Budget Day is more important to a finance minister than her/his birthday. Making a budget for the country is a memorable and monumental task. In course of time, some proposals in the budget will be modified; on occasion, one or two proposals may be withdrawn in response to criticism. Some outlandish proposals will be allowed to perish without action, mercifully.
However, Budget 2019-20 is unique. I know of no budget in recent memory where, after making the Budget, the Finance Minister consciously unmade the Budget. I made a list of proposals — highlighted in the Budget speech and whose virtues were proclaimed in the post-Budget interactions. Each one of them was reversed. Between February 1 and September 23, the Budget for 2019-20 was reduced to a pedestrian statement of dubious accounts.
Proposals in the July 2019 Budget, that were later reversed:
1. Surcharge on long- and short-term capital gains for foreign portfolio investors as well as domestic portfolio investors.
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Status: Withdrawn on August 23. Nirmala Sitharaman said at a press conference, “In order to encourage investment in the capital market, it has been decided to withdraw the enhanced surcharge levied by Finance (no. 2) Act, 2019 on long- and short-term capital gains arising from transfer of equity shares/units referred in Section 111A and 112A respectively.”
2. Issue of overseas sovereign bonds. Para 103 in the Budget speech said, “The government would start raising a part of its gross borrowing programme in external markets in external currencies. This will also have a beneficial impact on demand situation for government securities in the domestic market.”
Status: Undecided, but most likely abandoned. Secretary, Economic Affairs, Atanu Chakraborty said on September 23: “(We) need very careful calibrations and deliberations… Work is presently going on to work out a proper structure, looking at various pros and cons. It is a process which is long and will continue. For this year, all the borrowings presently are in rupee-denominated bonds.”
3. Corporate tax cut. Para 110 in the Budget speech said, “So far as corporate tax is concerned, we continue with phased reduction in rates. Currently, the lower rate of 25% is only applicable to companies having annual turnover up to Rs 250 crore. I propose to widen this to include all companies having annual turnover up to Rs 400 crore. This will cover 99.3% of the companies. Now only 0.7% of companies will remain outside this rate.”
Status: Changed via ordinance on September 23, saying, “All domestic companies to be allowed to pay corporation tax at the rate of 22% (effective rate 25.17% including cess and surcharge). This would be subject to the condition that these companies do not avail of any tax incentives or exemptions. Moreover, no Minimum Alternative Tax (MAT) would be imposed on these companies. Any new domestic manufacturing company, incorporated on or after October 1, 2019, will be allowed to pay corporation tax at the rate of 15% (effective rate 17.01%).”
4. Angel Tax.
Status: Withdrawn on August 23. Said Sitharaman at the press conference, “Section 56 (2)(viib) of the Income Tax Act shall not apply to startups registered with the Commerce Ministry.”
5. Criminalisation of CSR violations by companies (by amendment to Companies Act, 2013, July 31).
Status: Withdrawn on August 23. Said Sitharaman at the press conference, “Every doubt that was prevailing outside, I would like to dispel it today. There is no intention of the government to (take) the prosecution route. Corporate social responsibility will only be treated as a civil matter and not at all as a criminal matter.”
6. Increase in registration charges for new internal combustion engine (ICE) cars to Rs 5,000 from Rs 600 at present. Renewal of registration of ICE cars
is proposed at Rs 15,000 (proposed on July 26).
Status: Withdrawn on August 23. Sitharaman said at the press conference that the fee for registering new vehicles was deferred to 2020.
The Cup of Woes
Unfortunately, the woes of the Finance Minister were not over with the reversal of her prized announcements in the Budget. The mostly structural — and some cyclical — problems that plague the economy wrought havoc, the economy tanked, the numbers went horribly awry, brave words didn’t bring in more revenue or contain the expenditure, and the results showed up in the monthly accounts released by the Controller General of Accounts.
The last available accounts for October 2019 show that the net revenue receipts are a mere 41.4 per cent of budget estimate; total receipts are 44.9 per cent; fiscal deficit is 102.4 per cent; and revenue deficit is 112.5 per cent. The Finance Minister has no scope to spend more or borrow more.
Infusion or Confusion
Yet, since July 5, the Finance Minister has announced huge sums that will be infused in sectors such as public sector banks (Rs 70,000 crore); real estate (Rs 25,000 crore); NBFCs and HFCs (Rs 20,000 crore); IDBI Bank ((Rs 4,557 crore); and Punjab National Bank (Rs 16,000 crore).
Even as Dr Arvind Subramanian and Mr Josh Felman observed that “the economy seems headed for the intensive care unit”, the Finance Minister is looking at an abyss and seeing a green valley!
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