Budget 2024 Explained: Why Are People Angry?

Summary

The video script discusses the Indian government's recent budget and its impact on consumer mood and private consumption. It criticizes the lack of significant income tax reductions and the increase in various taxes, including those on the stock market, which have left taxpayers dissatisfied. The script also addresses the government's focus on infrastructure and jobs, questioning the feasibility of their promises and the absence of a clear vision for structural changes to boost the economy. The speaker suggests that without improvements in urban governance and a fairer tax system, including agricultural income, the budget may not effectively stimulate consumption or trust among the urban elite.

Takeaways

• 😕 Consumer Mood Impact: The lack of significant income tax changes and increased taxes in the stock market have negatively affected consumer mood, which is crucial for increasing private consumption.
• 📉 Tax Changes: The budget introduced changes to the income tax regime with little benefit to the salaried class, and increased taxes on short-term and long-term capital gains, leading to public dissatisfaction.
• 💼 Government Promises: The government's promise of 'maximum governance, minimum government' is being questioned due to perceived reductions in retail participation in the stock market.
• 🏢 Corporate Earnings: Indian companies have seen significant earnings growth, mainly from the rich, but are hesitant to invest due to concerns about future consumer spending.
• 💼 Economic Focus: The government's budget aimed to increase domestic consumption by providing reasons for the wealthy to spend and creating jobs for the less affluent.
• 📈 Stock Market Concerns: The government's tax changes were intended to prevent the stock market from overheating and reduce speculative trading, which has upset investors.
• 🏠 Property Taxation: The removal of the indexation benefit for property sales means taxpayers will have to pay taxes on the full appreciated value, not accounting for inflation.
• 🤔 Public Anger: Urban taxpayers are angry due to the lack of tax rate decreases, increased capital gains tax, and the removal of the indexation benefit.
• 🌆 Urban Governance: The quality of life in Indian cities is suffering due to poor infrastructure and public services, leading to a lack of trust in the government's ability to improve conditions.
• 🚀 Job Creation: The budget's focus on job creation and skilling is promising, but the feasibility and execution of these plans are uncertain and will be crucial for increasing consumption.
• 🏛️ Infrastructure Investment: The Modi government has pledged a record amount to infrastructure, but there is skepticism about whether this will translate into increased consumption and economic growth.

Q & A

What is the main issue affecting the Indian economy as discussed in the script?

The main issue affecting the Indian economy is consumption, with people not spending money due to insufficient earnings.

How did the increase in net sales and profits of Indian companies between 2018 and 2022 reflect the economic disparity?

The increase in net sales by 52% and net profits by 187% indicates that the companies mainly earned from the rich, showing a disparity as the majority of the population was not benefiting from this growth.

What was the government's strategy to increase domestic consumption as per the budget?

The government's strategy included giving people with money other reasons to spend it and providing jobs to those without money so they can spend in the future.

What changes were made to the income tax regime in the budget, and how did they affect the consumers' mood?

The standard deduction was reduced, and some income tax slabs were changed, offering minimal benefits to salaried employees and affecting the consumers' mood negatively due to the lack of significant tax relief.

Why were the taxes on financial assets in the stock market increased according to the script?

The taxes on financial assets were increased to prevent the stock market from overheating and to discourage speculative trading, which the government saw as a form of gambling.

What is indexation in the context of taxation, and why was its removal a point of contention?

Indexation is a benefit that adjusts the cost of an asset for inflation, saving taxpayers from paying taxes on the increased value due to inflation rather than actual gains. Its removal made selling property less favorable as taxes would now be calculated on the total gain, not adjusted for inflation.

How does the script describe the urban taxpayer's reaction to the budget?

The urban taxpayer is angry because tax rates did not decrease, capital gains tax increased, and the indexation benefit was removed, with no clear improvements in quality of life or urban governance in return.

What is the script's view on the government's approach to urban governance?

