Category: Economic outlook

Reforming the capital gains tax a smart move

It is perfectly justified if the rich class is made to pay more which, in turn, helps the Government provide services to the poor In the Finance Bill, 2023 passed by the Lok Sabha on March 24, 2023, an amendment relates to a change in the tax treatment of capital gains from non-equity or debt mutual funds (DMF). This has led to consternation in the investor fraternity including high net-worth individuals (HNIs), corporate, and so on who argue this will undermine efforts to deepen the bond market which is crucial for financing the long-term development needs of the economy. They also say such a change should have been introduced in the Union Budget. This would allow for thorough discussion in...
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Fiscal target gliding away from its path

To reset the targets at a significantly relaxed level and then claim that fiscal numbers are well on track looks amusing In the Union Budget for 2022–23, Finance Minister Nirmala Sitharaman kept the Budget Estimate (BE) for the fiscal deficit (FD) at 6.4% of GDP. She described this as ‘advancing on the road to fiscal consolidation,’ citing the target of 4.5 % to be achieved by 2025–26 (this was announced in her budget speech for 2021-22). As per the revised estimate (RE) given while presenting the budget for 2023–24, she has precisely achieved this number. For 2023–24, she has kept the target at 5.9%, and for 2025–26, one would get the sense that the Union government is proceeding at the...
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Bring petroleum products under GST

The Finance Minister should proactively engage with states to speed up the process of taxing petroleum goods under the GST Finance Minister Nirmala Sitharaman has exhorted the states to give their concurrence for fixing the tax rate for five petroleum goods—crude oil, natural gas (NG), petrol, diesel, and aviation turbine fuel (ATF)—under the Goods and Services Tax (GST) to enable the GST Council to give its stamp of approval to this pending proposal. GST is a single nationwide tax with a provision for set-off tax paid on inputs. It subsumes within it more than a dozen taxes from the pre-GST era, namely central excise duty (CED), service tax, and sales tax/value added tax (VAT). Besides, a host of local taxes...
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Let FDI in retail come from the front door

Allowing FDI in retail would be in the best interest of consumers as this will enable all retailers to compete with one another on equal terms Following complaints from consumers and traders against “widespread cheating and unfair trade practices” by e-commerce marketplaces such as Amazon and Flipkart, the Union government intends to amend consumer protection rules to bar these firms from (i) selling their private labels on their platforms; (ii) make them liable for frauds committed by a seller; (iii) prohibit them from having their logistics chain for supply-chain management. The marketplace is a platform where vendors sell their products to consumers even as its owner merely acts as a facilitator by providing services such as booking orders, raising invoices,...
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Subsidies will derail fiscal deficit target

The shift from giving food at Rs 2/3/1 per kg to “free” would lead to an additional outgo of about Rs 13,000 crore In the Union Budget for 2023–24, Finance Minister Nirmala Sitharaman has stuck to the fiscal deficit (FD) target of 6.4 per cent of GDP in the revised estimate for 2022–23. She has kept the target for 2023–24 at 5.9 per cent. However, payments on major subsidies such as fertilisers and food, which account for a significant share of the Union government’s total expenditure, could play spoiler. Fertiliser subsidy—payments made to manufacturers or importers to cover the excess of the cost of production/import and distribution of fertilisers over the low maximum retail price (MRP) fixed by the government—was budgeted...
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Budget revolutionises personal income tax

The new personal income tax regime will spur economic growth as it leaves more cash in the hands for people In Budget 2023-24, Finance Minister Nirmala Sitharaman has made some radical changes in the structure of personal income tax (PIT). To get a sense, let us first take a look at what she did in her Budget 2020-21. Then, Sitharaman had announced the Modi Government’s intention to move towards a regime that was simple, free from a plethora of exemptions and deductions, and reduced the tax liability of assesses, thereby leaving higher disposable income in their hands. From the perspective of the economy, the idea was to give a boost to aggregate demand and drive growth. Under the old regime...
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Off-budget liabilities return in Budget ’23

Unless PM Modi cracks the whip on reforms in food and fertiliser subsidy, such liabilities will haunt economy In Budget 2020-21, Finance Minister Nirmala Sitharaman candidly acknowledged the existence of the so-called off-budget liabilities and extra-budgetary resources (EBRs) and mentioned these in an annexure. EBRs are those financial liabilities or borrowings that are raised by public sector undertakings (PSUs) and other agencies of the government to fund latter’s schemes for which repayment of entire principal and interest is done from its Budget. If all obligations pertaining to the borrowings are met by the Union government then why does it not take these on its own balance sheet (BS) instead of riding piggyback on its agencies/PSUs? The reason is by not...
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Delink disinvestment from Budget exercise

The Union Government must set up a holding company where all of its shares in the Central Public Sector Undertakings (CPSUs) are placed In Budget for 2022-23, Finance Minister Nirmala Sitharaman had set a target of Rs 65,000 crore for proceeds of sale of Union government shareholding in central public sector undertakings (CPSUs). Against this, the revised estimate (RE) is placed at just about Rs 31,000 crore which works out to 47 per cent of the target. For 2023-24, Sitharaman has set a target of Rs 51,000 crore. During the last eight years since 2015-16 when this government started disinvestment with particular focus on ‘strategic’ sale (a sophisticated nomenclature for share sale that reduces its holding in the CPSU to...
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Budget 2023: Fertiliser, food subsidies can upset fiscal math

Higher cost of production due to the elevated cost of gas could increase the subsidy outgo on fertilisers during 2023-24 as would the extension of the free foodgrain scheme beyond December 2023 Fertiliser subsidy outgo during 2022-23 is estimated to be around Rs 2.25 lakh crore against a budget estimate (BE) of Rs 1.05 lakh crore. In the Budget for 2023-24, finance minister Nirmala Sitharaman informed that the government was set to achieve the fiscal deficit target of 6.4 percent of the gross domestic product (GDP) for the financial year 2022-23. This was despite substantial slippages in the expenditure on fertilisers and food subsidies. Fertiliser subsidy outgo during 2022-23 is estimated to be around Rs 2.25 lakh crore against a budget...
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Budget 2023 targets inclusive growth

The Finance Minister has given a push to growth through a judicious blend of encouraging investment and consumption Guided by the overriding objective of laying the foundation of putting India on a rapid and sustainable growth trajectory, for three years in a row, the Narendra Modi government has presented an investment-led Budget. Most of the budgetary allocations are going into building infrastructure, while the government has taken measures to promote investment by the private sector. The Budget for 2023-24 continues with this overarching strategy. In her maiden Budget for 2019-20, Finance Minister Nirmala Sitharaman had laid a roadmap for catapulting the Indian economy to $5 trillion by 2024-25. In sync with this target, she had projected an investment requirement of...
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