The last budget had promised fiscal prudence through gradual reduction in fiscal deficit to three per cent of GDP by FY 18. It encouraged FIIs to invest in our debt market. This year the budget has to manage the conflict of financing additional expenses of Rs.1 lakh crore for implementation of Seventh Pay Commission recommendations and enhanced allocations to public investment to keep the economy on a growth path. The Budget does have the benefit of large savings on fuel subsidy due to lower oil prices. The path of raising taxes or borrowing to fund increased expenses will adversely impact debt, currency and equity market. Instead smartly monetising assets from land, natural resources and spectrum to investment in SUUTI will positively impact markets.
Budget can consider following proposals to raise resources to accelerate economic recovery and reassure investors on fiscal stability.
* Rationalise inverted duty structure wherever it exists by taxing finished goods at higher duty than raw materials.
* The Government collects lots of data on many transactions such as buying of automobiles. Empower a private company to analyse that data and other publicly available information like social media to assist tax regulators to improve tax compliance.
* Improve asset utilisation over asset hoarding. Incentivise faster conversion from land to affordable houses by taxing vacant land and unoccupied premises. Use that tax proceeds to give special incentive for buying of affordable houses so that multiplier effect of higher demand benefits sectors such as cement, housing finance company and construction workers.
* Launch a fast track settlement mechanism for disputed taxes to increase revenue collections. Excess manpower can be deployed from fighting time consuming litigations to widening of tax base and improved compliance. Fear of law through better monitoring can improve India’s Tax to GDP ratio from African nations to Southeast Asian nation levels.
* Introduce super rich tax including wealth tax and succession tax to mobilise revenue and narrow social divide. Globally estate tax is levied on common citizens. Let the rich share tax burden like the salaried class.
* Levy two per cent wealth tax on gold holding above a minimum level including on that held by temples. Give exemption for investment in Gold Monetisation Scheme so that domestic gold gets recycled. We must reduce our annual net gold imports of $22 billion. Let domestic saving support our investment and job creation.
* Curb the menace of black money in real estate and gold through improved governance. Appoint an appropriately empowered private company to buy real estate including land at declared value on behalf of government and monetise it. They should be incentivised with a large profit share. The entire flow of black money in real estate will come to a serious halt with swift execution of such measure. Track video recording of buyers making cash payment at jewellers to curb black money role in gold.
* Tax super rich farmers on agriculture income and cap their fertilizer subsidy like LPG subsidy for rich people. A start can be made by voluntary giving up of subsidy like LPG subsidy.
* Encourage creative destruction by providing incentives to scrap old automobiles above certain age. Government’s spend on such old vehicles will be far lower than taxes on replacement demand. The economy will benefit by way of lower pollution, better fuel efficiency and more jobs in auto sector.
* Reduce the dependence on foreign savings by encouraging Indian savings to move from gold to bank deposits and mutual fund units. Introduce “Jan Nivesh” Yojana on the lines of the immensely successful Jan Dhan Yojana. It should encourage ease of doing investment by single KYC, simple documentation and appropriate distributor incentives.
* Encourage retail investors to participate in PSU divestment through exclusive tax incentive. Incentives given will be far lower than divestment proceeds and will help in spreading equity cult among retail investors.
The author is CEO and Managing Director, Kotak Mahindra Asset Management Company
