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Interim Budget 2024: Will FM really play fiscal 'Santa Claus' today!

TIOL - COB( WEB) - 905
FEBRUARY 01, 2024

By Shailendra Kumar, Founder Editor

UNION Budget is, in pith and essence, an annual fiscal showboating. It inevitably aims at firing up the kettle of economic activities and private investment cycle! It is also a convenient tool-kit to mobilise extra resources through either taxation or non-tax faucets. It is often designed, perhaps grudgingly, to play the role of 'half-liberal' Santa Claus who brings gifts for carefully-chosen economic and social sectors in terms of welfare packages or even fiscal spigots! Though its key objective is to allocate resources under various planned and non-planned heads of expenditure and revenue of the government but it is also a much hankered-after event for new tax rates for both direct as well as indirect taxes. And no Finance Minister can afford to be squinty about Part B of his speech i.e. tax proposals. They often immerse the taxpayers in a wide spectrum of fiscal plumbing! And that makes it unmissable event for both taxpayers and non-tax payers as well! That is a different a 'Whale of a tale' that if tax rates are raised, it turns out to be a vale of tear for those whose profit-pots may be emptied!

In contrast to the annual Budget, Interim Budget is presented once in five years or, one may also say, just prior to parliamentary elections. As per the fiscal lexicon, it is technically called the 'Vote-on-Account'. Empirically speaking, it is a transitional instrument to lend continuity to the schemes launched by the government in the back years. Since it is presented prior to the polls and its purpose is only to prevent any foreseeable breakdowns in the development-oriented schemes, the unwritten conventional Laxman Rekha is not to go beyond the remit of rectitude! The idea is to hold the equilibrium! The government-in-power is morally bound to behave with a bit of savoir faire and take approval of the House only for what is necessary expenditure and other non-deferrable changes but only minimally! In other words, announcing major changes in the fiscal laws are not verboten but tenets of propriety warrant that the outgoing government should avoid raining major fiscal concessions or even new schemes which may end up ingratiating certain swathes of voters! Ideally, no room should be created for finger-wagging by the Opposition in a healthy democracy! In a nutshell, it is sabbath time for the outgoing Finance Minister! Taking time off from fiscal escapology! No occasion to pull a rabbit out one's hat! A rare occasion to favour 'fiscal nihilism' - of course, for short-term!

True to the spirit of the historic protocol, the Union Finance Minister Nirmala Sitharaman is on record - No major changes are going to be made in the Interim Budget. No wish for fiscal brink(wo)manship or a case of faux naïf! Despite her unadulterated statement, I find mighty expectations from her among many sectors of the economy and also individual taxpayers of various hues! It is perhaps because of the precedence of an off-track Interim Budget which was presented by Mr Piyush Goyal in 2019-20. In the recent history, his Budget Speech was one of the longest for an Interim Budget - 98 Paras! Prior to him, two Interim Budgets were presented by Mr P Chidambaram in 2014-15 - 85 paras, and Late Pranab Mukherjee in 2009-10 - 69 paras. In fact, Interim Budget 2004-05 was presented by Late Jaswant Singh and his speech was shortest - 51 paras. Except for Mr Goyal, none had proposed any substantive changes or proposed income tax relief in their Finance Bills. Yup, indirect tax-related changes were there for some goods but they were there because of certain compelling reasons. Secondly, no Finance Minister needs time-consuming instrument like Finance Bill to make changes in the tax rates either for Customs or Central Excise. However, Mr Goyal was one exception who had offered income tax benefits of Rs 18500 Crore to estimated three crore middle class taxpayers, including salaried, small businesses, pensioners and others. He had also raised standard deduction to Rs 50,000. He had also showered capital gains benefits on two houses and catapulted TDS thresholds for certain transactions.

Though such an aberration was seen as skullduggerous and an abuse of sovereign power handed out to the then Government by the voters but the taxpayers had largely greeted the fiscal lollipops with boisterous cheers and drumbeats! Eek! The taxpayers are no less braced up for similar thunderous clapping if Ms Sitharaman goes beyond the conventional remit and announces fiscal vaccines for certain sectors which are in a pickle and have submitted representations to the budget cell. For the FM, such sectors constitute a kittle-cattle group but she may be nudged by her political bosses to resort to transactional approach for rural India and some business sectors and not to spark a pang of disappointment before polls! After all, businesses are no less powerful political surrogates! Although taxpayers' optimism hinges on eggshells but nothing can be prognosticated if one goes by the 'flavour' and the 'spicy' smokes billowing from the last week 'Halwa Ceremony'!

