Lots of elbow room for Jaitley’s next Budget

The income declaration scheme (IDS) received declarations of ₹65,000 crore, which, taxed @ 45 per cent, yielded an additional ₹29,000 crore in tax revenue. Telecom spectrum auctions have so far fetched ₹63,000 crore in revenue. It would have been far higher if TRAI had set an affordable base rate for spectrum in the popular 700 MHz, which nobody bid for. Since the idea of an open auction is to gauge a fair market value on competitive bidding, setting an unaffordably high base price defies logic.

Arun Jaitley thus, has plenty of elbow room to give us a Budget in February, that would further propel the economy. Other macro-economic parameters are also helping. The current account deficit in Q2 has fallen to $300 million (0.1 per cent of GDP) from $6.1 billion (1.2 per cent of GDP) in Q2 last year, thanks mainly to low crude oil prices. Combine this with the foreign portfolio investment inflows of ₹20,000 crore in September, an 11-month high, and the elbow room on the foreign exchange front also widens.

The extra revenue will be supplemented by savings in subsidies, which were a leaky sieve, after direct benefit transfer.

The benefits of Aadhaar card are just starting to manifest themselves. Using Aadhaar identification, Reliance Jio, for example, is able to induct a customer in just two minutes! Millions of citizens, so far excluded from the economic mainstream, for want of an identity, will now participate in it.

The new RBI Governor has done his bit by reducing interest rates by 0.25 per cent. This reduction must be taken with some caveats. First, as Usha Thorat, a former Deputy Governor of the Reserve Bank of India, points out, in BusinessLine dated October 6, it discourages savers. Whether it helps consumers is to be seen; so far only two banks have cut interest rates, by far less than the 25 basis points cut by the RBI.

So, the FM has plenty of room to, for example, reduce tax rates, if he wishes. Part of the extra revenue would, doubtless, go for higher defence spending, necessitated by a belligerent neighbour. The FM needs to ask himself why the IDS did not collect more than ₹65,000 crore, by itself a commendable figure, but lower, as a per cent of GDP, than the previous one.

Part of the answer is that black money has an official laundry to become white. This is ‘agriculture income’ which is completely tax-free. There is no distinction made, as there should be, between the small, struggling farmers, who should be given tax concessions, for struggling in the fields to feed us, and those who misuse this provision to convert their black money into white. The CAG is examining this.

As these columns have suggested, it would be a good idea to grant a higher exemption limit to small farmers (say, ₹25 lakh instead of ₹2.5 lakh for others) and then tax anyone earning more. That stops blatant misuse of this provision without hurting small farmers (vote banks).

A lot of money will have to go into skill development. A study by the World Bank feels that 69 per cent of jobs in India are under threat from automation.

All in all, given the good macro-economic signals, Jaitley will still have elbow room for a tax cut. A fiscal stimulus will work much much better than a monetary one.

(The writer is India Head, EuroMoney Conferences. The views are personal.)