bag. The surcharge on the sale of unlisted stocks have been brought down from 37 percent to 15 percent, but the discrimination against Indian investors who have to pay a 20 percent capital gains tax on investment in unlisted companies such as startups remains, whereas foreign investors pay only 10 percent. This is very disappointing.
The government has extended the tax exemption of three out of 10 years to one more year. But this has hardly any impact. Very few startups have taken advantage. Only 500-600 startups have been approved for this.
It is one of the schemes where the government makes tall announcements, but makes sure that not many people can take the benefit by making the conditions very onerous. It is better to remove this tax exemption so that one doesn’t feel that the government is doing anybody a big favour. The government has spoken about setting up a committee for the venture capital industry to make sure that all the hassles involved are reduced. The government is also making sure that there is increased spending on drones, on technology, and the use of technology platforms for education, for health, and other items.
So, the technology focus is indeed very strong. Overall, one can say that the economy is in very good shape, the economy will grow by more than Rs 30-35 lakh-crore this year (i.e. $466 billion at Rs 75/USD) in FY 21-22, which is unprecedented.
For the next year, the economy may grow by about 12 percent to maybe around Rs 260 lakh-crore. This year, the GDP will be $3.15 trillion, and next year, we could be $3.5 trillion. Overall, the economy is on a high-growth path, and infrastructure spending is going up. Many social programmes are being done.
The government has kept the tax rate stable, except for minor deductions. It could have taken this huge surge in tax collection to give relief to the middle class, and created a three-slab structure instead of the current seven-slab structure, but the government has ignored the middle class who have suffered greatly because of loss of jobs, and higher health spending, drawing down their savings. Certainly disappointing for the taxpaying middle class, but overall positive for the economy.
The author, TV Mohandas Pai, is Chairman, Aarin Capital Partners. Views expressed are personal