Roadmap for big ticket reforms expected to be announced in the Union Budget

By ZRG | Last Updated: Tuesday, July 8, 2014 - 16:36

Zee Research Group/Delhi

While the Narendra Modi-led BJP government is all set to present its maiden budget on July 10, the common people and industry have high expectations from the finance minister, especially when it comes to fulfill the promise of `Acche Din Aane Wale Hain`.

In the forthcoming budget, besides maintaining trend of fiscal consolidation, it is expected that the government would lay out policy reform agenda. In this regard, Zee Research Group (ZRG) lists 10 key recommendations which have a high probability of being announced in the budget.

On the revenue front, the government would look to initiate steps which can improve the overall tax buoyancy. In the FY15 budget, a definite timeline for the implementation of GST (Goods and Services Tax) and DTC (Direct Taxes Code) expected to be announced.

The need of the hour is to ramp up India’s tax to GDP, which at 11 per cent is one of the lowest in Asia. The much needed reform will have cascading effects on boosting tax efficiency, collections and overall GDP growth. As per the NCAER (National Council of Applied Economic Research) study, a complete implementation of the GST could lift GDP growth by 0.9-1.7 percentage points for all future years.

Direct tax rates, such as corporate and personal income tax, are on the high side in India compared with most of its peer economies. In order to compensate citizens for high inflation and encourage savings, the government might increase minimum income tax exemption limit from Rs 2 to 3 lakhs. An upward revision in the income tax exemption limit would be a step forward towards DTC. Further, it may hike 80C investment limit from Rs 1 lakh to 2 lakh. Interestingly, if the 80C limit is increased to Rs 2 lakh, the loss of exchequer would increase to Rs 62,000 crore.

However, indirect tax such as excise duty and import duty can be changed on certain items. On one hand, there could be substantial hike in excise duty on cigarettes as the health minister has shown concerns on tobacco consumption in India. The move to raise excise duty on cigarettes by Rs 2 per stick can add Rs 3,800 crore to the government`s revenue.

On the other hand, import duty on gold can be reduced by 2 per cent. Currently, it stands at 10 per cent. The move is needed as local jewelers run out of inventory. However, this move would make the exchequer poorer by Rs 2,000 crore.

With regards to retrospective taxation issue, the government could formulate clear policies to do away with norms such as retrospective taxation which can address the concerns of foreign investors. This will provide positive boost to the business sentiments and will make India’s tax environment transparent.

Another source of revenue for the government is the stake sale in PSUs. With buoyant equity markets and SEBI pushing for a minimum 25 per cent public holding in PSUs, there are high chances that government would set an aggressive target for disinvestment in FY15. As per the interim budget, the total proceeds from disinvestment was estimated at Rs 51,925 crore. It is expected that the target would be more than Rs 60,000 crore.

Similarly, non-tax revenues would be increased by telecom, coal and other mineral blocks auction.

On expenditure side, it is expected that government would try to rationalise subsidy. Given the backdrop of poor monsoon, it is unlikely that government would make changes to food and fertiliser subsidies.

Therefore, the government is left with the option of rationalising fuel subsidy. In FY13-14, India spent about 2.2 per cent of GDP on food, fertiliser and fuel subsidies. While subsidies on diesel have been almost phased out, the focus will shift to reducing subsidies for LPG/kerosene. Currently, LPG subsidies account for almost 50 per cent of total oil subsidy bill.

Further, government may restructure welfare programs like MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) to focus on capacity creating measures and reducing wasteful expenditure. Interestingly, the outgoing government announced that the number of centrally sponsored schemes (CSS) would be consolidated to 66 in FY15 from 142 in FY14 to improve monitoring and efficiency.

Moreover, a common feature of the past few budgets has been the squeeze in capital spends. However, the government is likely to increase capital expenditure with a focus on infrastructure and agriculture.



First Published: Tuesday, July 8, 2014 - 09:40

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