The script criticizes the government for focusing on identity politics rather than improving urban governance, which is seen as lacking in accountability and effectiveness.

What is the script's perspective on the disparity between tax on salary income and the lack of tax on agricultural income?

The script points out the unfairness of taxing salary income while exempting agricultural income, which is often misused by wealthy farmers to avoid taxes.

What measures did the government announce in the budget to address job creation and skill development?

The government announced direct benefits for new workforce entrants, internships in top companies, and infrastructure spending, although the feasibility and execution of these measures are questioned.

What is the script's overall assessment of the government's budget strategy?

The script views the budget as conservative, with a focus on reducing fiscal deficit and a lack of fundamental and structural changes to significantly boost consumption or address job creation.

Outlines

00:00

🤔 Consumer Mood and Taxation Impact on Economy

The first paragraph discusses the importance of consumer sentiment in boosting private consumption and the disappointment stemming from the lack of significant income tax changes in the budget. It highlights the frustration of urban taxpayers due to increased taxes and the removal of indexation benefits. The speaker questions the government's approach to governance and its impact on retail participation in the stock market. The paragraph also touches on the broader economic context, focusing on consumption as a key driver of the GDP and the challenges faced by the Indian economy, such as insufficient spending due to low earnings. The disparity in sales growth between affordable and premium brands illustrates the concentration of wealth and the reluctance of companies to invest their profits due to concerns over market saturation and the limited purchasing power of the rich.

05:00

😠 Tax Changes and Their Ramifications on Consumer Mood

This paragraph delves into the specifics of the tax changes that have affected consumer sentiment negatively. It details the minimal benefits of the new income tax regime, with a maximum saving of Rs. 17,500 for salaried employees, and the lack of benefits for those in the old tax regime. The increase in short-term and long-term capital gains tax rates has upset investors. Additionally, the securities transaction tax hike on futures and options is criticized as it makes stock market investments more expensive. The paragraph also explains the concept of indexation and its removal, which impacts property sales and taxes. The overall sentiment is one of dissatisfaction with the government's approach to taxation and its effects on the quality of life and urban governance.

10:02

🏛️ Urban Governance and the Distribution of Power

The third paragraph addresses the issue of urban governance and the need for improved management of city infrastructure and services. It criticizes the concentration of power at the central and state levels instead of empowering local governments, which is evident in the allocation of funds. The speaker argues that identity politics distracts from urban issues and that the government's focus on infrastructure, while commendable, faces execution challenges. The paragraph also raises the question of tax equity, pointing out the disparity between taxing the salary class and exempting agricultural income, and suggests that tax should be based on income, regardless of its source.

15:06

🛣️ Infrastructure Spending and its Political Implications

The final paragraph examines the government's commitment to infrastructure spending, with a proposed record amount of Rs. 11 lakh crore, and its focus on certain states due to political alliances. It questions the government's conservative fiscal approach, aiming to reduce the fiscal deficit, and suggests that the current consumption situation may not be as dire as perceived. The speaker also critiques the government's reliance on infrastructure as a means to stimulate the economy, implying that other fundamental and structural changes may be necessary for long-term growth and job creation.

Keywords

💡Private Consumption

Private consumption refers to the spending by individuals on goods and services. In the video's context, it is a critical factor for economic growth, as it is highlighted that people in India are not spending enough due to insufficient earnings. The script mentions that increasing private consumption was a goal of the budget, but the lack of significant income tax reductions may have hindered this objective.

💡Income Tax

Income tax is a mandatory financial charge imposed by the government on an individual's earnings. The script discusses the expectation of income tax reduction to stimulate private consumption, but instead, it notes only minor changes such as a reduction in the standard deduction and adjustments to tax slabs, which may not significantly benefit the average taxpayer.

💡Capital Gains Tax

Capital gains tax is levied on the profit made from the sale of an asset that has increased in value. The script points out that the budget increased the tax rates for both short-term and long-term capital gains, which has upset investors as it makes investing in the stock market more expensive.

