Budget is anti-NRI
A N Shanbag
No news is good news, they say.
Similarly, 'no taxes' is good news. In the wake of the current uncertain scenario, Finance Minister Yashwant Sinha appears to have decided to adopt the policy of wait-and-watch.
It was Dr Manmohan Singh's Budget that was appreciated as a trendsetter. P Chidambaram's Budget was seen as an extension of Singh's effort.
Sinha's debut Budget, widely expected to have more emphasis on swadeshi, turned out however to be an exercise in caution, circumspection.
Fortunately, the previous two budgets have had a snowballing effect, which means Sinha's caution will not do us any real harm -- the corollary, that it won't do us any real good, being equally true.
On the agricultural front, Sinha as expected has preferred to be populistic rather than practical.
Augmenting the capital base of National Bank for Agriculture and Rural Development, and providing the farmer with a Kisan Credit Card, are innovations designed to dissuade him from committing suicide.
The level of non-performing assets in nationalised banks will come down temporarily due to the measures announced in the Budget. But care should be taken so that this step does not boomerang in the long run.
Again, Sinha was expected to take innovative measures in attracting non-resident Indian and foreign institutional investor funds. He chose instead to adopt the same old path of offering repairable foreign currency denominated schemes.
Thus, Unit Trust of India's India Millennium Scheme and State Bank of India's Resurgent India Bonds are this year's flavours -- they will attract the same tax concessions as the existing NRI deposits. But when the need was for measures of an on-going variety, what we get are one-offs.
The trouble is that unless the returns are significantly higher, these schemes will not make any difference to the existing situation.
The raising of limits for individual NRI portfolio investments from 1 per cent to 5 per cent, and collectively from 5 per cent to 10 per cent, is unlikely to result in significantly higher inflows -- until procedures for making investments in India are streamlined and smoothened in the first place.
It is every finance minister's dream to achieve it, but Sinha will learn what his predecessors have -- that amendments aimed at streamlining the process end up only creating further complications.
The Persons of Indian Origin cards are meant for the economic, educational, cultural and financial benefit of NRIs holding foreign passports. But I am not too sure that such a person needs the above-mentioned 'benefits' in the first place.
And, as with NRI investment in India, this card and all it entails will remain unutilised unless and until procedures are considerably more streamlined than they are at present.
Interestingly, while the average analyst has been hailing this Budget as very pro-NRI, I find that the reverse is true.
For instance, the 'resident but not ordinarily resident' status, enjoyed by an NRI for a period of nine years after his return to India, has been scrapped in toto.
When the provision was in force, NRIs enjoyed a tax holiday on earnings from abroad. But the new provisions entail that their global earnings will become taxable in India once they cross the boundary of 182 days stay in India during a fiscal year.
To understand this in context, one should recall that, as a first step towards global integration, the government had allowed NRIs to retain their foreign assets abroad. No permission from India's fiscal authorities was necessary to do so.
It was hoped that, eventually, NRIs would realise the futility of keeping money abroad in view of the significantly higher returns and better opportunities available to them in India and bring their assets to India, in spite of the exchange risk.
Now, if upon return to India, this foreign income begins getting taxed, there are only two courses open for an NRI.
The first one is not to come to India at all. The next is to not declare his/her foreign assets in the Indian tax returns.
We are back to square one. Dropping the RNOR status is indeed a retrograde step.
Recently, the ceiling on import on gold through baggage was raised from 5 kg to 10 kg and this had benefited the country a lot.
The Budget has now increased the import duty from Rs 220 to Rs 250 per 10 grams -- yet another retrograde step.
Amendments in the baggage rules have been paid lip-service, especially in view of the rupee's recent slide.
The finance minister, however, has taken three admirable steps that will give much succour to our capital-starved economy.
He has promised that all foreign direct investment proposals would be cleared within 90 days.
Secondly, plan outlay on energy, transportation and communication has been increased by 35 per cent from Rs 452.55 billion to Rs 611.46 billion.
Thirdly, a provision has been made for allowing 10 per cent of the new Provident Fund accretions to be invested in infrastructure projects.
On the personal and corporate income-tax front, there is a sigh of relief.
Apprehensions of increase in rates were happily belied. The increase in the minimum threshold for tax from Rs 40,000 to Rs 50,000 without changing the slabs, will benefit all tax payers across the board.
The tinkering with the standard deduction will marginally help only those employees drawing a salary less than Rs 100,000 whereas those drawing a salary of more than Rs 500,000 will have to pay Rs 6,000 extra tax by way of losing the standard deduction.
The increase in the tax-free reimbursement of medical expenses from Rs 10,000 to Rs 15,000 is another relief to the salaried class.
The 'one-by-six' scheme may indeed prove to be bothersome and harassing to many.
There are a large number of people who, though satisfying one of the six criteria - car and flat owner, travel abroad, etc -- are genuinely non-accesses.
Possibly, senior citizens could have been spared of this harassment. I wonder whether this particular exercise will pass the cost-benefit test.
Moreover, does the department have infrastructure to browse through -- forget assess -- the torrent of returns which will come gushing in?
I have liked Sanmaan immensely. A large number of potential assesses are willing to pay taxes but are scared of entering the IT office for the lack of an encouraging and friendly attitude on the part of the department.
I hope Sanmaan is the first step in that direction.
As far as Saral and Samadhaan are concerned, this was the dream of all the finance ministers of the past and none succeeded, not even by an iota.
On the other hand, they made a bad situation worse. I sincerely hope that Yashwant succeeds.
I was indeed very happy when estate duty was abolished during the Rajiv Gandhi regime. I was similarly pleased when I heard that Sinha has abolished gift tax with effect from September 30, 1998.
But the joy was short-lived. His very next sentence made it clear the 'gift' would henceforth be called 'income' and taxed in the hands of the recipients under the Income Tax Act.
A closer scrutiny makes one realise that this decision has been taken in a hurry leaving many gaping holes. Just one instance.
Suppose a father gives gift to his minor child. It will be treated as income of the minor child. Now, comes the problem. The income of a minor child is clubbed in the hands of the parent having higher income. This means that the father earns income, pays tax on it, gives a gift to his child only to find that he has to pay tax on the gifted amount, once again in his own hands!
Budget '98
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