The government raised import tariffs on nearly 75 items including gold and automobile parts in its budget yesterday and increased taxes on the rich to help pay for recapitalising banks and supporting small business in a bid to revive sagging growth.
Aiming to restart investment that’s at its weakest level in years, the Prime Minister Narendra Modi’s government also proposed giving foreign investors a bigger role in India’s giant insurance and aviation sectors, which have been tightly controlled for decades.
Finance Minister Nirmala Sitharaman unveiled the proposals while presenting to parliament the budget for the fiscal year ending March 31, 2020, the first since the Hindu nationalist-led government was re-elected in a vote spanning April and May.
Modi, boosted by his election victory, has set a target of growing India into a $5tn economy by 2024-2025 from $2.7tn.
A government report on Thursday said this will be done on the back of higher investment, savings and exports in the way China’s growth was propelled.
“This budget is setting out a vision, a target, for every sector of our society,” Sitharaman said to the thumping of desks in parliament.
GDP growth slumped to 5.8% in January-March, the lowest in 20 quarters. Growth for the last fiscal year, at 6.8%, was also a five-year low.
All important indicators of economic activity, like the dipping index of industrial production and plummeting automobile sales, confirmed the slowdown.
But the government did not announce a big jump in public spending, contrary to expectations.
Sitharaman said the fiscal deficit for this financial year would be trimmed to 3.3% of GDP – which analysts said was likely based on ambitious expectations of higher tax collections.
“Commitment to restrict fiscal deficit at 3.30% compared to 3.40% is a good intent, but we need to look at the revenue assumptions more closely to draw more comfort,” said Joseph Thomas, head of research, Embay Wealth Management in Mumbai.
Capital Economics was sceptical about the deficit target. “The fiscal maths don’t add up,” it said.
Sitharaman raised import duties on gold and other precious metals to 12.5% from 10%, and levied an import tax of Rs1 per tonne on crude oil to boost federal revenue just as global oil prices have softened from their highs.
The government also increased local levies on a litre of petrol and diesel by two rupees each, stoking fears of inflation.
The finance minister said the government would provide state-owned banks Rs700bn of additional capital that are laden with bad debt which has affected their ability to lend and also spur economic growth.
Indian banks and financial institutions, in all, hold bad debt of over Rs10tn.
The government raised income tax surcharge on people with an annual income of more than Rs20mn who make up the top end of Indian society.
Currently, the government imposes a 10% surcharge where total income is between Rs5mn and Rs10mn, and 15% on income above Rs10mn.
The new rate will include 25% surcharge on income between Rs20mn and Rs50mn rupees, and 37% on income exceeding Rs50mn a year.
“This budget is a mixed bag with a significant increase in taxation for the wealthy. Also, the increase in excise duty for petrol and diesel will stoke inflation,” said Abhimanyu Sofa, head of research at IIFL Securities.
Sitharaman cut corporate tax rates to 25% from 30% for companies with an annual turnover of up to Rs4bn, from the current ceiling of Rs2.5bn.
But there was no move forward on the government’s long-time goal of across-the-board cutting of corporate taxes — now about 35% — to make India more competitive with other countries.
In 2018, average corporate tax was 25% in China and Indonesia, 24% in Malaysia and 20% in Thailand, according to KPMG.


‘Insipid’ Budget has relief for none, claims Congress


The Congress yesterday dubbed the first Union Budget of the Modi 2.0 government as “insipid and opaque”, saying it had not revealed any financial data or allocations, had no relief for various sections of people, or mentioned measures to help farmers.
Addressing a press conference at the party headquarters, former finance minister P Chidamabaram said: “Budget 2019-20 is an insipid budget. The finance minister’s speech was an unusually opaque exercise.
“Short sentences that do not explain what they are trying to do. This budget of 2019-20 is a monotonous budget. Has there ever been a Budget speech that does not disclose the total revenue, the total expenditure, the fiscal deficit, the revenue deficit, the additional revenue mobilisation or the financial concessions?
“Has there ever been a budget speech that does not disclose the allocations to important programmes like MGNREGA, the mid-day meal scheme, healthcare, etc. and to vulnerable sections like SC, ST, minorities, women etc? We are shocked by this departure from the usual practice,” he said.
Chidambaram said Finance Minister Nirmala Sitharaman should have been transparent about how much revenue the government expects to raise with the hike in taxes.
“Belying widespread expectations, the finance minister has given no meaningful relief to any section of the people. On the contrary, the finance minister has increased customs duties on a large number of goods, raised taxes on petrol and diesel and proposed extensive amendments to the Income Tax Act that will increase the tax and compliance burdens on the taxpayer,” the Congress leader said.
On additional taxation on the super-rich, Chidambaram said it is “unclear whether the effective tax rate has been increased from three percent to seven percent, or by seven percent”.
Questioning the government for not having anything for the farmers, he said: “There is nothing in the Budget that explains how you are going to reverse the slide in agriculture.”
Chidambaram also said even the government’s plans for the agriculture sector had not been explored in Sitharaman’s speech, noting that there had been hopes that the government would come up with a detailed blueprint for the revival of the farm sector.
“But in the speech given by the finance minister, there was no mention of the agriculture system. How can I say something if she has not mentioned anything?” he said. Slamming the government, Chidambaram said: “The (Narendra) Modi government treats India as one big state government and has taken upon itself to do things that are the right and duty of state governments. “This is not co-operative federalism, it is an unequal partnership imposed by the Centre upon state governments.”
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