In a pre-budget meeting with finance minister Arun Jaitley and his team, economists on Monday impressed upon the government to stick to fiscal consolidation path, announce a road map for further tax reforms and give more incentives on infrastructure investment and better remunerative prices to farmers. They also suggested cut in corporate tax rate, taxing of long-term capital gains, reduce minimum alternate tax (MAT) rate and announce a road map for goods and service tax (GST), including convergence of rates. Arvind Virmani, former chief economic adviser, said customs tariff system, that hasn’t seen any major change, for several years after the peak rate of customs duty was brought down to 10%, needed a relook. Rathin Roy, member, Prime Minister’s Economic Advisory Council, said the government should have a fresh medium-term fiscal framework. Earlier this year, the NK Singh-headed Fiscal Responsibility and Budget Management (FRBM) Committee had recommended that the Centre should aim for a fiscal deficit of 3% of GDP for three straight years starting the current fiscal itself and gradually reduce it to 2.5% by 2022-23 and partner states in adhering to fiscal discipline. Singh was recently appointed as chairman of the 15th Finance Commission, whose one of the mandate is to look at framing a suitable FRBM framework.
Among other issues, the economists suggested that the Centre should give more thrust to disinvestment of PSUs to generate more revenues to meet the expenditure needs without hurting fiscal goals. “We understand that there is a genuine commitment to maintain the fiscal deficit and revenue deficit targets. Operational constraints may vary but political commitment is there,” Roy said.
The economists also suggested to raise old age pension from the existing Rs 200 to Rs 500/month and widow pension from Rs 300 to minimum Rs 500/month. It was also suggested that maternity entitlement benefits be fully implemented and be extended up to two children. Besides, they said payment system for these social security schemes also needs to be streamlined.
On taxes, the economists said the corporate tax rate should be brought down to around 20% from over 30% now, removing all exemptions in order to make it globally-competitive. The Centre’s plan to bring down the corporate tax to 25% is yet to materialise for firms with above `50-crore turnover.
It was also suggested to tax long-term capital gains to bring equity and raise revenue, reduce MAT rate, and announce the road map for GST, including convergence of rates, extending time for transactions’ matching, etc. It was also suggested to give incentives to labour-intensive industries, including SMEs, and informal and unorganised sectors. The economists also suggested a re-look at the crop insurance scheme to make it more effective, by extending the insurance cover from crop failure to price failure.
Jaitley said the Centre is following the road map of fiscal consolidation path under which it has to come down to 3.2% of GDP in FY18. He said fiscal deficit has been consistently being brought down in the past few years. The economists suggested that more and more subsidies should be brought under DBT to avoid pilferage, implement labour reforms and government funding to the promotion of digital payments.