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Budget
Budget
The Government of India, with the approval President of India, has constituted Fifteenth Finance
Commission in pursuance of clause (1) of article 280 of the Constitution, read with the
provisions of the Finance Commission (Miscellaneous Provisions) Act, 1951.
This Commission will be headed by Shri. N.K.Singh, former Member of Parliament and former
Secretary to the Government of India. Shri Shaktikanta Das, former Secretary to the Government
of India and Dr. Anoop Singh, Adjunct Professor, Georgetown University shall be the members
of the Commission. Dr. Ashok Lahiri, Chairman (Non-executive, part time), Bandhan Bank and
Dr. Ramesh Chand, Member, NITI Aayog shall be the Part time members of the Commission.
Shri Arvind Mehta shall be the Secretary to the Commission.
The new Finance Commission will cover five-year period commencing April 1, 2020.
As per Article 280 of the Constitution, the Commission is required to make recommendations on
the distribution of the net proceeds of taxes between the Centre and the states.
The Commission also suggests the principles which should govern the grants in aid of the
revenues of the states out of the Consolidated Fund of India.
It will also recommend a fiscal consolidation road map for sound fiscal management.
This time it will have to take into account the impact of the Goods and Services Tax, which
kicked in from July, on the resources of the central as well state governments.
Further, the commission will examine progress made in promoting ease of doing business by
effecting related policy and regulatory changes and promoting labour intensive growth.
Aims
The commission was set up to give recommendations for five fiscal years commencing on 1 April
2020. The main tasks of the commission were to "strengthen cooperative federalism, improve the
quality of public spending and help protect fiscal stability".Some newspapers like The Hindu and The
Economic Times noted that commission's job was made harder because of the rollout of goods and
service tax (GST) regime in India, as, it had taken certain powers concerning taxation away from the
Union and the states, and, had given them to the newly formed GST Council. The Economic and
Political Weekly further noted that even after the passage of the Fiscal Responsibility and Budget
Management Act, 2003, some states still incur revenue deficits, so, the commission would have to
either recommend the disbandment of revenue deficit grants, or, would have to recommend ways for
further fiscal consolidation.
The commission's chairman, N. K. Singh, said that the commission would need to define populism,
as, the commission's 'terms of references' (ToR) had a provision for rewarding states, which were
successful in eliminating or reducing expenditure incurred on populist schemes. Singh added that
the commission would need to reappraise the formula of devolution of revenue through the Union's
taxes, because of a provision in its ToR. Further, at its first interaction with members of
parliament (MPs),[28] the commission was asked by some MPs to recommend a plan on
compensating states which suffered revenue losses after the rollout of GST.[29] Some
parliamentarians also asked the commission to reassess the criteria of classifying a state as
'backward'.[30][31]
The president of Nationalist Congress Party (NCP), Sharad Pawar, suggested the commission to
create a financial buffer against oil prices.[32] Whereas, the Chief Minister of Biharand Janata Dal
(United) (JD(U)) president, Nitish Kumar — in a letter to the commission's chairman, N. K. Singh —
asked the commission to revisit the criterion of the target of a maximum 3% fiscal deficit under
the Fiscal Responsibility and Budget Management Act, 2003, calling it "iniquitous".[32] Singh added,
that the state was still waiting for special financial allocations promised to it under the Bihar
Reorganisation Act, 2000.[32]
Criticism
Politicians — including chief ministers and finance ministers —; retired civil servants; judges; and
economists from South Indian states opposed the commission's 'terms of reference' (ToR), as, it
used the data of 2011 census, instead of the data of 1971 census, as previous commissions
had. Politicians from the south believed that this would dilute the share of South India in the pool of
Union's tax revenue, because of its shrinking population vis-à-vis the north since 1971. Communist
Party of India (Marxist) (CPI(M)) leader and Kerala finance minister, T. M. Thomas Issac, proposed a
meeting of finance ministers of the ten states and union territories to discuss the commission's
ToR. In response, Subhash Chandra Garg, the Union Economic Affairs Secretary, said that the
terms of reference were balanced and were "not one way or the other", he added that according to
the second provision of the ToR, states with a good total fertility rate — especially, the ones which
had reached the replacement rate (2.1 children per woman) — would be incentivised.