💡Securities Transaction Tax

Securities transaction tax is a tax on the sale or purchase of securities such as stocks and bonds. The script mentions an increase in this tax, particularly on futures and options, as part of the government's strategy to cool down an overheated stock market and discourage speculative trading.

💡Indexation Benefit

Indexation is an adjustment made to account for inflation when calculating capital gains for tax purposes. The script explains that the removal of the indexation benefit means taxpayers will have to pay taxes on the total increase in the value of an asset, including the portion due to inflation, which has angered many property sellers.

💡Urban Taxpayer

The term 'urban taxpayer' refers to individuals living in urban areas who are subject to various taxes. The script discusses their discontent due to the lack of tax rate reductions, increased capital gains tax, and the removal of the indexation benefit, which collectively affect their financial situation negatively.

💡Quality of Life

Quality of life encompasses the overall well-being and standard of living of individuals, including factors like infrastructure, public services, and environmental conditions. The script suggests that urban taxpayers are not just concerned about the amount of taxes they pay but also about the quality of life they receive in return, which they perceive as poor in many Indian cities.

💡Fiscal Deficit

Fiscal deficit is the gap between a government's total revenue and its total spending. The script indicates that the government is taking a conservative approach by aiming to reduce the fiscal deficit, which may reflect a belief that the current consumption situation is not desperate enough to warrant immediate large-scale spending.

💡Infrastructure

Infrastructure refers to the basic physical and organizational structures needed for a country or region to function, such as roads, bridges, and public transport. The script notes the government's focus on infrastructure spending, particularly highlighting projects in Bihar and Andhra Pradesh, which some view as politically motivated.

💡Job Creation

Job creation is the process of generating new employment opportunities. The script discusses the government's announcements regarding direct benefits and internship schemes aimed at new entrants to the workforce, but it questions the feasibility and effectiveness of these measures in the absence of broader economic conditions that support growth and hiring.

💡Middle Class

The middle class is a socio-economic group that falls between the working class and the upper class. The script touches on the debate surrounding the definition of the middle class in India, noting that many individuals may overstate their class status. It also discusses how economic reforms have favored the urban elite, potentially leaving the 'actual' middle class behind.

Highlights

The mood of consumers is crucial for increasing private consumption.

Consumer mood was negatively affected due to lack of significant income tax changes and increased taxes in the stock market.

People are frustrated with the government's approach to governance and its impact on the stock market.

The urban taxpayer is upset due to unchanged tax rates, increased capital gains tax, and removal of indexation benefits.

The Indian economy's main problem is consumption, with people not spending enough due to low earnings.

Between 2018 and 2022, net sales of 5000 listed companies increased by 52% and net profit by 187%, indicating wealth concentration.

Companies are not investing their profits due to fear of limited spending capacity among the rich.

The government needs to increase domestic consumption by giving people reasons to spend and providing jobs for those without money.

Income tax changes in the new regime offer minimal benefits, disappointing many taxpayers.

Tax increases on short-term and long-term capital gains have upset investors.

The government's tax changes aim to prevent the stock market from overheating.

The removal of the indexation benefit increases the tax burden on property sales, affecting urban taxpayers.

Urban taxpayers are angry due to lack of improvements in quality of life despite paying taxes.

The government's focus on urban infrastructure is seen as a positive step but its execution is crucial.

There is a call for taxing agricultural income to address the disparity in tax burdens.

The budget has reduced trust between the Modi government and the urban elite, who are unsure of what they are getting in return for their taxes.

The government's focus on jobs and skilling is seen as a positive move, but feasibility and execution are questioned.

The budget's conservative approach and focus on reducing fiscal deficit are highlighted.

The government's infrastructure promises, particularly in Bihar and Andhra Pradesh, are noted.

The budget's lack of vision for fundamental and structural changes is criticized.

Transcripts

'Many times, the mood of the consumer is also important

to increase private consumption.'

