Mr FM, your basic IT exemption limit is almost as poor as NREGA daily wages

Given the dire financial circumstances left behind by the economic mismanagement of the UPA - high subsidies, low tax revenue growth, and a decelerating economy - one of the key hopes voters may have had of tax relief may be dashed by Arun Jaitley's first Union budget, scheduled for 10 July. He simply does not have enough cash to offer serious increases in the basic tax exemption limit, or for offering higher deductions for savings through the 80C route (PF, LIC premia, etc).
Today's Business Standard (dated 3 July) confirms this hypothesis, and says only a marginal increase in tax exemption limits may happen. So forget about a hike in the basic tax exempt limit from Rs 2 lakh to Rs 5 lakh. You may end up with Rs 2.2 lakh or Rs 2.5 lakh - nothing to sniff at, but hardly the big deal expected out of NDA's first budget.
The problem is the basic tax exemption limit of Rs 2 lakh - when distilled on a per head basis in a family of five - is hardly higher than the daily wage a NREGA wage earner gets. This is, of course, assuming there is only one taxpayer/earner in this family of five (an idea I owe to Sankarganesh Karuppiah's article in BusinessLine yesterday).
Here's the math. If a family of five with one taxpayer/earner is earning Rs 2 lakh per annum, which is the basic tax-free limit, it works out to Rs 110 per head per day (ie, Rs 2,00,000 365 5). This is far, far lower than the minimum wages paid to anyone seeking guaranteed work under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS, or also NREGA).
When last revised in April 2013, the minimum wages under NREGA ranged from Rs 135 for the north-eastern states to Rs 214 in Haryana. OUr Haryana NREGA worker is actually earning twice the salaried guy earning Rs 2 lakh per annum and with five mouths to feed.
I must confess, I have cheated a bit by making this comparison. NREGA wages are for only 100 days a year and that too for one person per household. But then, the presumption is that the wage earner is able to find work at similar or near that wage level in the other 265 days of the year. Moreover, state-level minimum wages are often higher than NREGA minimum wages - which are due for revision again this year due to inflation indexation.
The other thing is I have assumed is only one wage earner per family earning something close to the taxpaying threshold. But this is presumed also in the case of the NREGA wage-earner - only one earner.
The intention is not to compare the taxpayer at the threshold of the basic exemption limit to the poor NREGA worker but to show that effectively the tax-free limit is a joke. It is simply too low in India and needs to move up substantially. This is particularly true of the last five years, when the NREGA worker's wage has been indexed to inflation, but the basic exemption limit has moved barely 33 percent up from Rs 1.5 lakh to Rs 2 lakh over six years. This is actually slower than even inflation over these six years.
In effect, the taxpayer has been gypped by UPA's bad economics, and by leaving an empty treasury they may even have tied Arun Jaitley's hands.
Even so, justice demands that Jaitley make amends and do the right thing.
First, he must promise that the basic exemption limit will be automatically indexed to inflation. If NREGA can be indexed, why not the IT exemption limit?
Second, even if substantial relief cannot be given in the basic limit, he should push up the 80C exemptions from the current Rs 1 lakh to Rs 3 lakh. This would be real growth-inducing reform, since India's investment cycle cannot revive without an increase in the savings rate, which has plunged from 36 percent to 30 percent. Also, this Rs 3 lakh limit can include all the things currently covered by 80C, and the home loans interest exemption of Rs 1.5 lakh as well. This way the government will help both home buyers and savers in one shot. A second benefit is that this Rs 3 lakh limit will enable all taxpayers to have a tax-free income of Rs 5 lakh through judicious investments - even without moving the basic exemption limit beyond Rs 2 lakh.
Third, and this is most important, Jaitley should promise real changes in the direct taxes code and much higher exemption limits in his next budget - due on 28 February 2015. That's not too far away - just over seven months from now.
How about it, Mr J? The UPA's heart bled for the NREGA earner. Good thing, too. Your heart must bleed for the salary earner at the margin who may not be better off.
 
PS: This comparison of basic IT exemption limit to NREGA earnings is not meant to be a serious economic analysis. It is meant to illustrate the low current exemption limit by with an extreme case study.