With the union budget exercise gathering momentum and Finance Minister facing the worst of challenges of presenting budget in the backdrop of economic disaster caused by Covid, the hope of an economic turnaround continues in the mind of every Indian. Few suggestions for the consideration of Finance Minister as follows : –
1. Cess / Surcharge
√ Competitiveness of economy with one of lowest tax rates in the world
√ Attracting foreign investments
√ Improving manufacturing base of the country
√ Ease of doing business.
2. Cost economics of Agriculture output
3. Gross capital formation
Gross capital formation (formerly gross domestic investment) as percentage to GDP has gone below 29 per cent in 2019 ( pre covid) and it had averaged around 35% till 2013. This compels the need for an immediate boosting of economic growth and increasing the rate of gross capital formation by boosting domestic savings and promoting a climate for industrial growth. With enough room created post standoff with China to boost domestic manufacturing, now road is getting ready for higher capital investments. It is important to evaluate the currently prevailing anomaly of lower rates of interest and higher rate of inflation. On the top of that the interest income is subjected to taxation which effectively results in continuous erosion of principal value of deposits held with commercial banks. Our banking system has already been plagued with high proportion of non-performing assets and can ill afford any potential flight of deposits for want of better economics. An immediate attention is needed to at least raise the minimum dispensation for interest earned in banking deposits of every kind to at least one lac fifty thousand per annum.
4. Income from Salary
Finance Ministers have gone on record with respect to higher effective incidence of taxation on the salaried class with tax deduction at source by the employer and having to pay tax on entire income except marginal reliefs of modest standard deduction and few deductions subjected to savings etc. In the last budget, estimates for personal taxation were raised with increase in surcharge and possibility of expanding the individual tax base. However, long pending need to reformulate the taxation of salaries in line with modern trends of CTC structures of compensation remains unaddressed. After paying GST with heavy cess and registration charges etc, it makes very little sense to also value perquisite as per the age old system when total number of motor cars were very handful. It makes imminent sense to do away with the perquisite taxation of motor car and similar mundane provisions. Massive job losses faced by salaried class also deserves a special consideration of availing deduction for paying rent even for the period of no salary income at least for the current financial year.
5.Balancing the economic growth and fiscal challenge
Growing demand for defence expenditure, imminent shortfall in projections for revenue collections and demand to provide stimulus to restart the economic growth poses a herculean challenge before the budget makers. While a larger fiscal deficit maybe inevitable, it would make ample sense to shift focus to raising higher non fiscal revenue. Apart from expediting disinvestment in PSUs, additional suggestions inter-alia few out of box ideas for raising financial resources are as follows : –
i. Evaluate the possibility of zero coupon Covid Bond with a duration of Ten years and the redemption price be linked to incremental economic growth over the base period of 20-21. This would mean no burden of interest provision and incentivize economic growth to service the bond maturity.
ii. Mandatory transfer of fifty thousand rupees from the savings account held with banks maintaining a balance of over five lacs for the last 24 months to a Covid bond of 3 years. Banks should be allowed to lend against the covid bond to the depositor at the rate of interest of saving bank. This would generate large funds for the government without any need to levy a Covid cess and carry acceptance of general public.
iii. Reduce capital expenditure allocation requests from PSUs slated for disinvestment, stake dilution and decontrol. Last year PSU capital expenditure was 6.7 lac crores and a fifty percent reduction equates of generating 3 lac cr which would be helpful in bridging the likely shortfall of 4 lac crore in direct tax collection in current financial year.
iv. Cut the expenditure on Agriculture which has gone up nearly thirty five percent plus post 2019. Cost economics of agriculture need serious consideration to constructively correct the imbalance of expenditure.
v. Convert a portion of annualized pension liability to special bond against which loan can be taken on subsidized rates of interest. This will help cut the fiscal deficit and contain the interest cost which remains one of the single largest concerns of rising fiscal deficit.
To sum up Indian citizens, foreign investors and institutions carry high expectations hovering around serious reforms and impactful long term economy friendly announcements from this budget. I do hope that FM will Think Big and Act Bold to make the Budget Beautiful for paving an economic growth…..