X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Union Budget: Precept And Practice - Outside View by S.S. TARAPORE

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Union Budget: Precept And Practice
Mar 11, 2015

The Union Budget for 2015-16 is breathtaking in its vision, intent and content. The crucial issue is how the measures will be implemented. The powerful corporate sector has already given it a thumbsup and the upper income groups would be ecstatic. It is, however, necessary to look at the Budget from the perspective of the underprivileged and whether precept is reflected in practice.

Regressive tax system

It is a basic tenet of public finance that indirect taxes are regressive. In the Budget for 2015-16, the direct tax proposals result in a loss of Rs 8,315 crore of revenue while the measures relating to indirect taxes result in an additional yield of Rs 23,383 crore. This has been the trend for many years, which accentuates the regressive nature of the Indian tax system.

The direct tax regime from the 1950s to the 1970s was confiscatory. Since the 1980s, the direct tax regime has been progressively eased. There has been a withdrawal of estate duty, a phased reduction in the maximum income tax slab, abolition of the gift tax (for relatives), exemption from capital gains tax for stock market activity and now abolition of the wealth tax. More importantly, dividends are exempt from tax in the hands of the recipient. All this has made the Indian direct tax regime one of the mildest in the world.

Thrust on social sectors

A commendable feature of the Budget is the major thrust on the social sectors which, if successfully implemented, would be of great benefit to the masses. The Budget recognises that incremental changes will not suffice and therefore, a quantum jump is necessary. To this effect, the vision is that by 2022, the 75th year of Independence, there should be a visible progress in the living conditions of the masses. The clarion call for 2022 is 'Housing for all'-two crore houses in urban areas and four crore houses in rural areas, with basic facilities of power supply, clean drinking water, toilet facilities, connection to a road and provision of basic medical facilities. These are bold targets and it is hoped that they will be, substantially, if not wholly, achieved.

Universal Social Security

The Budget recognises that large tracts of the population are without any kind of health, accident and life insurance and are bereft of old age pension security. Hence, the Budget has announced the creation of a Universal Social Security system for all Indians. The objective is to provide a defined pension, depending on the contribution and its period. The government would contribute 50 per cent of the beneficiaries' premium, subject to a ceiling of Rs 1,000 a year for five years only, to accounts opened by December 31, 2015. This is a programme of critical importance which must be implemented. A well-conceived major awareness campaign needs to be launched.

Benefit to middle class I-T payers

While no relief has been given to the relatively low income groups which are subject to income tax, the Budget provides details of deductions which can be availed by tax payers up to a staggering Rs 444,200 per annum. But senior citizens are not in a position to avail of these deductions as their incomes shrink and their expenditures rise. The Indian income tax system is insensitive to the life cycle of senior citizens - accumulation of savings during working years and withdrawal from these savings during retired years. As such, while replying to the Budget debate, the finance minister should consider raising the basic exemption limit for senior citizens by Rs 50,000.

Monetising gold

The policy on gold affects the masses and in this context, the measures announced in the Budget are of great significance - the introduction of a Gold Monetisation Scheme, a Sovereign Gold Bond and a Gold Coin. These measures should go far to monetise a part of the very large hoards of domestic gold, estimated at 20,000-25,000 tonnes.

The instruments should have attractive tax-free rates of return and also have liquidity. There should be some differential features between the schemes. One scheme should be wherein the holder of gold offers physical gold and should have easy liquidity; under this scheme the return to the holder would be in gold and the interest would also be paid in metal. Another scheme could be wherein the investor offers rupees which are then invested in domestically mobilised gold; the interest on such gold would be in rupees and the maturity proceeds would be paid in rupees based on the prevailing price of gold on maturity. It is necessary to appreciate that the gold mobilised under the schemes could be utilised for lending at higher rates of interest and, as such, the authorities should not hesitate to pay attractive returns to investors.

The setting up of a Gold Bank was suggested by the then Governor, Mr S.Venkitaramanan, and on being accepted by the government, the proposal was announced in the Budget of February 1992. Opponents of the scheme saw to it that the scheme was aborted. Following the K.U.B. Rao Working Group's Report, the government has accepted the proposal after a gap of 23 years. Let us hope that this time round, the scheme will be implemented.

Tailpiece: The Reserve Bank of India, on March 4, 2015, reduced its policy repo rate from 7.75 per cent to 7.50 per cent. While the reduction is ostensibly because of a lower inflation rate and a credible Union Budget, bank depositors, particularly senior citizens, have much to fear. (Syndicated)

Note: This article was first published in The Freepress Journal on March 09, 2015. Syndicated.

This column, Common Voice is authored by Savak Sohrab Tarapore. Mr. Tarapore, is an economist and he runs his own Multi-Language Syndicated Column. Mr. Tarapore's other column, which appears in The Hindu Business Line, is titled Maverick View.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "Union Budget: Precept And Practice". Click here!

  

More Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

Is Your Bank Gambling With Your Money? These Banks Should be Declared Dangerous... (Profit Hunter)

Jul 17, 2018

Tanushree Banerjee bets you would not want to leave your money with these unsafe banks...

Your Rescue Plan from the Cave of Poor Quality Stocks (The 5 Minute Wrapup)

Jul 17, 2018

And there will be no getting trapped with Amtek, Vakrangee, or Manpasand like stocks.

2019 Lok Sabha Elections and the Perils of Populism (Vivek Kaul's Diary)

Jul 17, 2018

Evidence from around the world shows that populism can only lead to more populism and this is clearly not good news for the Indian economy.

More Views on News

Most Popular

The Real Truth About India's FDI, Beyond WhatsApp(Vivek Kaul's Diary)

Jul 4, 2018

The FDI numbers do not look very impressive once we adjust for repatriations as well as the overall growth in the economy.

How to Avoid a 90% Loss Suffered by This Super Investor(The 5 Minute Wrapup)

Jul 12, 2018

Blindly following super investors is a dangerous game to play. Here's how you can avoid such mistakes.

The Answer to Your Wealth Worries: Small Caps (Especially Now)(Profit Hunter)

Jul 10, 2018

If you're worried about the markets - you are on the wrong track. This is opportunity - put your wealth-building hat on, instead - Richa shows you how...

New Fund Offer - ICICI Prudential Pharma Healthcare and Diagnostics Fund - Should You Invest?(Outside View)

Jul 6, 2018

ICICI AMC launches an open -ended equity fund following Pharma, Healthcare, Diagnostic and allied theme.

When Disappointment Panda is Around. Buy Quality Stock like This!(Chart Of The Day)

Jul 6, 2018

Buy Companies that can fight all kinds of Pandas and Bears in the long run.

More

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Jul 17, 2018 (Close)

MARKET STATS