Our tax model is really ‘taxing’ indeed!
The only reason that our Finance Minister’s maiden budget received wide applause was the kind of hike he brought about in the Plan expenditures. But, what was such extraordinary in the budget plan with regard to the increase executed in the Plan expenditure? Let’s learn what it was.
Ignoring the series of “Rs 100 cr” announcements which earned Jaitley jokes on Twitter, rise in Plan expenditure (FY14 observed a slight more than 14 per cent contraction) attracted a lot of praise from economists across the country and abroad. But, the picture has changed drastically since then. How?
Jaitley allocated Rs 52,189 to roads (almost double that in FY14) and Rs 10,000 cr to MSME.Nevertheless, what we observe now is a decline in the Plan expenditure by 0.4% in April-October period this year. This is exactly contradictory to what was promised i.e. 21% hike in the Plan expenditure, this budget.
Hard cuts ahead
It is discouraging to discover that the April-October period fiscal deficit has already touched 90% of the budget target. Therefore, some stiff cuts lie ahead for the economy. Just imagine what the state of economy could have been had Brent crude prices not plummeted to historic lows.
Even during FY14 during Chidambaram’s regime, gross taxes collected ended Rs 80,000 cr lower the budget estimate despite all kinds of “accounting jugglery” put into practice.
Think about the present scenario. It looks so imprudent to learn that hike of 17.7 per cent was projected in tax collections by government when nominal GDP was predicted to ascend just 13.4% in the year. However, the budget estimates predict 15.8 per cent rise in taxes in April-October quarter against real time growth realization of just 5.5 per cent. Even indirect taxes have just increased by 5.9 per cent in comparison to 20.3 per cent predicted in budget.
Then, where will the money come from?
Apart from the disinvestment program the government has designed, which includes sale of shares of public sector companies such as CIL, ONGC and SAIL (SAIL is already oversubscribed – courtesy LIC), government requires something additional. What?
Considering the surplus food stocks already stashed with Food Corporation of India (FCI), it is highly recommended that even if the institution sells just 15 million tonne target fixed some months ago, it will alone earn exchequer some Rs 22,000-23,000 crore for fiscal year 16. It’s a common to notice newspapers report year after year how a large part of food stocks get rotten out in open.
Therefore, this decision will not only fetch additional revenue to the cash strapped coffers but save food stocks from getting ruined.