Searching for reform signals

By Moderator July 6, 2019 13:52


  1. Govinda Rao, Member, Fourteenth Finance Commission, and former Director, NIPFP expressed his views about budget 2019-20

Important Analysis

On Fiscal deficit target

  • Government focuses on fiscal consolidation by keeping the fiscal deficit budgeted at 3.3%.
    • The difference between the 3.4 percent budgeted in the interim Budget and this is mainly due to the higher GDP estimates (₹93,168 crore) used in the denominator.

On tax revenue

  • The revenue is lower by ₹55,463 crore compared to the interim Budget estimate but this is offset by the non-tax revenue estimated to be higher by ₹40,532 crore.
    • The gross income tax revenue is estimated to be lower than the interim Budget by ₹90,000 crore, mainly on account of the lower GST (₹97,857 crore) and an individual income tax (₹51,000 crore).
  • In this way, there are relatively few critical departures from the evaluations of the income and the consumption exhibited then Budget.
  • To understand the Budget evaluates, the expansion over the real expense that is gathered between the year 2018-19 in gross tax revenue should be 21.2 percent, net tax revenue must ascent by 25.3 percent, and the non-revenue income should increment by 27.2 percent.

On disinvestment policy

  • The disinvestment is required to produce ₹1,05,000 crore, which is nearly ₹15,000 crore higher than what was taken in the interim Budget.

On dividend

  • Another source of the income which is relied upon to increment is the profit.
  • This amounts to ₹1,63,528 crore, which is ₹21,457 crore more than what was estimated in the interim Budget.
  • Much of this will be from the Reserve Bank of India (RBI).

On Labour reform

  • The most significant change measure in the Budget is the proposition to streamline different labor laws into a set of four labor codes.
  • Although the details are not yet available, it is hoped that the government will embark on the much-needed reforms in this area.
  • This is a contentious issue that has been long debated.
    • The Economic Survey also has referred to the need to make the factor advertises less misshaping and furthermore the disincentives these laws make in ensuring ideal sizes.
    • Hopefully, the government will address this in the interest of increasing employment and also exports of labor-intensive goods.

On the Banking sector

  • The Budget allocates ₹70,000 crore for the recapitalization of public sector banks but is silent on the urgently needed structural reforms including the governance reforms.

On corporate tax

  • An ongoing OECD study has demonstrated that corporate taxes in India are high adding up to practically 48% when the profit dispersion duty and additional charges are assessed.
  • The Budget in 2015-16 promised to bring the basic rate down to 25 percent. This was implemented for companies with a ₹250 crore turnover in the 2018 Budget; the present Budget increases it to ₹400 crore.
  • Although these companies cover 90% of the number of companies, their tax payment is less than 10-15%.
  • If large investments have to be attracted, then the reduction should have been general and the scaffolding approach can only disincentivize the companies to grow bigger and better.
    • While the Economic Survey is articulate about the need to change the ‘dwarfs into giants’, the different estimates taken in the Budget to boost the MSMEs add up to emphasizing that ‘little is lovely’.

On Cooperative federalism

  • Most of the measures taken to raise additional revenues are by way of cesses and the surcharges.
  • The increase in income tax for people with more than ₹2 crore and ₹5 crore is by way of additional surcharge.
    • Similar is the case with an additional tax on petrol and diesel.
  • That is clearly to exclude the extra revenue raised by the divisible pool and also refuse that the share of the tax on the States.


By Moderator July 6, 2019 13:52