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NDA II Government has a tough job to introduce a balanced financial plan for the year. Anish Tripathi, Vice President – Strategy, NRB Bearings Ltd., shares his suggestions as to what the first Union Budget for the newly elected government could include in order to achieve this. Views expressed here are personal.

RECENT controversy around the GDP calculation methodology notwithstanding, the Indian economy really does not seem to be doing as well as some of the supporters of the present government believe, but neither is it doing as badly as its critics seem to be suggesting. The truth as usual is somewhere in the middle. The current global macro-economic environment is tricky and hence the government cannot afford to do anything overly aggressive. However, given that private investment remains stubbornly anemic, there is no option but for public investment to continue to drive economic growth. Additionally, with the massive mandate received by the present government, expectations are at an all-time high. Hence, irrespective of what the government does, it will leave people dissatisfied, and criticism will come thick and fast. Having said all of this, here are some suggestions that the government can consider, without really going for broke:

Corporate Tax

• Increase the 25% corporate tax rate to all companies with a turnover of up to 1000 Crs, up from 250 Crs. Opening this up for all companies could be considered next year.

• Start eliminating exemptions and announce a timeline for when they would be completely eliminated.

• Remove the differential tax treatment given to Indian and Foreign companies – all rates should be uniformly applied.

Personal Income Tax

Remove all exemptions from personal income tax except housing and education loans. Do not increase exemption threshold from 2.5 Lacs. Revise tax rates as follows:

• 2.5 to 10.0 Lacs - 5%

• 10.0 to 20.0 Lacs - 10%

• 20.0 to 50.0 Lacs - 20%

• 50.0 to 100.0 Lacs - 25%

• Above 100 Lacs - 30%

The above tax rates will give increase disposable income significantly, and give a phenomenal boost to consumption.

Disinvestment

• Increase the disinvestment target to an aggressive 1.5 Lac Crs

Bands for Expenditure heads

• Create guidance bands for all major expenditure heads, e.g. Education, Defence, Agriculture, Subsidies, etc.

• These bands will guide all future Finance Ministers for how much of the budget should be allocated for which expenditure head, e.g. Education should be between 4% - 6% of the total budget allocation.

• FMs can vary within these bands depending upon contingencies, but a broad thrust will be maintained overall in the preferred direction.

Tax Administration

• Combine the Direct Tax and Indirect Tax departments at the central and state level into one common ‘National Tax Administration’.

• Given the convergence between GST and Direct Tax, and the contradictory stands being taken by the Direct & Indirect Tax departments, a combined tax administration will be able to provide much better and coherent service to the taxpayers and do a more efficient job of tax collection for the government.

• This will require massive changes, but at least, a dialogue must start in this direction.

Infrastructure & Logistics

• There is already an expectation of missive budget allocations for the infrastructure sector, which is most welcome.

• Combine all budgetary allocations for transport-related sectors under one mega-Transport Ministry, which should include all Rail-, Road-, Air-and Water-based transportation. This will allow for synergistic multi-modal projects like a Bullet Train type network (for both passenger and freight movement) to be built over the NSEW and Golden Quadrilateral Highways under the same Ministry, instead of the separate freight corridors being done today.

• Although not linked to the Union Budget, differentiated and graduated GST rates for ICE, Hybrid and Electric vehicles need to be pursued in the GST Council if the recently announced EV targets are to be met.

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