Finance minister Arun Jaitley has accurately flagged the need for fiscal discipline that India needs to accept in order to marshal resources for growth. There are broadly two ways he can get the money to finance his Budget.
These are not mutually exclusive. He can get non-tax revenue including disinvestment and telecom auction proceeds while tax revenue can be raised selectively on some sectors. Non-tax revenue is fast to raise but can only be a one-off affair. One can’t keep on disinvesting in companies, but taxes can be. Once imposed, they stay year-after-year as a predictable source of revenue. So they are preferred over non-tax revenue.
When governments make these plans, individuals do not have much of an option there to escape the tax but companies can and do plan their tax liabilities, particularly if they get a fresh exemption. But in a year when the fisc is badly stretched it is correct to expect that the government will not open any such new areas for tax exemptions. It is also fair to expect that the business chambers will second this option especially when the economy has suffered two years of sub-5 per cent rate of growth of the GDP — clearly a growth slowdown.
In these circumstances it is surprising to note the huge list of exemptions the chambers have rallied for.
This includes asking for continuing with the fiscal stimulus, which if accepted will stymie the movement towards a goods and services tax.
While the chambers have also asked for extended depreciation allowance — another tax sop — they have noted that government can make up all this loss and still raise money (within this fiscal) through the raising of foreign direct investment in insurance and defence. To call this a far fetched line of argument is clearly not enough.
Shruti is a senior correspondent based in New Delhi