New Delhi, January 29: Three days before the presentation of Union Budget, Former finance minister P Chidambaram has outlined do’s and don’ts for his Counterpart Arun Jaitley in his weekly blog published in Indian Express.
The words of noted economist and senior leader of opposition come as a relevant preview of Budget Speech this year.
Citing unique economic and political context of this year’s budget, he says the economy is slowing down post demonetisation and politically budget is going to be presented amid the ongoing election process in five states.
Besides global uncertainties bounds the budget to “be steadfast on the path of fiscal consolidation (FD < 3 per cent), containing the current account deficit (< 1.5 per cent), and price stability (CPI < 4 per cent)”
He highlights following Red lines for Central government
- This is NDA’s 4thbudget and it is important for the government to fulfill their earlier promises rather than making new ones as they only have one more budget left.
- The outlook for the world’s economy is uncertain. Since November 2016, foreign capital has been flowing out of India and budget should not signal further outflow.
- The government has already assessed bleak and pessimistic security situation. A massive arms-buying spree is on and the bills must be paid in 2017-18 and subsequent years. The budget seeks to provide for a very large increase in the defence budget thus.
- With dry private investments, lowest credit growth and languishing exports, government could only resort to expenditure for growth. But if capital expenditure increases, welfare programmes will suffer.
- Post demonetisation corporates expect a sharp cut in corporate tax while individuals too expect a cut in personal income tax rates as recompense for the disruption caused by demonetisation.
Chidambaram says besides the balloon waivers that have been floated in recent weeks by the government such as Loan waiver for farmers, Cut in corporate tax rates and Banking Cash Transaction Tax (BCTT), these factors need to be carefully looked into or Jaitley Might bring trouble for himself in this year’s Budget presentation.
After highlighting challenges for Jaitley, Chidambaram says the FM should seek a balance. He defiantly states: I think the government, having shot itself in the foot by demonetisation, should quietly accept that growth in 2017-18 and 2018-19 will be between 6 and 7 per cent.
The Budget Do’s listed by Chidambaram
— Stick to target of fiscal deficit limit of 3 per cent in 2017-18.
— To boost private investment, target 50 major projects in 2017-18 and help them achieve Commercial Operation Date.
— Sell loss-making public sector enterprises (PSEs) and divest government stake up to 100 per cent in non-core PSEs.
— Pass the GST Bill and implement it no later than October 1, 2017. Aim broad tax base, not high tax rate.
— Cut wasteful government expenditure and use savings to compensate the states for any revenue shortfall.
— Update Direct Taxes Code and pass it as the best answer to tax rate and tax evasion conundrums.
The Budget Don’ts by Chidambaram
— Do not cut direct tax rates but indirect tax rates (especially service tax and excise duties on petroleum products that have given you a ‘sugar high’ of revenue collection) to stimulate aggregate demand.
— Do not announce Universal Basic Income (UBI). Announce a pilot scheme and learn as you go forward. That’s how DBT and Aadhaar became the success they have, said Chidambaram.
— Do not introduce BCTT. Instead, amend Income-Tax Act to expand the list of transactions that mandatorily require non-cash payments. Don’t meddle with the right of the people to use cash for normal, small transactions.
— Do not give up on reforms. Leave ‘welfarism’ to the states.
— Do not blame the UPA for the current economic situation. (The UPA delivered average growth of 7.5 per cent over 10 years and lifted 140 million people out of poverty). You have been in charge for 32 months.