The Narendra Modi government on Friday proposed to increase taxes on the super-rich and import tariffs on almost 75 products, including gold and automobile parts, but failed to offer tax breaks to the common people or come up with specific measures to re-ignite a faltering economy that has seen the growth rate sink to a five-year low of 5.8 per cent in the January-March quarter.

The budget for 2019-20 is anchored in hope rather than the reality of weak revenues, a floundering investment rate, and a sharp decline in the household savings rate — issues that had been highlighted in the Economic Survey the day before finance minister Nirmala Sitharaman presented her first budget.

The pie-in-the-sky forecasts in Sitharaman’s budget — which has squandered the opportunity to provide some tax breaks to the common man after the massive mandate the Modi government won — starts with the projection of a 12 per cent increase in nominal GDP this fiscal, to a little more than Rs 211 lakh crore from the Rs 188.4 lakh crore that was the revised estimate of the size of the Indian economy in 2018-19.

For the record, stand-in finance minister Piyush Goyal had estimated the nominal GDP growth this fiscal at 11.5 per cent — Rs 210.07 lakh crore — when he presented the interim budget for 2019-20 in February. Sitharaman’s figures leave an unexplained expansion of Rs 93,168 crore.

It is this increase in the nominal GDP forecast that has enabled the finance minister to pare the fiscal deficit to 3.3 per cent and, thereby, signal the Modi government’s commitment to fiscal rectitude.

“I do not think the budget is growth-oriented,” said Godrej group chairman Adi Godrej, articulating India Inc’s deep disappointment with the first budget of the second Modi government.

Focus on optics

Sitharaman, who chose to carry the budget documents wrapped in a red cloth emblazoned with the national emblem while jettisoning the traditional leather briefcase as a symbol signifying a “colonial hangover”, delivered an over-two-hour-long speech that was peppered with noble intentions and grand schemes with no credible explanation of where the money was going to come from.

The budget underlined that the government was only too keen to pass on the burden of investment to home-grown private companies and foreign investors without giving them too many incentives to shovel money into new projects.

The high rollers in the country were spooked by the move to raise the surcharge on income tax which would raise the effective tax rate to 39 per cent for those with taxable income between Rs 2 crore and Rs 5 crore, and 42.47 per cent for those with an income over Rs 5 crore. But this is a tiny fraction of taxpayers.

As a result, direct taxes have gone up by 11.25 per cent to Rs 13,35,000 from the revised estimate of Rs 12,00,000 crore for 2018-19 while indirect taxes have gone up by just 7.3 per cent to Rs 11,19,247 crore from the RE of 10,42,833 crore. The sobering truth is that collections under the goods and service tax – the supposedly bold reform that the Modi government takes a lot of pride in -- have been projected at Rs 6,63,343 crore, down from last year’s budget estimate of Rs 7,43,900 crore.

Big surprise

The announcement that caught the markets by surprise was the Modi government’s decision to raise a part of its gross borrowing programme “in external markets and in external currencies”. The 10-year bond yields swooned to 6.36 per cent as local market men scrambled to assess the implications of an overseas sovereign bond flotation.

Several governments have in the past mulled a sovereign bond flotation on overseas markets but baulked at the idea as they were unsure of the appetite for these instruments, the cost of foreign borrowings, and how it may impact India’s overall debt position.

“We have not decided the exact amount,” finance secretary Subhash Garg told reporters later. “We will come out with a blueprint soon. We think it will ease pressure on domestic resources.”

India’s outstanding external debt – estimated to grow to Rs 2.68 lakh crore by March next year – accounts for 2.7 per cent of overall government debt.

Reforms

Sitharaman announced plans to open up the aviation, insurance and media sectors to foreign investment while throwing a lifeline to the struggling shadow banks (NBFCs) to boost investment and lending in the economy.

The government said 100 per cent foreign ownership would be permitted for insurance intermediaries, and local sourcing norms would be relaxed for FDI in retailers selling a single brand. At the same time, it announced a pension benefit for 3 crore small retailers and shopkeepers with an annual turnover of less than Rs 1.5 crore.

Petrol prices will rise by over Rs 2.50 per litre and diesel by more than Rs 2.30 after the finance minister raised taxes on the auto fuels to part-fund her budget. In Calcutta, the new petrol price will be Rs 75.15 a litre and the diesel price, Rs 68.59 a litre.

The government expects to raise Rs 1.05 lakh crore by selling its shares in public sector enterprises, which is a sharp 31 per cent increase over the divestment proceeds of Rs 80,000 crore last year.

Bank customers will have to worry about large cash withdrawals. The government has slapped a 2 per cent tax to be deducted at source on cash withdrawals exceeding Rs 1 crore in a year.

It has made it mandatory for people to file tax returns if they spend over Rs 2 lakh on an overseas trip or deposit more than Rs 1 crore in a current account.

The government also aims to stoke the retail investor’s interest in equity markets by deciding to raise the threshold for minimum public shareholding from 25 per cent to 35 per cent.

The government wants to hold a business meeting like the one held in Davos, Switzerland, every year, bringing global industrialists, pension and sovereign funds and venture funds under one roof.