The Prime Minister Narendra Modi-led government has sought to respect the taxpayer instead of following a rent-seeking approach, finance minister Nirmala Sitharaman said on Sunday, emphasising that the huge tax relief announced in Saturday’s Union Budget was an acknowledgement of the contribution of citizens who pay their fair share towards nation-building, or, as she repeatedly stressed, a manifestation of “respect”.
The headline-grabbing tax cuts were not the only economic catalyst set in motion by the government, but the move could also have the follow-on benefit of driving discretionary spending and drive a consumption-led recovery in the economy, Sitharaman said in an interview with Hindustan Times and Mint a day after she presented the budget. The minister also touched upon the burning issues of a possible global trade war in the wake of US tariffs on key trading partners, simplification of regulatory compliances, boosting capital expenditure, and fraught Centre-state relations over electoral freebies.
But she acknowledged that it was only understandable that the tax changes have attracted so much attention.
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“The rate change has happened simultaneously (across earning levels). So as a result, you find that the benefit is accruing to every income holder, irrespective of the amount that he earns. Everybody gets benefit. Other than that, those who have been given the rebate, get the clean knockout — no tax to be paid. So we targeted the group with rebate, and also because with the rate change, everybody derives benefits,” Sitharaman said.
She denied that the income tax restructuring had anything to do with electoral politics, dismissing out of hand a suggestion that it may have been motivated by the forthcoming Delhi election.
“From 2019, or 20, Prime Minister (Narendra) Modi clearly told me to use technology and get the faceless (assessment) going… We want the taxpayer to do his own assessment and make it simpler. We brought in faceless assessment and also ‘Vivad Se Vishwas’ clearance at that time. We brought in a taxpayers’ charter. We also used to issue certificates to prompt taxpayers, regular taxpayers. So, the attempt was to tell the taxpayer that we respect his contribution and we continuously recognise that contribution and also that we respect him,” she said.
In addition to the tax changes, Sitharaman also said in her budget speech that she would table a new income tax bill in Parliament this week.
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Asked for her views on the likely timeline of the new income tax bill’s enactment, the minister said, “Well, let’s see, I want to pass it in the session. First (half of the budget) session ends and the second (half of ) the session commences. Normally, standing committees go through this (kind of bill).”
Responding to a question whether the new income tax law would be as radical as the Goods and Services Tax (GST) legislation, Sitharaman said, “Definitely, this will be simpler than what it was earlier, it will be easier to comply, it will use less words to convey the same things. And several amounts which we used as either benchmark or ceiling are all being reviewed — whether they are relevant today, whether they need to be there today. And there will be a very decriminalised approach to dealing with the penalties.”
While the tax changes dominated headlines in India on Saturday, later that night India time, US President Donald Trump fired the first salvo in what could end up being a full-blown tariff war.
The finance minister admitted that even as global factors are changing at a frenetic pace, particularly in the context of American tariffs introduced on Saturday night against imports from Canada, Mexico and China, India was well positioned to handle the aftermath but it was treading watchfully.
“It (the tariffs) may indirectly have a bearing on us, but specifically on us, we don’t know yet what is going to happen. We’ll be watchful, but we can’t predict at the moment, what will be the effect on us… We’ll have to make sure that industries are facilitated to find newer markets, and that because of atmanirbharta (self-reliance) we are able to produce many of the things that we need to produce for our essential commodities,” she said.
Asked if the Trump factor was behind the customs duty restructuring announced in the budget (he has referred to India repeatedly as a “tariff king”), Sitharaman answered in the negative and asserted that the process was an ongoing one. “Customs duty rationalisation is being carried forward for the last two years. As a sequence to that, this time also customs rationalisation has happened. This is an ongoing exercise for us to make sure India is able to import without duty burden. Items which we don’t have in this country and which are important for raw material purposes, for the MSMEs, we need to get them at affordable prices. Similarly, there are labour intensive (industries), whether it is leather, footwear, or textile, or toys. We need to get some things from abroad. We need to get them at affordable prices.”
The big bang tax changes also took away some attention from the budget’s continued focus on capital spending. The government has consistently focused on this since the pandemic, hoping to crowd-in private investment.
On the issue of lagging private investment, the minister struck an optimistic note, maintaining that “the economy needs all the stakeholders (including the private sector) to play” but added that the government will not cut back on expenditure in key areas.
“This year’s capital expenditure contracted because of the elections… Where else have I cut the expenditure? Otherwise, there’s never been a cut in any item at all. When we are wanting to give stimulus for growth, why would we want to cut down on expenditure anyway?” she said.
On the question of competitive electoral freebies effectively shaping up to be a race to the fiscal bottom, Sitharaman said it was a conversation that must happen at the state level.
“…many states suffer. Like Punjab, Himachal… their debt is being moved to the next generation… It’s not just the Centre driving it. Every assembly should discuss it, because opposition parties in the states are also responsible towards the people in that state… I would think, because the Centre has shown, at least under the Prime Minister’s leadership, we’ve all been very careful about how we are managing our finances. And if we have come out openly to say how much my debt-to-GDP (ratio) will be in the coming years, these kind of discussions should happen at the state (level too),” the finance minister said.
