Editorial: Sitharaman’s small mercies

The Union Budget is all too often an exercise in managing middle class perceptions, and Nirmala Sitharaman’s eighth edition is remarkable for its bid to win over a class that loves the Prime Minister, but not her. For six years, the finance minister has been the flak-catcher for Narendra Modi, but lately there have been signals that the salaried section’s ardour for the leader himself has worn thin and some serious assuaging was called for. The tax break Sitharaman has served in this year’s budget to income-tax payers is a result of the BJP’s realisation that its favourite constituency is slipping away.

However, given the government’s propensity to leap and then look, this sop to the middle class may end up in a thud as well. Just as we saw when it announced a new tax regime without Section 80C deductions and then made it optional in 2020, or when it announced changes to capital gains tax rates last year and then modified the fine print in the face of a public furore, the new escalating income tax slabs unveiled on Saturday may yet spring surprises. We have it on the FinMin’s authority that those earning less than 12.75 lakh per month need not pay any tax, reckoning a standard deduction of Rs 75,000. But what about those in the bracket just above that? Will their tax outgo escalate from zero to many thousands for being just a bit more fortunate? Will we see the piquant situation of a smidgen of a salary hike making one richer and poorer at the same time?

The finance minister says there is likely to be a revenue loss of Rs 1 lakh crore due to this tax break to middle income earners. But we know that she has many arrows in her quiver and who’s to stop her from recouping her loss with some tweaking of GST rates or through the new print in the upcoming direct tax code? What the government giveth with one hand it taketh with another.

What we know from this budget is that this government responds to the loudest voice in the room. When the previous budget was presented in July last year, fresh after Modi’s humbling by voters, unemployment was the ringing truth and Sitharaman hastened to knit a patchwork quilt of youth skilling, small loans and the like. This year, it’s the consumption slowdown season; talk has been all about how Indians are skimping on bare necessities. So, the lady has rushed to put that fire out with this feeble giveaway. The skilling initiative launched last year stands all but forgotten.

The tax break may bring a momentary smile to the small fraction of salaried people in the lowest income slabs who are a small fraction of the broader tax-payer population, who amount to a grand total of 71 million in a nation of 140 crore. It’s a bit facile to assume that a few thousand rupees left in the pockets of those few will boost consumption in the entire country, all else being equal. Sitharaman’s generosity is an admission in a backhanded manner that wage growth—nominal, not real—has stagnated at 6% since 2019 while corporate India’s profit metrics have vaulted in the same time. What story does that tell? 2019 was the year Ms Sitharaman gave a sweeping tax break to corporations and those entities have kept their good fortune entirely to themselves, leaving their employees so parlous as to be grateful for Sitharaman’s small mercies.