If demand doesn’t improve, firms might retain the tax cut bonanza instead of investing. It would’ve been better to put more cash in the pockets of individuals by giving more IT relief Amid an atmosphere of gloom and doom (triggered by growth plunging to a low of less than five per cent during the current year and muted projections for next year), it is necessary to closely scrutinise tax proposals in the Union Budget for 2020-21 to assess whether or not these will generate the much-needed growth impulses. The four major factors impinging on a surge are private consumption, investment, export and spending by the State. The Modi Government has kept up the tempo of expenditure by way of building infrastructure and...
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Category: Taxes & duties
Budget 2020-21 – will FM’s tax proposals spur growth
Amidst an atmosphere of gloom and doom [triggered by growth plunging to a low of less than 5% during the current year and muted projections in regard to growth during the next year], it is necessary to closely scrutinize tax proposals in the Union Budget for 2020-21 [presented by the Finance Minister, Nirmala Sitharaman on February 1, 2020] to assess whether or not these will generate the much needed growth impulses. The 4 major factors impinging on growth are (i) private consumption; (ii) investment; (iii) export; (iv) spending by the state. Modi – government has kept up the tempo of expenditure by way of building infrastructure on an unprecedented scale and massive spending on welfare schemes. As regards export, given...
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Aspirational India – long on vision but short on resources
The Union Budget for 2020-21 presented to the Parliament by the Finance Minister, Nirmala Sitharaman on February 1, 2020, confirms apprehension that the actual fiscal deficit [FD] for 2019-20 would exceed the budget estimate [BE] by a significant margin. Sitharaman puts it at 3.8% of GDP [gross domestic product] against the target of 3.3%. However, she has justified this deviation 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, the finance minister has provided for FD of 3.5% as against 3.0% as stipulated under the FRBM Act. Here...
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Long on vision, short on means
The credibility of the fiscal consolidation glide path has been dented which is also reflected in the Sensex falling by over 1,000 points after the Budget announcements The Union Budget for 2020-21 presented to the Parliament by Finance Minister (FM) Nirmala Sitharaman on February 1 confirms apprehensions that the actual fiscal deficit (FD) for 2019-20 would exceed the Budget Estimate (BE) by a significant margin. Sitharaman puts it at 3.8 per cent of the GDP against the target of 3.3 per cent. However, she has justified this deviation 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...
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Can invisible hand work?
Seen from an economist’s perspective, the Economic Survey looks eloquent. But execution could run into a logjam as politicians are prone to controlling the consumer The Economic Survey for 2019-20 has been prepared by the Chief Economic Advisor, Dr K Subramanian, keeping the ambitious target of achieving the $ 5 trillion economy status by 2024-25, set by Prime Minister Narendra Modi, at its centre. The rigorous analysis (a lot of it involves running of “regression equations” — a euphemism in econometric analysis to bring out correlation between various economic parameters) done by the CEA has to be seen in the backdrop of deceleration in the GDP (gross domestic product) growth to its 11-year-low of five per cent during the current year (first...
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Amnesty schemes can’t fill void in tax collection
The year 2017-18 [following the announcement of demonetization Prime Minister, Modi on November 8, 2016] witnessed an unprecedented surge in tax collection led mostly by steep increase in personal income tax [PIT]. During 2018-19 however, it received a jolt with collection missing the target by significant margin. The set-back has continued during the current year. In the budget for 2019-20, the finance minister, Nirmala Sitharaman had set gross tax receipts [GTR] target of about Rs 2460,000 crore of which the net central tax [NCT] was Rs 1650,000 crore [after transfer of Rs 810,000 crore to states as per 14th Finance Commission]. As we draw towards year end, the government is staring at a shortfall of about Rs 356,000 crore in...
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Reducing income inequalities – needs change of mindset
Almost every government irrespective of its political affiliation assigns top priority to accelerating economic growth [commonly understood as giving a push to gross domestic product (GDP)] believing that fruits of this acceleration will automatically percolate to the lowest strata of the society resulting in their higher income and better living standard. This belief has led successive regimes to single mindedly focus on growth without even bothering to look at income distribution. This task is left to economists for analysis more in the nature of a post mortem and mountain of research but is of little use in so far as learning lessons and changing policy discourse is concerned. One such piece of research is ‘Time to Care’ released by rights...
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Where has demand disappeared?
The growth in gross domestic product [GDP] during the first and second quarter of current financial year was 5% and 4.5% respectively. Given the trend during the remaining two quarters, the year is expected to end with growth of no more than 5%. This is a significant drop from an average of about 7.5% recorded over a 5 year period 2014-15 to 2018-19. The drop during the current year is being blamed on ‘lack of demand’ with some commentators even arguing that demonetization and hasty implementation of the Goods and Services Tax [GST] led to demand destruction triggered by large-scale unemployment and erosion of income and purchasing power. While, there can be no disagreement on ‘lack of demand’ argument, to say...
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Solve a contentious issue
The unabsorbed input tax credit dilemma in the Goods and Services Tax is something that the Council needs to address urgently In the backdrop of the collection under the Goods and Services Tax (GST) not coming up to the expected level and the consequential inability of the Central Government to meet its obligations towards compensation to the States as committed under the GST Compensation Act, 2017 (it provides for compensation for five years i.e. till 2021-22 to be calculated as the difference between actual collection and the revenue it would have got with growth at four per cent over the 2015-16 level), the GST Council is undertaking a comprehensive review of the existing rate structure and the implementation mechanism. Meanwhile, a contentious...
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GST – unabsorbed input tax credit dilemma
In the backdrop of tax collection under Goods and Services Tax [GST] not coming up to the expected level and consequential inability of the central government to meet its obligations towards compensation to the states as committed under the GST Compensation Act [2017] [it provides for compensation for 5 years i.e. till 2021-22 to be calculated as the difference between actual collection and the revenue they would have got with growth @14% over 2015-16 level], the GST Council has undertaken a comprehensive review of existing rate structure and the implementation mechanism. Meanwhile, a contentious issue that mandarins in the Council will need to urgently look at relates to the treatment of the accumulated input tax credit which does not get...
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