Hello and welcome to The Hindu’s special podcast on the Union Budget. It is needless to say expectations are running high. After a spectacular win in the elections, what else other than a Budget could be the best chance for the BJP and the Prime Minister Narendra Modi to impress the nation?
As Finance Minister Arun Jaitley is all set to present his maiden budget on July 10, we have with us Raghuvir Srinivasan, our Business Editor to tell us more about this annually anticipated exercise.
Welcome Raghuvir. First question: why is this budget important?
Hello. Thank you for this opportunity. Well, the budget is important for three main reasons.
First, growth has been below 5 percent in the last two years and there are lot of expectations that this government will come up with measures to address GDP growth and take it forward.
Second, we have to see how Finance Minister Arun Jaitley handles two difficult, contrasting issues. He has to bring down the fiscal deficit. To bring down the fiscal deficit, he has to raise more resources or he has to cut expenditure. Now, both are difficult options.
Raising resources through taxes is not going to happen this time because industry is already down and you can not impose fresh taxes on industry. Cutting expenditure is also not an option because the government needs to push up its outlays for productive purposes.
So we need to watch how the Finance Minister is going to handle this sticky issue between cutting expenditure and raising resources so as to address the issue of fiscal deficit.
To sum up, there are two main reasons, why the budget is important. One, how the Finance Minister is going to address the issue of GDP growth, promote it, push it and pull the industry out of its dormant state. Second, how the Finance Minister is going to address the issue of controlling the fiscal deficit.
You were talking about curbing raising expenditure. One reason is the subsidies. How do you think this government is going to do? How will it handle the issue of subsidy?
That’s again a tricky issue for Mr. Jaitley to handle because there are several schemes that are running already for which he has to allocate resources like for instance the MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) wherein you have to give assured work for hundred days a year to people or provide an unemployment dole.
Last year, about Rs. 40,000 crores and odd was allocated for this. In addition to this you have the Right to Food Act kicking in from this year. What I suspect this government will do is... it needs to control expenditure and one soft way where it can do is in the issue of social sector schemes and subsidies.
So it will move towards cutting subsidies. Subsidies like the right to work or right to food, there are other subsidies — there is fertiliser subsidy, there is petroleum subsidy. It will probably move towards cutting down the allocation to these subsidy elements and pushing them more towards market regime.
They may also go slow on allocations and cut down probably, if I may say so, on allocations to right to work and right to food. There is already a talk that the right to food. They are in talks with the States to push it back to another 3-6 months, so that the allocations for this year can be lower.
Another important area is agriculture. Experts are now warning of deficient monsoon and the El nino effect. So what do you think will the allocation for the agriculture?
Well this year agriculture is, at this time point, looks little gloomy because the monsoon hasn’t performed well in the first month. But it’s still too early to press the panic button.
I think the government will step in to create something like a price stabilisation fund which help arrest the rising prices, which will bring in a subsidy element into agriculture product pricing, food grains pricing and help the government control price rise in essential commodities. That’s one.
Second, it will probably look at more friendlier measures for farmers — we have already heard of waiver of crop loans in Andhra Pradesh. It will disastrous if something like that is done by the government now. Because you just cannot afford to be reckless on the fiscal deficit side.
So in agriculture, I don’t think, apart from making a few announcements, he is going to increase the allocations in any particular way.
The middle class is the BJP’s huge vote-bank, so what can the salaried class can expect in this budget?
I suspect, that this budget will be known ultimately for two things. I may be proved wrong on July 10, but I think there will be two things it will be known for. One is putting more money in the hands of the taxpayers which means reducing taxes. Now reducing taxes can be done in many ways — one can be reducing the tax rates, two can be tinkering the tax slabs, three can be bringing in special deductions, four can be rising the limit under section 80(C) which gives tax free investments.
Now, I think he will probably go for a combination of most of this except a cut in tax rates. He would probably think about the tax slabs, raise the basic minimum exemption level.
Number two, also increase the limit under section 80(C) so that it serves two purposes — it puts more money in the hands of taxpayers and it also pushes some money to government saving schemes. And the government needs to raise money.
The second point that this budget will be known for probably is push towards infrastructure. It will probably allocate more resources towards infrastructure investment and get the economy moving on that front.
We all hope your words come true on July 10. So last year, P. Chidambaram had proposed new tax for the super-rich. Will this government take this forward?
I really hope this government takes this forward because what Mr. Chidambaram suggested last year, a good one in terms of raising revenues and bringing in more income into the tax net. But, I doubt if they’ll do anything this year. We can expect more in the next budget.
During election campaigns, BJP leaders were constantly criticising the petro-economics of UPA. Isn’t it high time we revisit our taxation policy on petroleum?
Well, yes it is time we took a complete, holistic look at our petroleum economy as such, because on the one hand you have high taxes on petroleum products, and on the other hand, the government also gives subsidy to oil companies for keeping the prices low in some petroleum products.
So, effectively what the government is doing is taking from one hand and giving to another. That’s a little funny because you need to draw a line somewhere on the subsidy issue, because the government is bleeding money on the petroleum subsidies.
One way to do that would be to reduce taxes on petroleum, but I don’t think they will do that because the government needs revenues. It cannot afford to reduce taxes on its revenue elements.
What will probably happen is petroleum taxation will become an issue in GST talks that are on. A lot of states want to have GST exempted from petroleum products, so that they have their freedom to charge sales tax.
We need to watch the government does here but I can’t imagine a cut in taxes on petroleum products right now.
Before we wind up, I would like you quickly tell in five points, what we can expect from this budget.
As Ì said before, the most important one I would look for is Mr. Jaitley putting more money in the hands of taxpayers, which means reducing taxes, either by reducing the tax rate itself, or the exemption levels or the limits under 80(C), and other exemption sections.
Two, He will be forced to go in for non-taxation revenues, which means things like disinvestment, raising more money from spectrum auctions. Disinvestment is I think something we can expect from the government and it’s also propitious that the markets are going up. Disinvestment is good because not only is the government raising more money, it is also more retail investors into the market. It’s bringing in more valuable stocks into the market for people to invest in. Public sector companies are not bad. There are highly profitable public sector companies too.
Three, I expect forward movement on GST. There will probably be a timeline set for this government to implement GST, and they will announce it in the budget. The Minister for Commerce has already said that we can expect an announcement on GST in the budget.
Four, I would expect this government to push infrastructure investment, either on its own or by creating an environment where private investment can come into infrastructure in a big way. This can be through constructions for people to invest, relaxing limits under FDi, issuing bonds.
Finally, I hope there is clarity on retrospective taxation. Now, this has been a big bone for industry. They are unhappy with the previous government’s move to retrospectively tax past transactions. they are waiting for clarity on this. Noise that is coming out now is favourable to industry. We’ll have to wait and see how the government handles this issue.
Thank you, Raghuvir for this wonderful chat. Prime Minister Modi’s campaign said Acche Din Aa Rahe Hain. Will the Union Budget give us good days ahead? We will have to wait till July 10 to find out. Stay with us on Budget day for live coverage, a webcast, discussions and much more. Do send us your comments and feedback via Twitter, Facebook, Google + at The Hindu.