Seeking Budget Balm

 

 

STATISTICS are like mini skirts, they say. They reveal more than they hide. India’s projected growth rate pegged at 6.4% also looks attractive for the layman but it reveals a lot about the slowdown in economy and doubts over the future trajectory. The number throws up some worrying economic indicators including trade gap, sickly capital flow, and high inflation. All the number crunching will come together in a fortnight in the melting pot called the Union Budget as the country waits in great anticipation about the future of its money and taxes to be paid on it. The first full Budget of Modi 3.0 comes at a critical time and presents, perhaps, the stiffest challenge to the Finance Minister. For, there is a steady rise in global concerns on almost every front. Peace is still elusive in multiple conflicts between nations in various corners of the world.

 

Truce talks are dying premature deaths on the negotiation table itself. The wars are having a cascading effect on every economy on the globe. And the fight of the two big bulls -- China and the United States -- is priming to disrupt the international scenario. The responsibility for the Union Budget is to search for ways to insulate India’s fast-growing economy from these threats. As the common Indian seeks a much-needed balm in the Budget, the Centre has its task cut out -- either play a short-term game of easing the next few quarters or get the country ready to play a hard ball for a long-term gain. It is a hard choice that Finance Minister Nirmala Sitharaman has to make in the current political atmosphere where freebies are considered as the only way to win votes. In any case, a big shift is on the cards in the Budget. While a tax cut is totally in order to assuage the fears of the middle-income groups, there are many other difficult decisions which the Government will have to take to keep the masses in a happy space. The Interim Budget saw a slew of changes but only added to the disappointment of a large section whose usable income for extra gains was targetted for additional taxes.

 

The hike in Short Term Capital Gain tax has turned out to be a direct assault on the middle-class’ dream of additional income through various investments in the short-term. With no cut in Income Tax rates for a slab accrued by a sizeable number of Indians, the air of despondency has travelled too far. It cannot be left unnoticed by Madam Finance Minister nor can it be left unattended by all constituents of the National Democratic Alliance (NDA). Hope can still spring for the middle-class on February 1, 2025. Yet, the concern for the biggest population size of the country cannot remain limited to only saving taxes. The country needs savings and that too at a brisk pace. Sadly, there is more focus on investments and consumption than promoting savings. The traditional instruments of small savings have seen a steady decline of investors over the years with the middle-class deserting it at a rapid pace. Savings had peaked to 40 per cent in 2008-09 but now have come down to 32 per cent. A lot many factors can be held responsible for the lack of faith in savings among Indians.

 

The banking crisis of 2008 was a debilitating blow to people’s faith in banks. Structural changes also played their role in people changing their preferences. Savings also went down significantly during the COVID-19 pandemic, which was totally in tune with the times as people struggled with loss of jobs in the precautionary lockdown. But the moot point often ignored by economic experts is the harsh neglect towards traditional saving methods by respective governments — which we may call Piggy Bank methods. Post-pandemic, the country’s economic planning has undergone a sea change as people are seeking newer investment platforms for their usable money (or disposable money in the current financial lingo!). Though money is being used efficiently for investment, the problem is there is less money to invest as savings have dried up. Over the years, banks are reporting a lesser number of Fixed Deposits, which was once a darling for every class of people. The small savings schemes floated by the Government also are looking less attractive for investors.

 

The stark truth is slowly dawning on the industry and the Finance Ministry but the incentives on saving are still too meagre to lure big deposits. The Centre needs to think about ways of encouraging savings to close the huge gap of eight per cent between 2008 and 2025 numbers. Today’s India looks heavily inclined towards spending and consumption. The Centre, too, has insisted on it targetting more taxes. But consumption would not create savings as it is last in the chain of that particular economic cycle. The cycle starts with savings and gradually leads to investment which in turn promotes production which finally culminates into consumption. To collect the GST on consumption the Centre has to focus on increasing savings.

 

Instead of concentrating only on the end product, the Budget can bring the basic product of the chain back (savings) into the spotlight for the country. For, as the wise men have always stated, promoting consumption is for times of crisis. In normal times, one grows by investing and being productive. On February 1, 2025 the biggest game of number crunching and statistics can easily find space for some small numbers promoting savings. It is the moral responsibility of the powers governing the country to take everyone as an equal stakeholder for the India Growth story. The Finance Minister needs to do it for the sake of the middle-class, which is still considered as the backbone of the country’s economy. n