Searching for reform signals

By jatin July 6, 2019 13:52


  1. Govinda Rao, Member, Fourteenth Finance Commission, and former Director, NIPFP expressed his views about budget 2019-20

Important Analysis

On Fiscal deficit target

  • Government focus on fiscal consolidation by keeping the fiscal deficit budgeted at 3.3%.
    • The difference between the 3.4% budgeted in the interim Budget and this is mainly due to higher GDP estimates (₹93,168 crore) used in the denominator.

On tax revenue

  • The revenue is lower by ₹55,463 crore compared to the interim Budget estimate but this is offset by non-tax revenue estimated to be higher by ₹40,532 crore.
    • The gross income tax revenue is estimated to be lower than the interim Budget by ₹90,000 crore, mainly on account of lower GST (₹97,857 crore) and individual income tax (₹51,000 crore).
  • Thus, there are not many significant departures from the estimates of revenue and expenditure presented in the interim Budget.
  • To realise the Budget estimates, the increase over the actual tax collected in 2018-19 in gross tax revenue will have to be 21.2%, net tax revenue must rise by 25.3%, and the non-tax revenue will have to increase by 27.2%.

On disinvestment policy

  • Disinvestment is expected to generate ₹1,05,000 crore, which is almost ₹15,000 crore higher than what was taken in the interim Budget.

On dividend

  • Another source of revenue which is expected to increase is the dividend.
  • This amounts to ₹1,63,528 crore, which is ₹21,457 crore more than what was estimated in the interim Budget.
  • Much of this will be from the Reserve Bank of India (RBI).

On Labour reform

  • The most important reform measure in the Budget is the proposal to streamline multiple labour laws into a set of four labour codes.
  • Although the details are not yet available, it is hoped that the government will embark on the much-needed reforms in this area.
  • This is a contentious issue that has been long debated.
    • The Economic Survey too has referred to the need to make the factor markets less distorting and the disincentives these laws create in ensuring optimal sizes.
    • Hopefully, the government will address this in the interest of increasing employment and exports of labour-intensive goods.

On Banking sector

  • The Budget allocates ₹70,000 crore for the recapitalisation of public sector banks but is silent on the urgently needed structural reforms including governance reforms.

On corporate tax

  • A recent OECD study has shown that corporate taxes in India are very high amounting to almost 48% when the dividend distribution tax and surcharges are taken account of.
  • The Budget in 2015-16 promised to bring the basic rate down to 25%. This was implemented for companies with a ₹250 crore turnover in the 2018 Budget; the present Budget increases it to ₹400 crore.
  • Although these companies cover 90% of the number of companies, their tax payment is less than 10-15%.
  • If large investments have to be attracted, then the reduction should have been general and the scaffolding approach can only disincentivise the companies to grow bigger and better.
    • While the Economic Survey is eloquent about the need to transform the ‘dwarfs into giants’, the various measures taken in the Budget to incentivise the MSMEs amount to reiterating that ‘small is beautiful’.

On Cooperative federalism

  • Most of the measures taken to raise additional revenues are by way of cesses and surcharges.
  • The increase in income tax for people with more than ₹2 crore and ₹5 crore is by way of additional surcharge.
    • Similar is the case with additional tax on petrol and diesel.
  • This is clearly to exclude the additional revenue raised from the divisible pool and deny the share of the tax to the States.


By jatin July 6, 2019 13:52