'But unfortunately, the mood was ruined

because there wasn't much change in the income tax,

but many other taxes were also increased in the stock market.'

'Now, people are angry

because the government that had said maximum governance, minimum government,

is reducing retail participation in the stock market.

'Looking at the whole situation, the urban taxpayer is angry

that tax rates haven't gone down, capital gains tax increased,

and indexation benefit was removed.'

'What did we get in return?'

'But there is some criticism that I don't agree with.'

'These days, social media has become a place where everyone

call themselves middle class.'

In February 2020, at the CNBC award function,

Maharashtra's then Chief Minister Uddhav Thackeray gave a speech

on the occasion of the budget, which went viral.

The most successful finance minister is the one

who picks someone's pocket, and the person never gets to know about it.

So, was Finance Minister Nirmala Sitharaman able to do this in this budget?

In this video, I'll talk about taxes, why people are angry with this budget,

and how this budget will affect our country.

Before discussing the budget, let's first understand the context.

What is the situation of our Indian economy?

What are the problems of our economy?

If you've studied economics,

you'd know that there are four things in the GDP.

Consumption, investment, government spending, and net exports.

The main problem in the Indian economy is consumption.

In other words, people in our country are not spending money.

Why aren't they spending money?

Because they're not earning enough.

This leads to many problems.

Let me give you an example.

In the past few years, Indian companies have earned a lot of money.

Between 2018 and 2022, net sales of 5000 listed companies

increased by 52% and net profit by 187%.

How did these companies earn money in our country?

Mainly from the rich.

For example, Bata, an affordable shoe brand,

in 4 years, its sales increased by 20%.

While Metro, a premium brand of shoes,

its sales increased by 70%.

I talked about this in this video,

how many companies focus on a few cities

because that's where money is concentrated.

Let's take the example of Zomato.

5% of Zomato's customers are responsible for 45% of their orders.

These companies are earning a lot of money,

but they're not investing their profits.

Why?

Because they're afraid that after investing, they won't get any money.

Because even the rich have a limit in our country.

If you sell your goods to them, where will you go after that?

Ex-Chief Economic Advisor of India, Arvind Subramaniam,

talked about this when he said that

Modi-nomics hasn't increased investment in our country.

Companies will invest only when they believe

that people will spend money and buy their goods.

So our government had to do one thing through this budget.

They had to increase domestic consumption.

This can be done with two things.

First, give people with money some other reason to spend it.

Second, give jobs to those who don't have money

so that they can spend their money in the future.

Now that you've understood the context of our problems,

let's see if the government tried to do the same or not.

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First, let's talk about income tax.

Many people hoped that income taxes would be reduced

so that private consumption could kick-start.

But that didn't happen.

Two changes were made.

First, the standard deduction was reduced in the new income tax regime.

Standard deduction is the amount that you can deduct from your income

without having to pay any income tax.

It was increased from Rs. 50,000 to Rs. 75,000.

Many income tax slabs were also changed.

So, what benefits will people get from it?

Very little.

"As a result of these changes, a salaried employee

in the new tax regime stands to save up to Rs. 17,500 in income tax."

According to the new tax regime, the maximum benefit is Rs. 17,500.

And since nothing has been done in the old tax regime,

you won't get any benefit.

Many times, the mood of the consumers is also important

to increase private consumption.

But unfortunately, the mood was affected

because not much was changed in the new income tax regime.

Apart from that, many other taxes were increased in the stock market.

"Short-term gains on certain financial assets

shall henceforth attract a tax rate of 20%."

"Long-term gains on all financial and non-financial assets

will attract a tax rate of 12.5%.

For example, the short-term capital gains tax

which is imposed on assets that you hold for less than a year

was increased from 15% to 20%.

Whereas the long-term capital gains tax

which is imposed on assets that you hold for more than a year

was increased from 10% to 12.5%.

Many investors are not happy with this.

