Union Finance Minister Nirmala Sitharaman has shifted the focus of the Budget towards jobs. This is a significant shift; if this focus continues, it should be followed by a concentrated policy design and implementation. The only way to ensure that the growth is inclusive is to create jobs at the base level. This is not always the priority for the private sector as profits and productivity demand automation at all levels, both in manufacturing and now due to Artificial Intelligence (AI) in services. Therefore, a mission approach is needed for jobs to make this implementation successful.
An excellent beginning has been made with measures such as a one-month wage grant (up to Rs 15,000) on a recruit’s first salary, internships offered at India’s top 500 companies, reimbursements of provident fund contributions, and other measures to increase women’s participation in the workforce. These measures are expected to drive job creation substantially. The Finance Minister estimates that this will generate 50 lakh jobs. This may be an overestimation as it is still a tiny incentive and may not work at such a scale. But it is a beginning, and more needs to be done in a better design.
Abolishing Angel Tax
The Budget also aims to establish India as a leading startup nation. The most significant reform is the removal of the ‘angel tax.’ This tax was levied in 2012 when Pranab Mukherjee was the Union Finance Minister during the UPA’s second tenure. Levying a new tax is easy, but removing a tax is very difficult. Indians are still paying taxes structurally inherited from the British during World War. Hence, when a Government removes a tax, it has been able to convince the bureaucracy about it. Angel tax was a particularly onerous tax as it was levied on startups for receiving funding from angels or the so-called seed investors in a startup company. The tax was not on income but on investment, and it forced startups to pay a tax when they had no income and were still struggling to build a business.
The tax was levied because the UPA Government believed that angel investment was used to avoid taxes and launder money. The UPA Government’s anti-entrepreneurship view stigmatised startups and entrepreneurship. The bureaucracy’s view of entrepreneurs has been negative, so it is difficult to change their opinion. Now, this tax has been removed in spite of the bureaucracy’s long opposition to its removal, and startups will be able to use the full amount of their corpus from seed investors to build businesses. In the US, there is an incentive given to angel investors who put their capital into startup companies. We have not reached that stage yet, but directionally, we are on the right path. While tech startups seem to be occupying the media’s attention, companies are being set up in many sectors of the economy, and this should be encouraged by policymakers.
The incentives for manufacturers in the Production Linked Incentives (PLI) are capital-based; it is essential to have job-linked incentives. Center for Innovation in Public Policy (CIPP) has long advocated that the Government should also consider tourism and culture as areas for job creation. Tourism can create regional jobs, including in smaller cities and rural areas. Tourism-based jobs are unaffected by obsolescence or automation if they are linked to the local Virasat of the region. A beginning has been made in this area by the way Gaya and Bodh Gaya are being reimagined as nodes for tourists. This outlook can be further enhanced by structurally looking at the Virasat and culture of the area and reviving cultural jobs like cuisine from this area.
If traditional cuisine is recognised, authenticated and standardised to quality standards, it can create jobs that channel the region’s traditional culinary talent into sustainable jobs. Entrepreneurship in restaurants serving traditional cuisines should benefit from the new Mudra loan scheme that has been enhanced from Rs 10 lakhs to Rs 20 lakhs in the new Budget.
Even the PM SVANidhi scheme, which has benefited more than 65 lakh street vendors by disbursing loans totalling over Rs 11,680 crores, can be given to street vendors specialising in traditional cuisines. Street vendors are some of the biggest proponents of traditional cuisine but are neither recognised nor promoted. They are also small entrepreneurs; in the case of cuisine. They are also women-operated and owned. The Budget promises to increase female participation in the labour force. Promoting women entrepreneurs as traditional cuisine providers can be a powerful way.
Budget 2024 promises to promote the PM SVANidhi scheme more and help these grassroots entrepreneurs. Combining it with the Virasat and Sanskriti will create more sustainable jobs. CIPP estimates cultural sector jobs can produce 1.8 per cent to 2.5 per cent of the GDP. This has been ignored by the Government because of the bureaucracy’s disdain for such a traditional sector. But in a world that is rapidly automating its manufacturing processes and where AI is sucking away the services job, it is essential for the Government to think more creatively. More of the same, is not a solution.
Maintaining Fiscal Prudence
The Finance Minister has done a remarkable job of maintaining fiscal prudence, and in spite of an infrastructure expenditure of 3.4 per cent of the GDP; she has reduced the fiscal deficit from 5.1 per cent to 4.9 per cent. Typically, when the macroeconomics is so well poised, the Government needs to extend itself in a manner that creates more jobs.
Fillip to Skill Development
Skill development is the cornerstone of the Budget and is essential for job creation. The Government has spent a large sum of money on skill development, and it has not been able to deliver, especially as it is defined by certification and not employment. Even when the skill development courses have shifted to mandatory employment, bad actors in the private sector have gamed the system. Skill certification subsidised by the Government in most sectors has become a standing joke in the industry.
Measuring and monitoring what is working in the skill development, Budget is now an important issue, and revamping it from this measurement should be a target. Spending more on the same system will not deliver the outcome and results sought regarding job creation. Subsidising internships is an excellent way to be linked to skill development by the employer. However, such incentives must be carefully designed and should not be left to the bureaucracy or the private sector to define. Third-party non-profit think tanks should be consulted.
Nobody who has to pay it is ever satisfied with taxes. The Finance Minister’s measures to tax stock market gains by raising short-term taxes are criticised. This is an unfair measure of the Budget as it focuses on just one aspect: the revenue. In a developing country with a small tax base, income will always be under the purview of higher taxation for revenue generation. Taxpayers must live with this reality; they must accept that the conditions created for their earnings are because of the business environment, not just their individual efforts. Taxes and income are not rational issues; they are very personal issues. Therefore, explanations by the bureaucrats that make them macro issues should be avoided as they tend to create more tension. A secretary explains that long-term tax for property will be beneficial because they have done the calculations, which makes it even worse. You can’t generalise and rationalise a personal problem into a macro issue. Silently accepting that it’s a change and explaining the change is enough.
The market speculators will shrug off the taxation, and volumes will go up as they have to maintain their income levels. The regulators, Finance Ministry and tax officials cannot solve the problem of higher speculation in the future or option or stock market in general through taxation. System safeguards are more important to keep the stock market safe and are essential rather than random efforts to curb speculation. Speculation has always been high in Indian markets, and its value has increased with the ability to take disproportionate exposure through derivatives. This is a regulatory and stock exchange issue and should not be treated as a taxation issue.
The Budget also focuses on agriculture and the need for natural farming, which is a welcome shift. As a State subject, it is essential that the State is co-opted and a more precise definition of natural farming is made. Currently, neither the Central nor the State Governments clearly define what practices constitute natural farming. Moreover, the loss of soil cover is leading to experts recommending regenerative farming as an option. This shift is not easy for the farmers or any system in the world because of the inertia. However, it is essential that this shift happens and policymakers need to make this a priority. The Budget can make allocations and schemes and define some incentives. However, making this happen requires a mission-based approach by the Central and State Governments.
