Print Friendly, PDF & Email



In an attempt to prop up a sagging economy, the Union Budget 2020-21 has unveiled an alternate income tax regime hoping that it will increase household disposable income and provide the much needed fillip to consumption.

The government has provided taxpayers the option of shifting to the new regime with lower tax rates, provided they forego all their exemptions and deductions.

As tax payers tend to take advantage of exemptions and deductions to channel part of their income towards physical and financial savings, however, this measure, while meant to incentivise consumption in the short run, may end up reducing household savings and thus the domestically available investible surplus in the economy. Considering the fall in the savings rate in the economy, it is surprising that the budget has chosen not to incentivise domestic savings.


In an economy, savings form the pool of investible surplus. In India, the surplus savings of households are absorbed by the government and the private corporate sector.

As per the 12th Finance Commission, the total transferable savings of the household sector were around 10 per cent of GDP, which combined with a current account deficit of 1.5 per cent, would be enough to finance the government (Centre and states) fiscal deficit of 6 per cent of GDP, fulfill the funding requirement of the private corporate sector of around 4 per cent, and of non-departmental public enterprises to the tune of 1.5 per cent.


But, over the past years, household savings in the economy have been falling, as with sluggish income growth, they have been dipped into for financing consumption, and borrowings have also increased — incremental financial liabilities of households have in fact risen from Rs 3.8 lakh crore to Rs 7.65 lakh crore in 2018-19. Latest data also shows a decline in both gross and net (excluding financial liabilities) household financial savings in 2018-19.


Perhaps the government is hopeful that the decline in domestic savings will be offset by the flow of savings from the rest of the world. The budget has raised the limits for foreign investment, and has offered incentives to sovereign wealth for investing in India. But the focus should have been to create a pool of domestic savings to finance long-term investments in infrastructure, especially at a time when the government has unveiled an ambitious infrastructure pipeline.



Prime Minister of India broke his silence on the ongoing protests against a discriminatory citizenship law at Shaheen Bagh among other places but only to sound off key.

It is no “sanyog (coincidence)” that protesters have gathered at Seelampur, Jamia or Shaheen Bagh, PM Narendra Modi said, but a “prayog (experiment)” — “iske peeche rajneeti ka ek aisa design hai jo rashtra ke sauhard ko khandit karne ke iraade rakhta hai”, there is a design that aims to destroy amity in the country.

That statement is problematic because it seeks to frame the democratic expression of opposition to a law passed by government as something sinister.

If the prime minister, no less, frames the election as one between the BJP and conspirators against the nation, then Messrs Anurag Thakur, Yogi Adityanath, and Parvesh Sahib Singh Verma, who was fielded in Parliament by his party soon after being banned from campaigning for hate speech by the Election Commission, must not be seen as transgressors. They are loyal footsoldiers in a concerted assault on the norms of political civility.

And yet, the labelling and vilification of the protests against the CAA in the course of the campaign for Delhi is different, and worse. Here, the BJP and the PM are not just aiming barbs at their political rivals but also, and more, at the people. The anti-CAA protests that have erupted in Delhi and across the country and that are overwhelmingly peaceful and evidently leader-less are being relentlessly baited and targeted by the ruling party — instead of being listened to or engaged with.


It may be that the BJP’s rhetoric will lose its harsh edge once Delhi has been won and lost. It may be that the moderating impulse that compelled the PM to take a step back from a nation-wide NRC in another speech that launched the BJP’s Delhi campaign will return. Meanwhile, this systematic trashing of the protest raises questions on the government’s willingness and ability to talk to its own people without calling them names. It is not the protests that threaten amity, it is their demonisation which does that.



Leave a Reply

%d bloggers like this: