The government has put “substantial amount of money” in hands of people with a rejig of the Income Tax slabs in the Budget, thanks to which an additional 1 crore people will pay no tax, Finance Minister Nirmala Sitharaman said on Saturday. During a post-Budget interaction with the media along with senior finance ministry officials, Sitharaman elaborated on the benefits of the new tax regime and the government’s capex plans, among other issues. Edited excerpts:
What was the reason for increasing the income tax rebate from ₹7 lakh to ₹12 lakh? Was it because incomes and salaries were not growing as expected, prompting the government to introduce this rebate? Additionally, how will you compensate for the ₹1-trillion revenue loss?
The government feels that if someone earns ₹1 lakh per month on average, she should not have to pay tax. We are doing this in two ways: One, we are reducing slab rates – the tax slabs are now more uniform, with a gradual progression. Two, we are expanding tax slabs – this benefits all taxpayers, as the revised slabs provide relief across income groups.
We decided that some people should receive extra benefits beyond mere slab rate reductions. Hence, an extra rebate was introduced. Slab rate reductions apply to everyone, and the extra rebate for some. The expectation is that the money saved by taxpayers will flow back into the economy through consumption, savings, or investment.
If you compare what we have done today with what prevailed in 2014 under the Congress government, the narrative has always been about putting money back into the hands of the people. Compared to the 2014 tax rates under the Congress, someone earning ₹8 lakh now has nearly ₹1 lakh more in their pocket. In 2014, the tax on them was ₹1 lakh; now, it is zero. Moreover, someone earning ₹12 lakh had to pay ₹2 lakh in 2014; now, it is zero. That means ₹2 lakh more in their pockets. Moreover, rates for everyone are being brought down. As a result, someone earning ₹24 lakh, who had to pay ₹5.6 lakh in 2014; now they only have to pay ₹3 lakh. That means ₹2.6 lakh more in their pocket. So, it’s not just those earning up to ₹12 lakh who benefit—because they are not paying any tax at all due to the rebate—but even those earning more will benefit.
How many people will benefit from the rebate increase? Additionally, while the absolute capex figure has risen, many argue that the pace of spending has slowed. Some analysts suggest that the economic multiplier effect of capex is significantly higher than that of tax cuts. Please respond.
One crore more people will pay no tax. On capex, two factors are at play. First, this year had the elections taking place and because of that both the central and state governments were catching up with investments only in the second and third quarters. So it slowed. It’s not as if there is no thirst for capital expenditure, but now it will be at a pace at which you can build on each one of the developments that you’ve done prior. So it will continue. Some departments may require more funds, while others may reach a plateau, but spending will continue across sectors, ensuring investment in asset creation.
Disinvestment was not mentioned in the last Budget and this one…
We have a value creation strategy. There is no disinvestment target per se. Disinvestment and dividends are considered together, as both involve money, and money is fungible. This strategy has five elements. First, the performance of central public sector enterprises (CPSEs). Second, effective communication of that performance. Third, the capital expenditure (capex) of CPSEs, which is crucial to accelerate growth. Fourth, a consistent dividend policy. Fifth, a calibrated disinvestment strategy, where listing is also part of disinvestment. Overall, both dividends and disinvestment raise about ₹80,000 to ₹90,000 crore per year in a manner that benefits minority shareholders.
Could you elaborate on the capex strategy?
It’s not just what the Government of India’s departments spend, it is the total money that goes for the capital expenditure. If you look at that compared to this year’s RE there will be a 20% increase. It is not a capacity issue — it is about new sectors coming up. For example in the urban sector, the locations are increasing. That is one area that requires renewed focus.
So one is the capex that we give directly. The other is that grants that we give to the state governments, for the state governments to do capex. For example, Pradhan Mantri Gram Sarak Yojayana, Pradhan Mantri Awas Yojana etc. So if you also include the grants in aid for creation of capital assets, the total amount has gone up to Rs 15.48 crore in the Budget Estimate for next year, which is a more than 15% increase over the current year’s RE. That is a substantial increase. Whereas, if you consider the overall expenditure, that is revenue plus capital, it is projected to grow by 7% in the next financial year as compared to this year’s RE. So this is almost twice the aggregate growth in expenditure. I would like to also add that on top of this Rs 15 trillion capex, the CPSEs add about Rs 4 trillion apex from their own resources. So that’s also the capex which goes in. And that is not counted here.
The FDI limit for insurance has been increased from 74% to 100%. Have other recommendations in the Insurance Amendment Bill been rejected?
Fundamentally, whether it’s 74% or 100% doesn’t matter. What matters is the psychological feeling that they can own the company 100%.
The Kisan Credit Card limit has been enhanced to Rs 5 lakh. Any assessment on how this will boost rural consumption?
This is to enable those farmers who are doing commercial cropping — they require more crop loans, and it will facilitate them. It is to assist the farmer, not a measure to boost rural consumption. The intent is to facilitate farmers to get crop loans.