Budget is just one more day on our calendar

Income for the government is primarily by way of direct and indirect taxes, customs duties, cess, non-tax receipts etc.

There are limits to the direct taxes that the government can collect. The individual income tax payer base is rather small. Corporate taxes also have to be competitive to ensure industries stay in India, are competitive and provide employment. If the tax goes higher, compliance will be a problem; also this is a political hot potato due to the effect this would have at the next election!

There is already a major pushback against indirect taxes like GST and a clamour for lower rates by various quarters. Some rates have indeed been lowered over a period of time, which impacts the collections. Also, there is a clamour for customs duty reduction – for raw materials ( like customs duty abolition on 25 critical minerals this budget ), capital goods, inputs needed for exports etc.

Hence, it is rather difficult to increase the tax rates. The only way that the direct taxes can increase is through increase in the tax base and income itself; indirect taxes would go up if the consumption goes up.

But the expenses of the government are humongous.

The budget talks elaborately about where they would be deploying the money and which segments would benefit. The current four identified segments are youth, women, farmers and poor. There are programs created to benefit them and substantial allocations for each of these segments.

Also, government needs to run the country, develop infrastructure, spend money on creating / promoting industries, ensure security of the country as well as take care of the various sections of the society and their needs. This generally means that they end up spending a lot more than they earn. It should ofcourse not be like this; but ends up that way, all the same.

The way out is borrowings. The borrowings of the government has been huge, so much so that the interest servicing costs take up 19% of all revenue the government is able to collect! Even with this parlous state of affairs, the government borrowings are condoned and the government papers are seen as “risk-free”!

Economists have given the spin that it is good to run deficits ( especially for developing economies ) as long as it is used to create infrastructure and capacity. The first part is implemented and the second part is observed in the breach!

In the past, budget had been a jamboree where all the big bang announcements used to be made. Over time, it has become a rather sedate affair with the excitement being confined to tax provisions. In the recent past, even that has changed.

There have been very little changes in the income tax provisions and with just some changes pertaining to capital gains, customs duties etc. Lot of the changes, like changes in GST rates for different products happen outside the budget window.

We still spend a disproportionate amount of time on the changes in IT rates, capital gains rates etc. and carp about it. These are beyond our control and venting spleen on this is going to change nothing.

There are some changes on Capital gains – Short term capital gains (STCG) for Equity/ Equity MFs have gone up from 15 to 20% and long-term capital gains (LTCG) have increased from 10% to 12.5 %. The exemption limit for LTCG has gone up from Rs.1 Lakh to Rs.1.25 Lakhs. It appears that for Real estate the LTCG will be 12.5% without indexation. We however need clarity here. There are some other changes as well.

We all have to achieve our goals, create wealth, live comfortably and a budget should not change that trajectory. We should not be so fragile that a simple government provision be able to upend our future.

We need to plan well; have enough slack to accommodate the changes that are bound to come from various quarters. Also, we need to have enough contingencies to provide for uncertain situations and resilience enough to bounce back and achieve our goals, nevertheless.

Budget has come and gone. Let us now get on with life!