I ended my pre-Budget column by writing, “One is waiting for this budget with anticipation and a great deal of hope.” For many of the crucial changes needed for India to accelerate its growth rate, the Budget leaves one with a feeling of ‘let’s wait and see,’ but this means that there is still anticipation and hope. The main item on the agenda is, of course, the Goods and Services Tax (GST). If one reads between the lines of the Budget speech, I would guess that the government will move things forward within a year, the intention as stated by the finance minister. This is a hope. The planned treatment of retrospective taxation through a high-level committee, however, leaves one with nervous anticipation. This approach may not resolve the uncertainty that hangs over future investments, with respect to unwanted tax surprises.
On the hopeful side, though, there are many changes, large and small, which seem to suggest an attention to making direct taxation more predictable, streamlined and efficient. Many of these changes pertain to new rules and to new administrative approaches which will reduce the expected costs of doing business. The extension of various tax incentives for investment is also a measure that engenders hope. For me, one disappointment was the increase in the personal income tax exemption limit (and by a large percentage at that). Despite an argument that high inflation justifies such changes, I think that is outweighed by the need to maintain and expand the taxpayer base. Indeed, there is a substantial net revenue loss in direct taxes in this budget, only a third of which are expected to be made up from increases in indirect tax revenue.
On the whole, the revenue projections are somewhat optimistic, given the expected growth rate for FY15 and the performance to date. It is likely, therefore, that expenditures will have to be squeezed to meet fiscal targets. An important announcement was the creation of an Expenditure Management Commission, not just to deal with subsidies, but also monitor the overall efficiency of government expenditure. Clearly, there was not time enough before the Budget to undertake a major overhaul of expenditure governance. The report of this Commission will be vital. Again, one is left with hope and anticipation.
The ‘wait-and-see’ or ‘hope’ outlook also applies to a slew of measures announced in the Budget. Some of these are major areas where change is ongoing, such