The finance minister got suggestions to rework and simplify the goods and services tax (GST) to have a three-rate structure, instead of the existing regime of five rates.
Union Budget 2020: Economists on Friday asked the government to expand the fiscal deficit target for FY21 and stressed that it need not be apologetic about the slippage, as elevated spending is probably the only counter-cyclical tool at its disposal now to reverse a sharp deceleration in growth.
As such, the glide path to bring down the fiscal deficit to 3% has been repeatedly revised by successive governments, with the latest deadline being FY21. For the current fiscal, the government has set the target at 3.3%, which is all set to be missed, given the revenue shortfall.
In a pre-Budget consultation meeting with finance minister Nirmala Sitharaman, the economists also advised the government to keep the Budget numbers realistic, reflecting the true state of economy. Credible numbers, they say, better prepare the markets for any eventuality. The government’s budget estimates in recent years have gone haywire. For instance, it has budgeted a 12% nominal GDP expansion for FY20 (11% upon a revised base) and based its fiscal deficit and revenue collection projections on this. The actual nominal growth in the first half of this fiscal, however, turned out to be just 7%, and given the current growth momentum, even 8% for the full year will be a big ask. The real growth, meanwhile, hit an over six-year low of 4.5% in the September quarter.
The economists were split in their clamour for a cut in the personal income tax rates. However, those endorsing the cut argued that it would not just leave more disposable income in the hands of people and induce them to spend more, but also help those running unorganised sector entities that have not benefitted much from the recent cut in the corporate tax rate to 15% (the standard rate for new manufacturing units).
The finance minister also got suggestions to rework and simplify the goods and services tax (GST) to have a three-rate structure, instead of the existing regime of five rates.
The government, they suggested, must expedite the resolution of crisis in the shadow-banking sector by acquiring assets of some of the key NBFCs, which are facing the double whammy of solvency as well as liquidity issues. The agriculture sector, which has been the biggest driver of rural distress in recent years, needs a booster dose. The economists also impressed upon the government to improve the protein intake of children by supplying milk through the mid-day meal programme.
As for slippages in the government’s budgeted targets, in 2018-19, the tax revenue (post-transfer to states) turned out to be around Rs 2.3 lakh crore lower than the budget estimate (BE) and an expenditure cut of `1.3 lakh crore or 5.35% was not sufficient to avoid a slippage from the charted fiscal consolidation path.
The revenue projections for this year, too, are poised to trip again. For instance, the direct tax mop-up in the April-November period grew by about 5%, against the budgeted growth of 17.4% to Rs 13.4 lakh crore. This is much lower than the expected growth even after factoring in the recent sharp cut in the corporate tax rate. Even the GST collections have been trailing the target this fiscal, with shortfall expected at around Rs 60,000 crore.
The economists who attended the meeting included Neelkanth Mishra of Credit Suisse; Rathin Roy, director at NIFP; Shekhar Shah, director general, NCAER; Surjit S Bhalla, managing director, OXUS Investment; Abheek Barua, chief economist, HDFC Bank; Soumya Kanti Ghosh, group chief economic adviser at State Bank of India; Ajit Mishra, director, Institute of Economic Growth; Ajit Ranade, chief economist at Aditya Birla Group; Rahul Bajoria, chief economist, Barclays Investment Bank; and Arvind Virmani, former chief economic advisor.