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It is an enduring myth that budget speeches have to mention every aspect of the mission, vision and action plans of the government for the year ahead. This column would like to make the case for a shorter and more focused speech, and within Mint’s word limit, to show it can be done. Finance minister Nirmala Sitharaman’s speech on 1 February need not be so short. Some 3,000-4,000 words would be as good as the 11,000-15,000-word monologues we have had so far. So here goes...
Mr Speaker Sir, I rise to present the budget for 2020-21. Economic growth is our first priority this year, given cyclical and global factors that are slowing us down. Without growth, every other policy goal will fail, and so, it makes no sense to allow fiscal conservatism to stand in the way of what the government must do. I propose a fiscal deficit target in the range of 5.5-6%, with our goal being to hit the lower end, or do even better, if economic conditions improve in the second half of the year.
This fiscal deficit figure includes all off-balance-sheet borrowings that are currently on the books of public sector arms like Food Corporation of India, and is thus not comparable with the 3.3% fiscal deficit target for 2019-20. It is real. We are also committing ourselves to a return to fiscal consolidation from 2021-22, with an annual reduction in the range of 0.3-0.5 percentage points every year.
Our economic strategy for the year and beyond has four prongs: one is to fix the financial system; two is rationalization of the tax system; three is pushing forward factor market and agricultural reforms; and four is privatization of non-strategic public sector companies and infrastructure assets in order to fund growth.
Banking: A strong and stable banking and financial system is key to financing growth. While bad loans have fallen below 10%, they are still too high, and banks are wary of lending more at finer rates. We are, therefore, investing another ₹1,00,000 crore in bank equity, half through recap bonds, and the other half in cash, in the first half of the year. To ensure that the problems in non-bank financial companies does not cause a major systemic crisis, the Reserve Bank will shortly announce a purchase plan for doubtful assets, supported by its own balance sheet, worth ₹1,00,000 crore. These steps will put both banks and non-banks on the road to good health.
Factor and sector reforms: My colleagues in the labour, urban and rural development ministries will be making separate announcements to make labour and land markets more vibrant by amending our labour and land laws. In agriculture, we are promising more resources to states that abolish or amend the APMC Acts—a prerequisite for creating a national market for farm produce. Over the long term, food subsidies will be run by states, funded by the devolution of central funds to them. The Centre will only manage buffer stocks and price stabilization operations in select commodities.
Privatization: Our government will privatize Bharat Petroleum, Shipping Corp. and Concor soon, to be followed by the sale of other non-strategic assets later in the year. Many road, rail, pipeline and other assets will be sold on a toll-operate-and-transfer basis for specific franchise periods to private parties.
Direct taxes: Last September, we announced corporate tax cuts to boost investment sentiment in our business community. But India also has a consumption problem, and this indicates that some concessions are needed for individuals too. When the top corporate tax rate is 25%, it makes sense to bring down the top income tax rate for individuals to 25%, and the 20% slab will come down to 15%. We will thus have a 5-15-25% rate structure, with fewer exemptions. Currently, deductions up to ₹1.5 lakh are allowed for specified investments under Section 80C. Further deductions are available on home loan interest payments and the National Pension Scheme. We will rationalize this complicated structure to allow for a single ₹3 lakh limit for all eligible investments with no sub-limits. Taxpayers are free to take advantage of any form of investment that suits them.
Indirect taxes: After the introduction of the goods and services tax (GST), Union budgets do not announce any changes in indirect tax rates barring import duties. In this budget, we are making a broad commitment to eliminate the inverted duty structure in various sectors so that “Make in India" and exports get a boost. We will also bring down average tariffs to a range of 5-10% over the next three years. In GST, this government would like to move towards a three-rate structure around the 15% middle rate in stages, with only one major change being made every year. This should happen through a consensus in the first GST Council meeting after the budget is presented, so that both direct and indirect taxes take effect from 1 April, the start of the new financial year.
It is not my intention to make budget speeches too long, but for the sake of clarity, I am laying out several annexures and explanatory notes for members of Parliament and the public to understand the details.
With these words, Mr Speaker Sir, I commend this budget to this house.
R. Jagannathan is editorial director, ‘Swarajya’ magazine