Monday, December 16, 2019

Budget 2020-21 Some random thoughts and suggestions


                                                         Budget 2020-21
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The budget 2020-21 assumes unusual importance both politically and economically to live up to the expectations of the people domestically and expert economists internationally ensuring fastest economic growth in the backdrop of slowdown of the economy witnessed all around the world. The challenge the Finance Minister faces is though thrilling and defiant but definitely manageable with the resources potential the economy has and the support the Government enjoys from the right thinking of vast majority of the masses aspiring for all round welfare. The only hurdle perhaps is the laxity in Governance, planning and execution of various reforms reflecting in the poor achievement of results from all well intended grand reforms and very bold policies of the Government Viz, Demonetisation, GST and well meaning welfare measures for the downtrodden who had been ignored for decades and now made part of the inclusive economic development obviously pursued since 2014.   
The so called economic Growth engine and the Compartments the engine supposed to pull need to be well aligned and placed on very strong laid parallel lines viz Fiscal Policy and Monetary Policy. While the broad economic policies should encompass the major reforms so far found to be elusive in the areas of land labour and legal with strong administrative and political will to get them implemented expeditiously, the fiscal policies and monetary policies need to be closely coordinated to strengthen the Financial System consisting of all broad Markets, Institutions and Instruments under meaningful and transparent regulatory and supervisory arrangement accountable to Parliament. The need for drastic, considerable and visible change in the major macro economic factors Viz GDP, Employment and Inflation is paramount to make the ambitious target of $ 5 Trillion for the Indian economy a reality not only to meet the political and economic aspirations of the Government but also to make the Country powerful and noticeable among the economic super powers of the world.
The ensuing budget is an opportunity to turn the tables and reset the Economy the way the Government desires, people aspire and the world wonder.  Some of the measures which can perhaps do the trick inter alia include the following.
The very fact that the slowdown of the economy though has not materially altered the living conditions of the people and the standards of living of large segments of the population by and large in reality particularly those coming under upper middle class , the data captured, presented officially and publicised widely do not reflect the ground reality and present an all round gloomy picture is a proof that the informal economy is more strong than the formal economy and the policies announced and pursued do not bring in the desired results officially. The economic Liberalisation of the1990s seem to have let lose the administration, regulation and supervision paving way for non accountability, freedom to indulge in activities unethical and erosion of values all around, leading to amassing of wealth at any cost by a few and getting away with all sorts of frauds, scams and unheard of atrocities in the society.
The Leakage of data on production, services and employment and the consequent leakage of income accruing to the Government kitty despite the best of technology in vogue needs to be officially and administratively recognised and this needs to be plugged by all possible means involving, Panchayats, Municipalities, Corporations, all administrative set ups, Financial Institutions, service providers and Social groups.  The failure of collection of data in the overall governance is beyond justification causing embarrassment to the Government and missing all the intended results under various major policy initiatives. No doubt, the task is easier said than done but it is time to think out of the box and fix the problem. Earlier it is done the better for the economic and social development. The National Registrar of Citizens as and when introduced, The Aadhar Cards, PAN Numbers, Bank accounts, real estate deals, employment Numbers, various pension, insurance provident funds, subsidy  claims from various segments, etc can provide some links and leads to generate the required data on employment, services and leakage of revenue to the Government. The very fact that Cities and Villages do not get both skilled and unskilled workers is an indication that there is no unemployment and poverty as such and the economic slowdown needs to be captured elsewhere perhaps by innovative statistical designs covering informal economy spread throughout the length and breadth of the Country and even having international connections. Contract labour concept, underemployment, low income, uncertainty of a steady income and low demand may perhaps have caused a bit to slow down the economy but is definitely not insurmountable and can be tackled through the budget.      
The Fiscal Policy to augment tax revenues through GST, Direct Taxes and other avenues like Railways, auctions of essential resources like coal, power and other energies needs to be thoroughly and constantly reviewed to ensure that whatever is envisaged is collected and it reaches the  Government Kitty without much of time gap and preferably instantly without pilferage. The leakage of revenues seems to be untraceable and this needs to be tracked. This again requires data integrity, expeditious flow and Checks and balances to ensure against pilferage and evasion through ingenious means. Unfortunately even Technology is largely understood to be abused and misused over and above the dishonesty and unethical practices already in vogue. This calls for the effective Governance Standards and transparent accountability. Knowingly or unknowingly, the erosion of values in the pursuit of making money by reducing costs and maximising profitability at the cost of investment, employment, production and distribution of national wealth seem to have set in, in  the society throwing to the winds the good objectives and long standing value additions to the economy through prudential means. Time has come to arrest this tendency and restore the values through the budgetary measures.