Aam Aadmi Party (AAP) convener and Chief Minister of Delhi, Arvind Kejriwal, criticised the
commission for treating the National Capital Territory of Delhi neither as a state nor as a union
territory (UT), saying that the Delhi government deserved a ₹52,000 crore (US$8.0 billion) grant from
the Union government if it qualified as a UT in the commission's eyes, else it deserved more
devolution of Union government's tax revenue as a state. Kejriwal added that the Government of
Delhi would move to the Supreme Court of India on the matter.
This is also a Budget where the government has considered setting up a truly
welfare state — with a wide social security net for the common man with huge
social spending in the areas of health, education, employment and sanitation. He
has made some compromise on fiscal prudence. This was largely due to the
GST rollout and its GST collections so far this year. The gross fiscal deficit is
projected to be at 3.3% of GDP for 2018-19, vis-à-vis 3.5% in 2017-18. Growth in
tax collections is being pegged at 17.5% (20% growth in GST, 20% growth in
personal income tax and 10% growth in corporate tax); total expenditure growth
has, however, been aggressive at `24.4 lakh crore with capital expenditure being
pegged at `3 lakh crore with 9.9% growth.
For the capital markets, the negatives were the re-introduction of capital gains
tax on dividend distribution tax and higher fiscal deficit figures leading to higher
bond yields. Now, there will be 10% tax on long-term (one-year-plus) capital
gains (more negative for mid-caps where HNIs were active; to be grandfathered
with effect from January 31, 2018) and a 10% tax on MF distribution. The 3.3%
fiscal deficit for FY19 (vs 3.5% in FY18e) was also a bit higher than expected —
coupled with the off-budget financing, this will lead to even higher bond yields.
This is clearly negative for bond markets, equities and NBFCs that rely on
wholesale borrowing.
Emphasising that infrastructure is the growth driver of economy, the Finance Minister estimated
that investment in excess of Rs.50 lakh crore is needed to increase growth of GDP and connect
the nation with a network of roads, airports, railways, ports and inland waterways. He announced
increase of budgetary allocation on infrastructure for 2018-19 to Rs.5.97 lakh crore against
estimated expenditure of Rs.4.94 lakh crore in 2017-18.
The Government has made an all-time high allocation to rail and road sectors and is
committed to further enhance public investment. The Prime Minister personally reviews the
targets and achievements in infrastructure sectors on a regular basis. Using online monitoring
system of PRAGATI alone, projects worth 9.46 lakh crore have been facilitated and fast tracked.
Also under the Bharatmala Pariyojana, about 35000 kms road construction in Phase-I at an estimated
cost of Rs.5,35,000 crore has been approved.
Finance
To encourage raising funds from bond market, the Finance Minister urged regulators to
move from ‘AA’ to ‘A’ rating for investment eligibility. He said that the Government will
establish a unified authority for regulating all financial services in International Finance Service
Centre (IFSCs) in India.
Relief to Senior Citizens
Increase in deduction limit for medical expenditure for certain critical illness from Rs.
60,000 (in case of senior citizens) and from Rs. 80,000 (in case of very senior citizens) to
Rs. 1 lakh for all senior citizens, under section 80DDB. Concessions will give extra tax
benefit of Rs. 4,000 crore to senior citizen. It is also proposed to extend the Pradhan
Mantri Vaya Vandana Yojana up to March, 2020. The current investment limit is also
proposed to be increased to Rs. 15 lakh from the existing limit of Rs. 7.5 lakh per senior
citizen.
For Environment
Air pollution in Delhi-NCR has been a cause of concern, govt has proposed
subsidised machinery for in-situ management of crop residue in Punjab,
Haryana, Uttar Pradesh and NCT Delhi.
* Govt of India will take necessary measures to put in place measures for the
state government to purchase surplus solar power produced by local farmers
at sutiable prices.
* Arun Jaitley proposes a sum of Rs 500 crore for 'Operation Green' on the
lines of 'Operation Flood'.
*We have been saying it for years that India is primarily an agricultural country