Budget: Large number of small smart steps

This years’ budget contains several small but sound measures that are much powerful.  A large number of small, smart steps is perhaps the ideal caption for the budget.

This year, the speech of the Finance Minister extended to nearly one hour and forty minutes. So he was able to cover even minute policy measures. Most of them were addressed on the day today economy management. Now, if we identify the important budgetary steps, here are them.

1. The black money disclosure window: A onetime settlement window is provided by the FM to holders of undisclosed money. They can give a tax of 45% and thus convert their black money into white money.

Though a scheme giving pardon to black income holders is against the spirit as mentioned by the SC, there is only limited options in front of the FM. Today or tomorrow, we should introduce such a scheme to clean the system so that future black money laws are efficiently implemented. The set tax rate of 45% is smart in the sense that it may encourage people to disclose and pay tax. But the small 7.5% seems to be weak that somebody may file in the SC that the present law is an amnesty scheme.

2. Aadhaar – statutory steps to strengthen it: Aadhar is now emerged as the’ mayajal’ of public service delivery mechanisms despite some issues related with it. It has emerged as; ‘the ID’. Future government programmes will be provided through Aadhar. Government in this budget declared that statutory support will be provided to Aadhar platform. This means that Aadhar is going to become necessary for government people engagements.

3. Disinvestment: Disinvestment seems to be a central part of the reform content of this budget. Only last month, the SC has criticized government for disinvestment of Hindustan Zinc Limited. But for the government, modernization of CPSEs need more share selling. The big ticket and cost-effective selling is strategic sale. Here, government will be selling the shares of PSEs to a private entity who is called a strategic investor. But it is less transparent.  In this budget, several measures are mentioned to boost disinvestment. Government’ share in IDBI will be brought down to less than 50%. Similarly, shares of general insurance companies will be listed in stock exchange. But the overall disinvesment target is only 50% of the last year’s target- showing a comparatively healthy budget.

4. Dispute resolution in PPPs: to give energy to PPPs, dispute resolution mechanisms will be set up in the PPP sector. PPPs are now colorless as many private investors are leaving the sector. Here, government’s step is to revive the stalled projects.

5. Resolution regime for banks and other financial institutions: A major reform push is that a resolution regime will be set for the financial sector. Resolution regime is an arrangement where all financial entities prepare a plan for their restructuring or winding up procedure once they comes to a deep crisis. Such a regime will avoid the situation where the failed institution becomes a burden for the government and the tax payer.

As of now, a bankruptcy regime for corporate was the main approach of the government’s policy. But most important is the resolution regime for banks. The establishment of the resolution regime before the introduction of bankruptcy law is the right move.

6. Infrastructure is a keenly observed area while giving marks to the budget. In this budget, the government is targeting nearly 97000 crore investment in roads including highways and Pradhan Mantri Gram Sadak Yojana. Total allocation to the sector is mentioned at Rs 2.21 lakh crores. This target is a reasonably good one in the context of the present financial difficulties.

7. Some programmes like Digital certificates depository for keeping mark lists and other related certificates is a good practical one given the vastness of the country. Similarly, opening up of the passenger transport sector to new generation entrepreneurs is a good idea, but state’s cooperation is needed for the implementation of such a scheme.

8. Two tax related measures are praiseworthy. Firstly, for those who pays rent and doesn’t own a house, income tax deduction has increased to 60000 from the present 24000. This shows how far the government is careful in providing social safety net measures though income tax platforms.

Another measure is presumption taxation policy. Here, government has increased presumption tax limit for companies form Rs 1 crore to Rs 2 crore. This means that such MSMEs will not be affected by inspection raj and will be free from strict book account keeping. More or less the same concession has been extended to professionals.

 Future tax revenue realization in the country depends not upon tax rate but on tax administration. Hence measures like presumptive taxation are important as it enhances compliance and reduces evasion.

9. Government has shown its commitment to reduce Corporate Income Tax to 25% by eliminating concessions and deductions. A time table for that is provided in the new budget.

10. A curious case in this budget is the conclusion to the Vodafone issue. The government is more firm in saying that there will be no retrospective taxation in future. Here the FM has specifically mentioned the indirect transfer of asset clause related with Vodafone dispute. There is enough clarification that retrospective taxation will not be made. A committee has been set up to study the issue. But the battle between government and Vodafone seems to be inconclusive as the FM demanded non-invoking of BIPA for settling the dispute as well as tax payment by Vodafone.

Several other measures like provision of IT exemption but MAT applicability  to startups, increased target for the MUDRA scheme ( 1.8 lkh crore), extension of DBT to fertilizer subsidy in a pilot manner, increasing ATMs at post offices, etc are other notable steps made by the FM.