Apart from this, the securities transaction tax

was also increased on futures and options.

People are obviously angry with these changes.

But if you've read the recent statements of SEBI or the Finance Ministry,

it shouldn't be surprising.

I talked about this in a recent video.

In fact, a day before the release of the budget,

the government's economic survey said that

the Indian market has been over-financialized.

That is, Indian families are investing their savings in the stock market heavily.

And this was what the government feared.

They thought that the stock market is overheating.

Apart from this, it's an open secret that options trading

is a madness in the Indian market.

Many people aren't using options and futures to hedge their trades.

Instead, they're gambling on them

because they want to earn 10 crores in 10 days.

I talked about this in a recent video.

You can watch it later.

So, the government introduced all these tax changes

so that the stock market doesn't overheat.

And because of this, investing in the stock market

has become more expensive.

People are angry because

the government that said maximum governance, minimum government

is reducing retail participation in the stock market.

Especially when many families are entering the stock market.

But now, you'll have to pay more taxes not just on the sale of stocks,

but also on the sale of property.

Because the government has removed the indexation benefit.

What is indexation?

Indexation basically saves a taxpayer from inflation.

Let's say you bought a house worth 10 lakhs 15 years ago.

Today, you're selling it for 20 lakhs.

But in 15 years, there's been inflation.

So, the price of the house has doubled not just because of its value,

but also because of inflation.

So, let's say the government says that

the house's value has increased by 6 lakhs because of inflation.

Then you'll have to pay taxes not on 10 lakhs, but on 4 lakhs.

But now, the benefit of inflation has been removed.

So, if you sell this property today, you'll have to pay taxes on 10 lakhs.

The tax rate has indeed gone down.

It's reduced from 20% to 12.5%.

So, you'll have to decide whether reducing the tax rate

or removing the indexation benefit will result in a net profit or net loss.

Simply put, if you've been holding the property for many years,

then, on average, you'll be at a loss.

So, looking at this situation, the urban taxpayer is angry.

Because the tax rates didn't decrease, the capital gains tax increased,

and the indexation benefit was removed.

What did we get in return?

In this situation, will people spend money?

And if they don't, how will the country's consumption increase?

There are two reasons behind this anger

that's not mentioned in the budget.

The urban taxpayer doesn't have a problem with paying taxes.

The problem is what they're getting in return.

Mainly, quality of life, which I've made many videos on recently.

In Indian cities, the road infrastructure, public transport,

air pollution, and waste management systems

are so worse that where there's no involvement of the government,

mainly inside the homes, life is good there.

But as soon as you step out of the home, problems start.

Delhi is famous for its garbage landfills.

Gokhale Bridge and Barfi Flyover don't connect in Mumbai.

And roads in Bengaluru are like the craters of the moon.

This problem isn't due to a lack of money, but because of accountability.

The people who are responsible for our cities

have so little accountability

that no matter how much garbage there is in the city,

they aren't asked questions.

If urban management improves in our country,

many people will be willing to pay a 30% marginal tax.

The Central government isn't solely responsible for this.

The state and local levels will have to play a role as well.

But I haven't received any signal from any central or state government

that urban governance is their main priority.

To improve urban governance,

the Prime Minister and Chief Ministers have to reduce their own power.

And they don't want to do that.

To improve the situation of our cities,

we have to give more money and power to the local level.

But in India, the reverse is taking place.

Take a look at this graph.

In the US and China, most of the money is spent on local government.

But in India, it's the opposite.

The government's attention is limited.

They also have only 24 hours a day.

If they're going to spend these 24 hours deciding

whether a Muslim shopkeeper should write his name outside the shop or not,

it means that they're not paying attention to urban governance issues.

Because such identity politics does give you votes,

but cities don't improve.

The government has undoubtedly talked about urban infrastructure in its budget.

Like they said that they want to make cities growth hubs

with better transportation.

They also said that they want to improve the water supply,

sewage treatment and waste management in 100 big cities.

