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Given that consumers do so much of the heavy lifting, most Budgets try to put more money in their hands through a tax break or two.
But not this one. The tax giveaways in this Budget have been minimal and there’s a clear intent to tax the super-rich to fund outlays on agriculture and infrastructure. There are three broad sets of proposals in the Budget which dent consumption.
Rural boost One, there’s a big package of proposals designed to improve farm incomes after the rural distress of the last two years due to a poor monsoon and melting agri-prices. The Budget has sharply hiked outlays for both the agri and rural sectors. Agriculture and farmer’s welfare has seen outlays double at ₹44,485 crore and rural development has bagged ₹87,765 crore. This splurge on rural India, combined with the new crop insurance scheme may help shield farm incomes from the vagaries of the monsoon. These moves and medium term measures to open up agricultural produce markets and secure better realisations for farmers, should help give rural consumption a leg-up over 3-5 years. But don’t expect quick fixes here. For rural spending to revive in the short term, it is the 2016 monsoon that holds the key.
Two, the Seventh Pay Commission recommendations are likely to give a leg up to public sector pay and OROP is being implemented too. This represents the only budget measure that could provide a leg-up to urban consumption. In fact, the higher service tax (0.5 per cent Krishi Kalyan cess) and the lack of tax breaks can prompt some belt tightening by urban consumers.
Taxing the super rich Three, the Budget clearly intends to tax the creamy layer to fund giveaways to the masses. The surcharge of 15 per cent on incomes above ₹1 crore, excise duty hikes on jewellery purchases, TDS on high value cash transactions and the tax on HNIs who receive dividends above ₹10 lakh a year, are proposals that may hit at discretionary spending in the economy. Don’t expect an immediate uptick in consumption.
`With the FM admitting that the tax giveaways have cost him a mere ₹1,060 crore, while the tax hikes rake in ₹20,670 crore for the fisc, it is clear that he’s taking away more than he gives. Its another matter if, with government spending cutting a wide swathe across sectors, animal spirits in the economy revive and nudge consumers to loosen their purse strings.
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