Ever since, the commencement of its second term, Modi Government has showered benevolence on the corporate sector by giving relief in income tax but when it comes to personal income tax (PIT), it has not matched the expectations. On September 20, 2019, Finance Minister (FM) Nirmala Sitharaman had announced steep reduction in the rate of corporate tax for “new entities” incorporated from October 1, 2019 in the manufacturing sector and start production by March 31, 2023 from the existing 25 percent to 15 percent. Such companies won’t have to pay minimum alternate tax (MAT) (levied on book profit of firms which have no taxable profit courtesy, exemptions and incentives). Furthermore, the tax rate on existing companies was reduced from 30...
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Food subsidy – conundrum
In the Union Budget for 2022-23, Modi – government has allocated Rs 207,000 crore for food subsidy which is Rs 79,000 crore less than the actual expenditure of Rs 286,000 crore during 2021-22 as per the revised estimate (RE). Under the National Food Security Act (NFSA), 2013, the Union Government directs the Food Corporation of India (FCI) and other state agencies to procure food from the farmers at MSP (minimum support price) and organize its distribution to a mammoth population of 800 million people through an elaborate network of fair price shops (FPS) at the subsidized price (call it ‘issue price’) of Rs 2, Rs 3 and Rs 1 per kg for wheat, rice, and coarse cereals, respectively. Each person...
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Tackling fertilizer subsidy – political will missing
In the Union Budget for 2022-23 presented by the Finance Minister, Nirmala Sitharaman on February 1, 2022, Modi – government has allocated Rs 105,000 crore for fertilizer subsidy which is Rs 35,000 crore less than the actual expenditure of Rs 140,000 crore during the current year as per the revised estimate (RE). Fertilizer subsidy arises because the Union Government wants manufacturers/imports to sell fertilizers to farmers at a low maximum retail price (MRP), unrelated to the cost of production and import and distribution, which is much higher. In case of urea, it exercises mandatory control on MRP and reimburses the manufacturers for the excess of cost over it as subsidy on a ‘unit-specific’ basis under the new pricing scheme. In...
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2022-23 budget – avoid a debt trap
The Union Budget for 2022-23 provides for capital expenditure of Rs 750,000 crore which is a jump of over 35 percent from the budget estimate (BE) of Rs 554,000 crore for 2021-22 (revised estimate (RE) for the current year is Rs 604,000 crore which is more or less close to the BE when we exclude Rs 50,000 crore given to Air India Asset Holding Company Limited AIAHCL where the debt of now divested Air India resides). Considering that the BE for current year was 26 percent higher than the RE of Rs 439,000 crore during 2020-21, this sounds impressive. However, when seen in juxtaposition with over Rs 100,00,000 crore investment needed to build infrastructure over five years – for catapulting...
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Income inequalities – tackle the root cause
According to the Oxfam report, “Inequality Kills’’ released ahead of the World Economic Forum’s (WEF) Davos Agenda early this month, during 2021, the collective wealth of India’s 100 richest people hit a record high of Rs 5700,000 crore (US$ 775 billion) while the number of Indian billionaires grew from 102 to 142. During the pandemic, the wealth of these billionaires increased from Rs 2300,000 crore (US$ 313 billion) in March 2020 to Rs 5300,000 crore (US$ 719 billion) in November 30, 2021. At the same time, during 2021, the income of 84 percent of households declined even as the share of bottom 50 percent of the population in national wealth was a mere 6 percent. More than 46 million Indians...
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Fertilizer DBT – stymied by lobbies
It’s budget time. After two years of splurge, the finance minister, Nirmala Sitharaman has alluded to returning to fiscal consolidation. A major area meriting attention is fertilizer subsidy which jumped from Rs 80,000 crore during 2019-20 to Rs 134,000 crore during 2020-21 and is likely to be Rs 140,000 crore during 2021-22. Fertilizer subsidy arises because the Union Government wants manufacturers/imports to sell fertilizers to farmers at a low maximum retail price (MRP), unrelated to the cost of production/import and distribution, which is much higher. In case of urea, it exercises mandatory control on MRP and reimburses the manufacturers for the excess of cost over it as subsidy on a ‘unit-specific’ basis under the new pricing scheme (NPS). In case...
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Unshackle disinvestment
Even as the current financial comes to an end in just about two months, the Government has so far realized less than Rs 10,000 crore as proceeds of disinvestment from Central Public Sector Undertakings (CPSUs) against a target of Rs 175,000 crore set by the Finance Minister Nirmala Sitharaman in the Union Budget for 2021-22. Even after adding around Rs 100,000 crore being the expected proceeds from sale of its 10 percent shares in Life Insurance Corporation of India or LIC (on the premise that it goes through before the year-end), then also, there will be a whopping shortfall of Rs 65,000 crore. This is not new. It is a continuation of a trend seen during the previous six years under...
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FDI in retail – conundrum
In 2020, the Department of Consumer Affairs (DoCA), in the Ministry of Consumer Affairs, Food and Public Distribution had issued the Consumer Protection (e-commerce) Rules, under Section 101of the Consumer Protection Act, 2019. The rules require all e-commerce entities that are not established in India, but intending to operate here: (i) register with the Department for Promotion of Industry and Internal Trade (DPIIT) in the Commerce Ministry; (ii) bar affiliated entities from selling on e-commerce platform and restricting ‘flash sales’(the discounts or promotions that ecommerce firms offer for a short duration); (iii) disallow seller from using the name or brand associated with that of marketplace e-commerce entity for promotion of goods. Within a year, the government has proposed certain amendments...
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Shun ‘accommodative’ policy stance
In its bi-monthly Monetary Policy Committee’s (MPC) review announced by Governor Shaktikanta Das on December 8, 2021, the Reserve Bank of India (RBI) has kept the policy repo rate or RR ( interest rate at which it lends money to banks) unchanged at 4 percent. It has also kept reverse repo rate or RRR (interest rate on the surplus cash kept by the banks with it) unchanged at 3.35 percent. Besides, it has retained an ‘accommodative’ policy stance as long as necessary. This is the ninth consecutive time that both the policy rates have remained unchanged since August 2020. Justifying the decision, Das observed “given the slack in the economy and the ongoing catching-up of activity, especially of private consumption,...
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Fiscal splurge continues unabated
Even as the Finance Minister Nirmala Sitharaman prepares for the next budget, it is time to take stock of the fiscal scenario. During 2019-20, the revised estimate (RE) of fiscal deficit (FD) was 3.8 percent of GDP against the budget estimate (BE) of 3.3 percent. In her speech on the Union Budget for 2020-21, she had justified this in terms of the recommendation of the NK Singh Committee on review of the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which permits breach of the target in case of “far-reaching structural reforms with unanticipated fiscal implications.” For 2020-21, she had set FD at 3.5 percent as against 3.0 percent as stipulated under the FRBM Act. Here also, she had justified...
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