This is the fourth year of Nirmala Sitharaman’s tenure as the country’s finance minister.
Her approach, which seemed a bit adventurous when she started in 2019, is now remarkably pragmatic.
In the beginning she had to start working under a lot of pressure. Looking at the statistics of that time, the situation does not seem to have been very favorable at all.
The rate of revenue collected fell sharply to 18.4 percent.
On the one hand, the slowing down of economic growth worked behind this.
This slowdown worked before the Covid pandemic.
On the other hand, in the middle of the year she unexpectedly announced a policy of reducing corporate revenues.
It served as a backdrop to the Prime Minister’s visit to America a few days earlier, one of the objectives of which was interaction with the country’s corporate lords.
The revenue shortfall resulted in a revenue deficit of 4.5 percent at the end of the year.
But in the original budget, the deficit rate was shown as 3.4%.
The next year was not very promising either. Remember, that year was the year of Covid. And the effect of the pandemic was a significant decline in gross national product (GDP).
While the decline in corporate revenue was 17.8 percent, there was an 8.3 percent decline in revenue from goods and services tax (GST).
But it is to be noted that even in that desperate situation, the Union Finance Minister saw some opportunities.
She realized that accumulating more and more bad thoughts would not make any difference to the situation.
And keeping that thought in mind, she makes her calculations accordingly. Properly identifies the profit and loss issues, reviews the so-called ‘loss’ aspects and paves the way for future investments.
As a result, various manipulations related to budget deficit are stopped.
Deficit rates rose to record highs due to the introduction of the ‘off-balance sheet’ in the government’s accounts stop at 9.2 percent.
But it also boosts confidence in the government’s accounting work.
In her third budget, Nirmala hinted that she had realized the flaws in the scam-filled budget. She kept the revenue figures for FY 2021-22 quite low compared to previous years.
As a result, the amount of revenue collected is 13.4 percent more than the proposed amount.
As a result, problems arising from shortfalls in revenue collected from other sectors other than taxes did not become so dangerous and this economic system acted as a bit of a safety net.
It made things like providing food grains to the poor people especially during the Covid epidemic possible.
At the end of that fiscal year, the actual deficit figure was close to the estimated deficit figure mentioned in the budget.
This year the same thing is going to happen again. Despite the reduction in taxes on petroleum products, the tax revenue has exceeded the proposed figures.
But the issue of subsidy on consumption has resurfaced. On the one hand, the government’s decision to continue providing free grain worked, as did the responsibility to protect farmers from rising fertilizer prices caused by the war in Ukraine.
Last week, the Union Finance Minister stated in the Lok Sabha that she will keep the budget deficit level at 6.4 percent of GDP.
In the last two financial years, the potential amount of revenue collected by him was very low.
And that is why the government was able to survive in a turbulent time of unplanned spending.
Judging by newspaper reports, next year’s budget seems to show a modest increase in tax revenue.
From the point of view of tax or fiscal policy, it can be understood that the corporation tax rate is close to the international standard at the moment. Where the income tax rate has been increased in the case of large incomes.
Judging by the relative value, it is seen that it is exactly where it is supposed to be. But the rate of ‘Capital Gains Tax’ continues to increase several times. Same goes for GST. Besides, the duty rate has been increased.
From this it may seem that all these issues will be discussed in the next budget and the next session of the GST Council.
If not, then the work will remain incomplete and long-term changes in tax or revenue rates or attempts to reduce them will continue.
It has already been noticed that the amount of deficit in the budget is quite high. That nearly touched the figure of 6.5 percent in the 2009-10 financial crisis years before the pandemic.
Now the challenge is how to manage this, keeping in mind the big spending areas like defence, education and health services.
Frankly, India’s budget is considerably less than the demands placed on its government.
So cost-cutting through increased subsidies and ‘dole’ (like free grain supply) does not seem to solve the problem during the Covid period. Deficit should be kept below 6 percent of GDP.
However, this rate is also quite high, at least relative to the increased public debt.
Along with this, additional steps should be taken to determine new revenues, increase the average rate of GST if possible and bring various revenues into one sector
