Rajrishi Singhal: The budget touches but doesn’t feel and speaks but leaves much unsaid

But disappointment lay elsewhere. The budget failed to go the distance in offering taxpayers long overdue justice by evening out the skewed power balance between individuals and the corporate sector. At the same time, it might be worth acknowledging that the near-universal appreciation of the budget’s generous overture to salaried income-tax payers is also leavened with some degree of scepticism.

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This is because of its in-built limitations: it can perhaps reverse some of the stagnation in consumption, even while partially scoring some electoral goals in immediate elections, but does not seem designed to create a step-change in either consumption or financial savings.

The reasons are simple. For one, part of the increase in disposable income is likely to be eroded by inflation. Amid predictions of inflation easing over the next 12 months—Reserve Bank of India has forecast an inflation rate of 4.2% during 2025-26, with food prices settling in predictable territory—there are many disruptive variables that could upset projections. This includes extreme weather events. 

There are other unsettling elements in the price index. The Acko India Health Insurance Index in September 2024 showed that healthcare costs in India are rising 14% annually. Education costs are estimated to be rising by around 12%. In addition, even those who manage to escape the income-tax dragnet cannot dodge the goods and services tax, collections of which are budgeted to rise 11% during 2025-26.

Given these limitations, there were hopes that the budget design would spur capital spending and incentivize hiring by large corporates to expand the pool of salaried employees. The budget seems to have, instead, focused its energies on inducing micro, small and medium scale enterprises (MSME) to sort out the economy’s structural problems of persistent unemployment and wage stagnation.

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The budget’s spotlight on leather, footwear, toys, textiles and food processing—apart from the enhanced turnover and profit limits for MSME classification—seems to be tasking MSME units with shouldering the responsibility of job creation. 

While it is true that MSMEs can also power economic growth, as seen in many economies, what comes across as positively curious is the policy framework endorsing a privileged position for large corporates, showering them with benefits without holding them accountable.

Large corporations have been the biggest beneficiaries of low tax rates for over five years, but seem to have reneged on the understanding behind the lowering of corporate tax rates in September 2019: higher domestic investment that would lead to higher employment and greater economic activity.

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Like every year, this time also the ‘receipts budget’ examines the actual tax collection from the corporate sector for 2022-23: “The effective tax rate of companies with PBT greater than ₹500 crore is 19.77%, which is lower than all the companies having profit before taxes below ₹500 crore. This highlights that the larger companies are availing the higher deductions and incentives or have shifted to the new regime of lower tax rate of 22% plus cess and surcharge." PBT stands for profit before tax.

According to the budget’s estimate, the revenue forgone on corporate taxes for 2023-24, due to various incentives and concessions, is likely to be even higher than 2022-23.

Illustratively, the revenue collection from corporate taxes seems to be slowing down over the years, while personal income taxes have held up. It is in this context that the Economic Survey for 2024-25 notes with some anguish: “A striking disparity has emerged in corporate India: profits climbed 22.3% in FY24, but employment grew by a mere 1.5%…While the labour share of GVA shows a slight uptick, the disproportionate rise in corporate profits—predominantly among large firms—raises concerns about income inequality. A higher profit share and stagnant wage growth risk slowing the economy by curbing demand." GVA or ‘gross value added’ is a measure of all the goods and services produced in the economy minus the cost of inputs and raw materials used.

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What makes the trend even more egregious is promoters and senior management of India Inc using rising profits to enrich themselves while neglecting the rest of the workforce. Various studies have shown how the compensation gap between chief executives and the median employee has been widening every year. 

Writing in Mint recently, Ravi Venkatesan, former chairman of Microsoft India, noted that the increasing divergence between soaring corporate profits and stagnant employee wages reflects a disconnect between economic growth and human dignity.

Also Read: Stagnant wages amid fast economic growth: We need an Indian Enlightenment

As long as policy statements like the budget miss an opportunity to level the playing field and correct the social skew that has entrusted large companies and their CEOs with unjustifiable tax breaks and immoderate powers, without accounting for their tardy contribution to economic growth, the country’s Viksit Bharat ambitions will continue to remain on paper.

The author is a senior journalist and author of ‘Slip, Stitch and Stumble: The Untold Story of India’s Financial Sector Reforms’ @rajrishisinghal