Announcing this is a good step, but it's an easy one.

It'll be difficult to execute

and this will decide whether the taxpayer is getting anything in return.

Another reason why urban taxpayers are so angry

is that there's tax on the salary class

but no tax on agricultural income.

Why is that?

It's crucial to ask this question.

A few years ago, an RTI found out that

agriculture grew by 3-5% in our country,

but the declared agricultural income to tax authorities

is 20 times more than GDP.

So people are misusing this system so that they don't have to pay taxes.

Raju Awasthi, a specialist at the World Bank,

said that we should tax rich farmers,

like those who own more than 10 hectares of land.

Tax should be on the basis of income,

whether it's from agriculture or elsewhere.

But there's some criticism that I don't agree with.

It's a fashion on social media to call yourself middle class.

That's why a driver considers himself middle class.

And the boss sitting in the back belives the same.

The average monthly salary in Indian cities is only Rs. 20,000.

But those who earn Rs. 2 lakh call themselves middle class.

One thing we should realize is that after the reforms of 1991,

our economy has favored the urban elite.

That's why software engineers are earning a lot of money.

Because our governments focused more on the service industry

and not on manufacturing.

That's why people like me have benefitted.

But the actual middle class people

who could get good jobs through manufacturing, didn't benefit.

Because the service economy needs English and computers

which they have never learnt.

If we put aside the middle class debate,

the budget has reduced the trust between the Modi government

and the urban elite, who are their core supporters.

They don't know what they're getting in return of the taxes they pay.

That's why it's difficult to say

whether consumption will increase in our country or not.

Now, let's move to the second way to increase consumption.

That is, to give jobs to those who don't have jobs.

The government has announced many things for jobs.

For example, the government will transfer direct benefits

of one month's salary in three instalments

to those who are new to the workforce.

The finance minister said that this will benefit more than 2 crore people.

She also talked about a scheme under which

1 crore people will get internships in the top 500 companies in the next 5 years.

1 crore people, 500 top companies, and 5 years mean that

the companies will have to give internships to at least 4,000 people annually.

Is this feasible?

It's right to focus on jobs and skilling.

But the real test will be when it's executed.

Because a company won't just give internships to 4,000 people

because of financial incentives.

A company gives internships if it benefits them in some way,

which means when the company is growing.

If the company's revenue isn't increasing, why would it give internships?

It's not because of money but because of economic conditions.

So it's better for the government to improve infrastructure to increase jobs,

reduce regulation, and promote low-value manufacturing.

Because low-value manufacturing is the only way

where shoes and T-shirts are made to give jobs to millions of people.

But we haven't seen such ideas in the budget

that could revolutionise our country's job situation.

Rohit Lamba, an economist, wrote that

the budget didn't have a vision for fundamental and structural changes.

So, people aren't convinced that the budget will increase our consumption.

In fact, they believe that the Modi government didn't do anything new.

They focused on the things they were focusing on earlier.

For instance, infrastructure.

The Modi government promised that

they will spend a record Rs.11 lakh crore,

i.e. 3.4% of GDP, on infrastructure.

We've seen this focus in the last 8 years.

A significant focus of infrastructure was on Bihar and Andhra Pradesh

because they are the coalition partners of the BJP.

So, many people believe that this budget was for Andhra Pradesh and Bihar.

The government announced that they will spend Rs.26,000 crore

to build expressways like Patna-Purnia, and Bhagalpur-Buxar.

And a two-lane bridge will be built in Buxar.

We can only hope that the government chooses a good contractor.

And not someone who built this.

If you look at this budget closely,

the Modi government took a conservative approach.

They're mainly concerned about the fiscal deficit.

They want to reduce the fiscal deficit.

In fact, when the target was 5.1% earlier, now it's 4.9% of GDP.

So the government decided to save money and spend it in the future.

Because according to them,

India's consumption situation is not that desperate.

What do you think?

Is it desperate or not?