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Socially Sensible At The Core

The Interim Budget has tied up the final threads of a much-needed basic social security net.

Socially Sensible At The Core

This is, literally, an interim budget for half a billion people.

At the core, it is socially sensible because it seeks to apply balm where the pain is. The steps taken to ensure social security through minimum income support for farmers, a rebate for salaried employees and a pension plan for informal workers are what people needed, and they have been a long time coming.

Overall, the emerging perspective is a pleasant one. While generations of lower-to-middle income folks now get a decent handle on basic income and support for their sunset years, the Ayushman Bharat insurance scheme would take care of their healthcare worries as well. Additionally, affordable housing has got a mild tax boost. The Interim Budget thus ties up the final threads of a much-needed basic social security net. The incipient relief on the faces of the multitude can only be imagined.

The pronouncements would give a near-term fillip to consumption, especially the consumption of small-ticket items because people in the lower-income brackets have a higher marginal propensity to consume.

To be sure, there is slippage in fiscal deficit by 10 basis points (bps) and bond markets reacted adversely to that. The government needs to push the pedal hard on tax collections and divestments to achieve the revised target.

For the next fiscal, that deviation is 30 bps to accommodate higher spending. Overall, the Budget is premised on realistic nominal growth assumption of 11.5 per cent. Nonetheless, given the spending numbers, it would be important for the government to pursue revenues aggressively.

On the sectoral side, fast-moving consumer goods, low-ticket consumer durables, two-wheeler manufacturers and organised retailers are expected to benefit from the income tax rebate given to assessees with a net taxable income of up to Rs 5 lakh and direct income transfers to farmers owning less than two hectares of land.

Intended actions on the farm front also augur well. For example, with the implementation of Pradhan Mantri Kisan Samman Nidhi, cash in hand for farmers should increase by about 22 per cent, according to CRISIL estimates. The current annual profit per family having small and marginal landholding is estimated to be Rs 26,500.

Other interventions on insurance, credit and relief during calamity will also provide support to farmers, while interest subvention to those pursuing animal husbandry and fisheries will encourage income diversification.

Overall, the tax sops by themselves are not significant, but the feel-good factor generated should set off a virtuous cycle, if followed by relentless implementation of reforms, efforts to raise the tax-to-GDP ratio and further ease of doing business.

Now that we see the beginning of a socially secure society, it is really important to take another critical step and iron out the kinks in India's interest rates structure. It can be done by nudging the regulated rates southwards and making the ecosystem fully market-driven. That will set off great structural changes on long-term interest rates and inflation.

The writer is CEO and MD, CRISIL

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