Jul 24, 2024 01:28 AM IST
Budget speech emphasizes next-gen reforms for economic policy, focusing on consensus-building with states.
This is where the budget makes the right noises but has taken an extremely non-confrontational approach. The budget speech of finance minister Nirmala Sitharaman lists next-generation reforms as one of the nine key pillars of the government’s economic policy to realise the goal of making India a developed economy by 2047. These reforms, the speech says, will be geared towards factor markets and achieving efficiency gains for the economy. However, it almost immediately adds that such reforms will have to achieved by developing a consensus between the centre and the states with the former nudging the latter to move in the desired direction.
To be sure, the speech does give details on desired reforms in land, labour and capital markets. However, they are more in the realm of capacity building and framework development than big-bang announcements. For example, the speech talks about digitising land records in rural and urban areas over the course of next three years. Another reform goal talks about incentivising states with higher stamp duties to bring them down, especially for properties purchased by women.
Similarly, the labour reforms talk in the budget is about facilitating skilling of labour and ensuring ease of compliance for industry and trade rather than making big tweaks to hiring laws or harmonising them across the country, which is what the government intended to achieve via the labour codes. Enhancing ease of doing business – the Economic Survey flagged it a major concern in attracting investment – has been described as a work in progress under the Jan Vishwas Bill and incentivising states for implementation of their own business reform action plans.
None of the areas listed above is insignificant in nature. In fact, if addressed well, they have the potential of easing significant structural roadblocks to entrepreneurship and investment without the hype around big bang reforms. Having said this, the government’s approach of not even talking about relatively more controversial areas of reforms such as the disinvestment of public sector enterprises suggests that the government is in no mood to burn political capital immediately.
The budget speech does hint at some key reforms which are in the works. For example, one of the most awaited reforms in the Indian economy has been the introduction of a new direct tax code. While the budget has made multiple small tweaks to the direct tax slabs it has also announced a “comprehensive review” of the Income Tax Act within the next six months. “The purpose is to make the Act concise, lucid, easy to read and understand. This will reduce disputes and litigation, thereby providing tax certainty to the tax payers. It will also bring down the demand embroiled in litigation,” the finance minister said.
The speech also suggests that a lot of the direct tax reform might have already happened. “We have taken a number of measures in the last few years including introduction of simplified tax regimes without exemptions and deductions for corporate tax and personal income tax. This has been appreciated by tax payers. 58% of corporate tax came from the simplified tax regime in financial year 2022-23. Similarly, as per data available till now for the last fiscal, more than two-thirds have availed the new personal income tax regime,” the FM added.
On the indirect tax front, the minister reiterated her ministry’s commitment to simplify and expand GST’s coverage. The latter would entail including petroleum products and liquor under GST. On custom duties, the speech, once again, talks about undertaking a “a comprehensive review of the rate structure over the next six months to rationalise and simplify it for ease of trade, removal of duty inversion and reduction of disputes”.
On the politically sensitive but fiscally damaging question of reverting to the Old Pension Scheme, the budget suggests that negotiations are still a work in progress and a halfway house is likely to be found. “The Committee to review the NPS has made considerable progress in its work. I am happy that the Staff Side of the National Council of the Joint Consultative Machinery for Central Government Employees have taken a constructive approach. A solution will be evolved which addresses the relevant issues while maintaining fiscal prudence to protect the common citizens,” Sitharaman said.
Another generic but potentially important reform measure which the budget talks about is developing a financial sector vision and strategy document for “meeting financing needs of the economy”. This could be an extremely important area for both government and private sector investment. The former plans to undertake a lot of such activity without budgetary allocations and the latter’s need are over and above for normal commercial banking channels can provide for. Another major financial sector reform mention in the speech talks about tweaks to the bankruptcy framework and debut recovery tribunals to strengthen and speed up debt recovery.
While this budget’s reform quotient is relatively underwhelming, its announcements on initiating a review of income tax laws and customs duties and NPS suggests that there could be major developments on the reform front between now and the next year’s budget.
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