With an overwhelming mandate of the people and exuberant enthusiasm of the markets, it is tough to be in the shoes of the Finance Minister. The expectations from the upcoming budget are exceptionally high even though a quarter of the financial year has already gone by.
While Nifty has risen by 7.6% since the elections results were announced, the PSU stocks index rose by almost thrice as much buoyed by positive sentiment. This is music to the ears of the FM who should cash in on the opportunity and increase the disinvestment target substantially, preferably at least by 50%. In addition, I would hope that the FM announces a policy to increase public shareholding in PSUs to 25% over the next three years which could rake in about Rs. 60,000 crore. This will ease the fiscal deficit target for the next few years.
On the tax front, first, the government should lay down a clear policy on retrospective taxes (preferably ban them) to soothe investor worries. In a globalised world, with emerging markets such as Russia, Brazil, Venezuela, and Mexico having a ban on retrospective amendments, India can’t afford to scare away the investors; Vodafone and Nokia are two ugly tax rows that should become a thing of the past.
Second, the FM should draw a clear roadmap for implementation of GST and announce sufficient compensatory measures to assuage state governments’ concerns of loss in revenue. GST will boost manufacturing since the sector pays both central and state taxes. Through an efficient, taxpayer-friendly, and leak-proof system, GST is expected to add 1.5% to GDP.
Third, the government should resolve income tax cases through arbitration and fast track courts. As per a question in Parliament, Rs. 4.36 lakh crore is mired in 2.5 lakh legal cases as on December 2011.
Fourth, constant high inflation in the last decade has pushed many poor earners into the taxable income bracket. To prevent this unintended consequence, tax brackets should be indexed to inflation as is the practice in many developed countries.
On the policy front, inflation is a major worry which perhaps can be resolved to an extent in the short-term by just liquidating the excess stocks lying in FCI warehouses (420 lakh tonnes over and above buffer norms in 2013). Not only will it save Rs. 10,000 crore by doing away with the need to maintain these stocks but generate around 80,000 – 1 lakh crore through stock