Anyway, unlike the majority in the mainstream media, I would like to focus more on what FM should avoid doing in the Interim Budget. My first wish is not to rush through the legislative changes for India to implement Global Minimum Tax as mandated by the OECD. Since key protagonists of such changes in the international tax regime such as America is yet to move the wheel on this issue besides more than four dozens of countries! The US President has no choice but to cool his heels till the elections in November. And if Mr Trump re-occupies the Oval Office, he may not ink the OECD-brokered deal. Indeed, dark clouds of uncertainties are stacking up with each passing day! Against the silhouette of the skyrocketing nebula, there is no kosher reason for India to demonstrate unholy haste! Let's wait for more countries to insert legal provisions in their domestic fiscal laws and we can do the same when the full-fledged budget is presented in July or even next year after the American Presidential elections!

Secondly, if the FM is keen to send teasers to foreign investors or even domestic corporate juggernauts who are sitting over piles of moola but have turned hermitic on their capital expenditure in the recent years, the 15% corporate tax incentive offered to promote 'Make in India' Scheme may be extended for a couple of years. The two compelling reasons are - first, India has mindfully chosen the conventional manufacturing sector to generate maniac energy for its growth and exports, and secondly, job creation against the swelling army of unemployed youth has become a political necessity for future survival of governments! Ideally, in today's tech-driven world, services should get equal concessions if not more as the character of global trade has changed and export of services has emerged as a key constituent of surging growth in international trade! A peek into job data would reveal that services create more jobs than the capital-guzzling and automation-hinged manufacturing!

The second area of budgetary attention should be the Research and Development which cannot wait for elections to take place. The wheels of R&D in any economy deserve more impetus as it forms the bedrock for faster growth in all sectors. This is more so in the swiftly-transforming world where new technologies like AI and blockchain have come to dominate the overall business canvas. India barely spends one per cent of its GDP on R&D against 2.43% of GDP in China; 5.56% of Israel and 3.46% of GDP in the US. All developed countries offer weighted tax deduction to their industries in the range of 200% to 300%. India also had a similar regime but it was truncated in view of serious duping charges. Yuck, misuse of tax benefits cannot be completely plugged! Revenue leakages are there for ages in every country! What should command sincere attention of the political leadership is the future benefit to the economy and, in turn, the society at large. Even if there is 10% misuse, a forward-looking economy should count more on useful and replicable inventions or re-engineering of processes rather than the loss of revenue in the short-run. Let's not forget that R&D is an existential necessity for a transitioning economy like India. Secondly, such concessions are also for the posterity! Time for FM to sweeten this provision to fend off future doom and gloom in the economy!

Another futuristic sector which cannot wait for favourable policy concessions is the shipping line. India has, of late, taken essential measures to encourage container manufacturing to become Atma Nirbhar. Praiseworthy, indeed! What now needs to be done next is to groom some Indian companies which are keen to transform into global shipping lines. This has become acutely urgent in view of India's ambitious goal of realising exports worth USD one trillion by 2030. India spent USD 80 billion on transport service charges in 2021. This sum would leapfrog in the coming years. Secondly, any geopolitical bubble like the present one in Red Sea escalates the shipping costs for our exports and our goods get competed out in international markets. So, the government needs to groom Indian private sector to take a plunge into mega shipping line business which can save, in particular, our MSMEs from wallet-pilfering by foreign shipping lines. Hey! I have many more wishes for new policy contours which would enable India to realise its goals of becoming a developed country during the Amrit Kaal but I am also in the know that the Finance Minister needs to go by the 'Limitation Playbook' for her Interim Budget! Let her not spark a tempest before the general elections! Let's enjoy her 'Interim Pledges' over a large cuppa of cappuccino and let Singaporeans, one of the key origins of investments in India, do the same over crab dumplings! Tick-tock, tick-tock! Time to plug in our 'Idiot Box' as the Budget Speech is about to unfold! Ciao!


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