Economic Highlights

New Delhi, 1 July 2019

Budget Focus

REVENUE, THE US & SAVINGS

By Shivaji Sarkar

The coming Budget has many expectations. More so, after presenting the interim budget, the then Finance Minister Piyush Goyal hinted that after returning to power the Narendra Modi government would give more relief to taxpayers in the main budget. Normally, a pre-election interim budget gets the final nod with minimum touches after polls. Would it be any different?

That is the great expectation. Many expect that it may not be so. The sops have already been announced pre-elections and now the government has no political compulsions. It has the option to be tough and may not be soft but is likely to have a glittering package.

After presentation of the interim budget, it is said that there are some mismatches in tax collection figures to the tune of almost Rs 1 lakh crore. Questions are being raised about the fiscal deficit figure of 3.4 per cent. Remember, mismatches were noticed even in the 2016-17 budget.

The revenue department has asked tax officials to scrutinise the mismatch in turnover towards services between income-tax returns and TDS. Many businesses, I-T department suspects, are not depositing all tax deductions. Even in customs collections mismatches are noticed. The Central Board of Indirect Taxes and Customs (CBIC) Chairman P K Das in a letter to field formation stated that there was a considerable gap of Rs 12 lakh crore between the turnover on account of services as per the ITR/TDS (tax deducted at source) data and the value of services declared in the corresponding service tax returns for fiscal 2015-16.

If these suspicions are correct, it means the budgetary figures must be collated again. In such case, the government would be in a quandary how to correct its figures and allow the sops to taxpayers – no I-T up to Rs 5 lakh income, pension to farmers and many welfare schemes announced.

Rolling back is not easy but managing the finances in a not so bright economy is difficult. In the post-interim budget, there were questions also on growth figures. And it is now stated to be sub-6 per cent. Even government figures point to 6.8 per cent growth. This is not sufficient for a burgeoning population, a government that wants to reshape the country and an economy that has to sprint. The Narendra Modi government wants to pick it to $5 trillion economy by 2024.

A good target indeed, but it needs to double the growth rate to around 12 per cent. The intentions of the Prime Minister are pro-people but the path is not so smooth. Revenue collection, a key to success, is not so promising. Having allowed almost 50 per cent of taxpayers to go out of the net, though a practical decision, there is less scope for widening the net.

Plus, the GST figures are yet to stabilize. It has acted more against the smaller entrepreneurs. So, further corrective steps and rationalisation of the rates is likely, but the transitory period may pose problems. The Centre’s share of GST receipts is expected to be about Rs 1 trillion below the budget estimates in 2018-19. It is projected to grow over 20 percent in 2019-20

Therefore, the government is left with the option either to borrow more or be stingy on expenses. The second is not considered good for a fledgling economy that will have need crutches of government spending to boost the growth. But the net borrowing requirement was increased in the revised estimates of 2018-19 to Rs 4.47 trillion from Rs 4.07 trillion in the budget estimates. This means more bonds must be launched.

Leveraging more finances from government institutions like the RBI is a possibility. It may also consider selling its silver – PSU disinvestment. In some cases, it has been noticed that one PSU is purchasing the stakes of others and while these show better realisations, in reality, it is taking from one pocket to put in another.  

The international scenario is becoming uneasy. The US’ belligerence is an area of discomfort. It has forced India to buy oil at higher prices from American firms under threat of sanctions against Iran, a friend of India. Iran for years has supplied oil at discounted rates apart from providing many logistic supports such as transit to Central Asia. And as the region is hotting up, detour by aviation companies to avoid conflict zones are adding to expenses.

The US’ withdrawal of concessions, forcing the scrapping of $400 million missile deals from Russia and the call for giving sops to imports from the US to India are other difficult propositions. US President Donald Trump wants tax concessions by complaining about “high tariffs”. There are points of friction, admits External Affairs Minister S Jaishankar.

Some analysts have questioned the US moves, as it is India’s largest trade partner, including in defence. It is not easy to comprehend why the US is putting India almost at par with China.

Apart from bilateral relations, this is impinging on India’s growth. Balancing the act, as Prime Minister Modi has been trying to do in Osaka, in Japan, he tries to keep it smooth. Though, relations with Japan, ASEAN and Pacific countries are being strengthened, foreign policy is becoming critical as it helps spur export growth and boost industries and businesses at home. These also have ramifications on IT sector and telecom, which want clarification on spectrum charges. Besides, the real estate sector is keen on GST policy.

The health and insurance sectors are demanding. Savings rate are at a low, but this is an opportunity too. For almost 40 years domestic savings has been the key to the country’s growth. However, the private sector sits on their savings and pounces upon low-cost public savings. This needs correction to check the rising bank NPAs

Interest rates and other benefits need to be increased to boost domestic savings. This should, as previously, be used for official programmes for it can take care for the government’s rising fiscal deficit. Besides, it also takes care of happiness at the household level, which finally boosts consumption.

Undoubtedly, the Budget cannot give all solutions. It should be utilized to have a holistic look at the economy to create co-existence of industry, agriculture and overall happiness. The government must start looking at the economy in a holistic manner and ask the NITI Ayog to begin inter-sector dialogue and multi-sector communication to create the needed synergy for growth.

The impending Budget has the government’s hands full. It needs to give definite directions. And directions which give a boost to the economy. ---INFA

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