 The fear of tax should be literally absent among the people and tax compliance should be a pleasure. This is possible only through intelligent and proper mix of taxation policy with Technology and human resources capable of handling abnormal situations and circumstances gently and amicably. Make GST a very Good and Simple Tax attracting everyone to voluntarily comply. Let the taxpaying public satisfy themselves about the merits of GST, the way they are collected and spent for socio economic development of the Country.GST should gradually emerge as the Only Tax replacing all other levies over a period lessening the gap between the Rich and the Poor. Evasion of GST by any one should be a national Crime and it should be accordingly dealt with.  
The Income tax presently levied has to be totally revamped in such a way that it gets completely eliminated over a period with appropriate GST replacing it.  The fact that only about eight crores of the total population of about 135 crores come under Income Tax net simply cannot be true by any reckoning going by the number of cars, the number of flats, the number of people well employed and well placed both in the organised sector and unorganised sector as well, number of real estate deals in the country, number of people travelling abroad and domestically by flights in particular, number of people operating in the share markets, etc. This number alone should reflect on the inefficiency with which our tax collection machinery functions despite the best of Technology the Country has and is proud of being known internationally.  Further, the Security Transaction Tax needs to be made more dynamic and attractive to strengthen the entire Financial Market which should include among other things foreign exchange, derivative and commodity markets.STT being non inflationary in Character and its collection is instant and hassle free from administrative point of view, it should emerge as a an important tool to regulate and supervise the entire Financial market and make the market free from undue volatility, speculation, insider trading etc. Even the capital gains tax which creates some sort of anathema now can be well managed and collected through STT without incurring the wrath of the affected and without loss of revenue to the Government.   
Monetary Policy:
The Financial system which is the foundation to build up the economy strong and vibrant needs  better understanding and support through convincing and pragmatic policies by bringing in more of professionalism and expertise with added  vigilance, supervision , transparency and accountability in managing the system. The Infrastructure development, the industrial growth, the agricultural growth, storage, transportation and  marketing of products , their pricing and distribution to ensure their reach and supply in the length and vast breadth of the country containing inflation and all sorts of mal distribution through corrupt practices to manipulate prices through shortage and surpluses of seasonal agricultural products etc require strong administration, linkages with technology to capture essential data , flow of information to support with appropriate policy initiatives. The bureaucrats and professionals manning various institutions have to play a key role in ensuring that the monetary policies bring in the desired results minimising the time lag and benefiting all stake holders of the economy.
The Trust in Banking needs to be re-established at the earliest. The banks cannot and should not be the source of loot of tax payers’ and depositors’ money and this awareness among professionals, bureaucrats and politicians needs to be well incorporated in the budgetary provisions .The banks’ borrowers in particular and other stake holders of banks in general have a moral responsibility to safeguard the banks from collapse. The menace of Non-performing assets which is unfortunately man made is crippling both the banks and the economy as well, needs to be tackled with strong in built mechanism  to identify the problem at its incipient stage and liquidate it without passing on the loss to others under any circumstances. Definitely the ensuing budget can do that. The Whole Economy cannot be made to suffer perennially to satisfy the greed of some borrowers who collude with some powers that be to loot the banks and take away the credibility and the TRUST in the whole financial system. The triple balance sheets problem of Banks, NBFCs and Corporates caused because of bad borrowers’ behaviour needs to be arrested by all means and the Confidence in our Banking Systems’ ability to give a boost to the economy at this hour of crisis needs to be restored at the earliest.    
The Contribution of National Bank for Agriculture and Rural Development since its inception in 1982 needs to be evaluated in the context of continuous decline seen in Agricultural and rural segment in terms of agricultural  growth, income, employment, economic and social developments in the rural areas. Similarly the role of Urban Cooperative Banks in metropolitan and urban areas in the background of mushroom growth of commercial banks both in the public and private sector, spread of branches, ATMs, mobile banking etc needs to be studied in detail and suitable changes can be thought of to strengthen the Cooperative Banks in rural areas significantly. These banks can definitely be spared from Urban and metropolitan centres as they have a better role and responsibility elsewhere.  
Gold Bank.
The need of the hour is to find the financial resources to take the economy forward without any strain on the fiscal deficit anymore and without adding any tax burden on the people. The best and the most sensible way is to monetise the vast Gold reserves of the Country estimated to be around 20000 and odd tonnes  by setting up a Gold Bank under the auspices of the Reserve Bank. The Gold Bank would eventually turn out to be a goldmine of resources to meet all the economic developments envisaged and also would help to strengthen the foreign exchange market in particular among other broad objectives the Country has. The Country can turn out to be a Pioneer in the field in the process.      
The need to ensure fast and equitable growth of the economy is paramount and with all the needed resources the Country has, Why not we work for that and be the Super Economic Power of the world.  Time has come to recognise the Nations’ ability to achieve what has been missing us so far. I would like to conclude here with a quote by Robert Half “There is something that is much more than scarce, something rarer than ability. It is the ability to recognise ability.” Let this Budget exhibit to the whole world the ability of the Country to perform and excel.


Dr T V Gopalakrishnan
17/12/2019.

2 comments:

FINCOP said...

Very practical and with deep insights.

Unknown said...

Bang on ..the Gold bank .