Three budgets: the first in 1968 presented by Morarji Desai, the second in 1991 presented by Manmohan Singh, and third in 1998 presented by P Chidambaram can be termed as iconic in the history of Independent India.
The Budget for the financial year (FY) 1968-69 is called a people-sensitive Budget. It introduced the system of self assessment by all big and small manufacturers, a system still in use.
The Budget for FY 1991-92, commonly known as the Epochal Budget, laid the foundation of economic liberalisation, welcomed globalisation and slashed import licensing and promoted exports.
The Budget for FY 1997–98, was called a Dream Budget by the media. It presented a road map for economic reforms in India and included lowering income tax rates for individuals and corporates.
Finance Minister Nirmala Sitharaman’s budget should provide a fillip to the three levers of growth: consumption, investment and government spending.
Some announcements which should be in her ‘never seen before’ dream budget are as follows:
1. Rationalise tax slabs and rates
Currently income above Rs 5 lakh and up to Rs 10 lakh (in the old scheme) is taxed at a very high rate of 20%. The highest tax rate of 30% kicks in at a low income of Rs 10 lakh and above.
The government had introduced a new scheme without deductions / exemptions which has not gained traction as tax liability under this option was higher for most individuals.
The government should introduce similar slabs and rates for the old scheme with deduction and exemptions and do away with the new scheme. This would rationalise the tax structure.
2. Tax agri income of super-rich farmers
To compensate for losses due to relaxation of tax slabs and improve the tax net, the finance minister should bring agricultural income under tax. By taxing the incomes of the top 4% of agricultural households, at an average of 30%, as much as Rs 25,000 crore could be collected as income tax.
The farmer protests and violence in Delhi on Republic Day has queered the pitch among the public for taxing super rich farmers.
3. Cut GST on two-wheelers to 18%
The long pending demand of the automobile industry to reduce the GST on two-wheelers from 28% to 18% should be fulfilled. The GST Council is empowered to take this decision, but the finance minister should show intent in the Budget. This could lead to a loss of Rs 10,000 crore in GST collections, which could be compensated by higher sales in the next few years.
4. Tax deduction on vehicle loans
A separate deduction of Rs 50,000 per annum for payment of principal and interest on vehicle loans should be introduced on the lines of home loans.
5. Medical insurance deduction should be doubled
The deduction under Section 80-D for medical insurance premium should be doubled to Rs 50,000 which could improve the penetration of health insurance in the country.
6. Deduction on investments up to Rs 50,000 in pension schemes
Investments of up to Rs 50,000 in pension schemes of mutual funds should also be included as eligible for deduction under Section 80CC (D).
7. Infrastructure status for real estate sector
The real estate sector should be accorded infrastructure status and its long-pending demand of input tax credit on leased properties should be fulfilled.
8. More benefits on home loan deductions
Payment of principal on home loan is currently clubbed under Section 80C of investments, a separate limit should be established for this purpose.
9. Double healthcare budget
The allocation of Rs 65,000 crore for healthcare in the Budget should be doubled to Rs 130,000 crore. This would take care of increasing the hospital bed capacity as well as the cost of vaccination drive.
10. Sell COVID-19 vaccine at Rs 10,000 in open market
To raise resources, the government should sell the vaccine over the counter at Rs 10,000 for the two doses. It could fetch the government Rs 100,000 crore, as per calculations by Raghav Bahl.
11. COVID cess only for the super rich
To raise resources through innovative means, the government should introduce a COVID cess on the super rich, with income above Rs 50 lakh. This one time contribution for nation-building should not face resistance.
12. Set up a new DFI to boost infrastructure
The setting up of a new, large development financial institution (DFI) under the partial ownership of the government and with considerably higher risk-tolerance than banks should be announced to provide a boost to infrastructure.
13. Abolish securities transaction tax
The Budget should provide some relief to retail investors in stock markets by abolishing the securities transaction tax. The reintroduction of long term capital gains tax has led to double taxation and this is required to correct the anomaly.
14. Set up a ‘bad bank’ to address the rising NPA issue
Finally, the Budget should announce the setting up of a bad bank. A 'bad bank' is a bank set up to buy the bad loans and other illiquid holdings of another financial institutions. Once these ‘bad assets’ are transferred to this entity, attempts for an early resolution by experts begins while originating banks can focus on their business. Banks can transfer NPAs to a bad bank at a discount. The price discovery can happen at a later stage.
The rising stress in the banking sector amidst the global pandemic calls for a faster and focussed resolution mechanism. The bad bank will buy the bad loans from banks so that they can focus on new business and start afresh.
Nirmala Sitharaman has once in a lifetime opportunity to cast her name in history and make her budget count as one of India’s iconic. Will she seize the opportunity?