FM indicates adherence to fiscal road map, benign tax rates, correction in inverted duty structure
Ahead of Budget 2015-16, Finance Minister Arun Jaitley on Thursday said more fuel subsidy reforms were on the anvil to cut the Centre's fiscal deficit. He also gave indications of benign tax rates, more income in the hands of consumers and a correction in the inverted duty structure faced by some sectors.
Adherence to the fiscal consolidation timeframe set by Jaitley's predecessor P Chidambaram is significant, as there were suggestions from advisors in North Block that the government divert from this, at least in the next financial year. The road map mandates the government cut its fiscal deficit to 3.6 per cent of gross domestic product (GDP) next financial year from 4.2 per cent in the current one and to three per cent by 2016-17.
Jaitleyspeak
On subsidies: Elimination of subsidy is not possible…It has to be rationalised
On taxes: We believe in putting more money in the hands of consumers
On an inverted duty structure: We are correcting inverted duty taxation, which could hit some sectors
On MAT: If I lower MAT, I will have to raise income tax rates
On fiscal deficit: We have a road map to bring it to below 3% in a couple of years
On insurance ordinance: Hopeful the insurance Bill will be approved in the Upper House…if it isn’t, we will go for a joint session of Parliament
At the World Economic Forum summit in Davos, Jaitley did not specify the deficit target for the next financial year, though he committed to meeting the target this financial year and cutting it to less than three per cent in the next couple of years. For the first eight months of 2014-15, the deficit stood at almost 99 per cent of the full-year target. Jaitley said a fiscal deficit of 4.1 per cent of GDP wasn't acceptable to him.
He expressed inability to do away with the minimum alternate tax, as demanded by certain sections such as exporters, at a time when a slowdown in manufacturing wasn't yielding much to the government's kitty.
At Davos, he said the government would carry out further reforms in the area of subsidies on liquefied petroleum gas and kerosene. "After directly transferring subsidies to 150 million families for liquefied petroleum gas since January 1 this year, the government will carve out families that don't need these subsidies," Jaitley said. The government, he said, would also address the misuse of kerosene subsidies. He, however, clarified subsidies for the poor would be rationalised, not eliminated.
On Wednesday, a panel headed by former Reserve Bank of India governor Bimal Jalan had said it had advised the government to restrict its fiscal deficit for the next financial year at 3.6 per cent of gross domestic product (GDP).
Asked about the coming Budget, he asserted the government wasn't a high-tax one. "Last year, we didn't raise almost a single tax rate. We believe in putting more money into the hands of consumers. So, there were three sets of relief the Budget had given to small- and medium-level taxpayers." He said he would simplify taxes, but wouldn't raise even "a rupee in the Budget from aggressive taxation".
Jaitley said his ministry was correcting the inverted duty structure that had hit a few industries. He, however, added the government needed tax revenues to finance various activities.
On whether the government would consider abolishing MAT, he said if that was the case, the Centre would have to raise income tax rates. "Certainly, if I was in a position to get rid of MAT, it helps in lowering costs but creates difficulty in balancing the Budget."
He said because of a slowdown in manufacturing, the tax on this segment had taken a hit. It wasn't possible for a finance minister to start offering rebates unless manufacturing rose substantially, he added. On the sidelines of an event here, he assured investors of the government's commitment to continue with reforms. He, however, said he didn't want to build expectations in the run-up to the Budget, scheduled to be presented on February 28.
Pointing out the government faced legacy issues with regard to stability in the tax policy, Jaitley said an adversarial tax policy had discouraged investors and was counterproductive to the economy. "We will not resort to sovereign power of retrospective taxation. We are coming up with non-adversarial tax policies," he said, adding the government was putting in place advance rulings for taxation of foreign investors.
The finance minister said he was hopeful the constitutional amendment Bill on a goods and services tax would be passed in the Budget session of Parliament, beginning February 23 and ending on May 8, with a month's recess in between.
When asked about an article in The Economist stating the government wasn't taking steps as fast as it should have, Jaitley quipped the questioner must have read the July edition of the magazine. "In fact, the complaint against us is we are moving too fast and bringing in ordinances instead of waiting for Parliament's nod," he said.
On an ordinance to raise the foreign investment cap for private insurers from 26 per cent to 49 per cent, Jaitley expressed confidence that the Bill would be passed in the Rajya Sabha, as the Congress, too, favoured this. "If it is not approved, we will go for a joint session of Parliament. If it is delayed beyond six months, we will go for joint session, where we will have majority," he said at another event.
On foreign investors complaining about procedural bottlenecks, Jaitley said the government was trying to address these and put in place a system through which investors didn't have to go to secretaries and officers often. But to achieve that, the cooperation of state governments was important, he said, adding states were taking many steps to attract investment.
Speaking at another event, he said the number of industry leaders visiting his office in North Block had come down drastically, as now, they didn't need approvals. He added the government was considering attracting more investment from non-resident Indians.
On a realistic growth rate for India in the near future, the finance minister said, "I think our real potential is nine per cent plus. Therefore, we would like to take India in that direction." The growth rate had fallen below five per cent in the previous two financial years, low by Indian standards, he said. "Hopefully, we will do a little better this year. I think the next year is going to be significantly better."
On corruption, Jaitley said in the past eight months, no one had even raised an allegation on this front.