February 5, 2024: Economists and tax experts have commended the central government’s Interim Budget 2024-25 for prioritizing infrastructure investment while surpassing earlier fiscal deficit projection. Dr. Soumya Kanti Ghosh, Group Chief Economic Advisor at the State Bank of India, anticipates a fiscal deficit of 5.0% for FY25, a 10-basis point improvement from the estimated 5.1%. He underscores the role of robust tax revenue in driving this reduction and predicts further tax reforms to sustain this momentum.
Tax-to-GDP Ratio Hits 16-Year High, GST Buoyancy Remains Strong
Dr. Ghosh highlights the tax-to-GDP ratio reaching a 16-year peak of 11.6%, with potential growth to 12.1% driven by buoyant tax collection. He emphasizes the resilience of GST, signaling its efficiency in revenue generation, and suggests potential reforms to mitigate revenue loss post the cessation of the compensation cess in FY26.
Utilizing Dividends and Disinvestment to Offset Fiscal Deficit Projection
Non-tax revenues, including dividends and disinvestment proceeds, are touted as pivotal in bridging fiscal gaps. Dr. Ghosh suggests leveraging the current stock market rally and increasing PSU stock market capitalization to drive disinvestment. This strategy, he believes, could revolutionize investment patterns and spur economic growth in the near future.
Strong Bank Credit Expansion and Infrastructure Investment Surge
Dr. Ghosh underscores the substantial growth in bank credit, particularly in sectors like agriculture, MSMEs, and emerging industries such as data centers, renewable energy, and healthcare. He said, “Incremental bank credit this year is 1.7 times higher than the corresponding figure last year. Overall bank credit is growing at close to 20%, while agriculture and MSME credit is expanding by 18% and 16% respectively. We are seeing strong uptick in credit for data centers, electric vehicle, renewable energy, healthcare, hospitality, aviation and metals, to name a few. Infrastructure investment in the country has grown 3.5 times during FY15-FY24 compared to the preceding decade.”
Anticipated GST and Customs Duty Overhaul
Speaking on this occasion, Mr. M.S. Mani, Partner-GST, Deloitte India informed that the government may introduce the next wave of GST reform in the later part of next financial year. “In the interim budget, the government has not made major amendments in GST, except the provision on input service distributor and the new section 122A imposing penalty for non-registration of machineries in some regulated sectors. In future, the government may rationalize GST rates by reducing multiplicity of slabs, bringing petroleum products under the GST regime gradually starting with natural gas, aviation turbine fuel and then petrol and diesel.”
Experts foresee forthcoming GST reforms, including rationalizing GST rates and gradual inclusion of petroleum products into the GST regime. Additionally, customs duty amendments are expected to align with future free trade agreements, particularly with Oman, the UK, and other nations.
Innovative Scheme to Alleviate Direct Tax Litigation
An innovative scheme aimed at reducing direct tax litigation by withdrawing outstanding tax demands of small taxpayers is introduced. Legal expert Mr. Firoze Andhyarujina elucidates the scheme, clarifying its applicability and benefits for eligible taxpayers facing various tax notices.
Mr. Andhyarujina informed, “This withdrawal provision should be interpreted as a waiver of outstanding tax demand, rather than as an amnesty scheme. The government may waive outstanding tax demand raised during the original demand notice on the date of issuance of this notice under section 156 of the IT Act.
Mr. Andhyarujina also clarified that the waiver will be applicable on year-wise tax demand, rather than on the cumulative tax demand. He further clarified that taxpayers facing demand notice under various sections, such as section 143 (1) intimation, 143 (3) scrutiny and section 147 – section 148 reassessments can benefit from this provision provided the outstanding tax demand is less than the threshold limit of Rs. 25,000 upto 2009-10 and Rs. 10,000 from 2010-11 to 2014-15.
Development-Oriented Budget Overview
Ms. Rupa Naik, Executive Director of MVIRDC World Trade Center Mumbai, lauds the development-oriented budget devoid of populist measures. She highlights the budget’s inclusivity, aiming to support various sectors and foster investment in sustainable manufacturing, green energy, real estate, and infrastructure.
The discourse surrounding the Interim Budget 2024-25 reflects a collective optimism tempered with strategic foresight. Driven by expert analysis and informed predictions, the budget’s emphasis on fiscal prudence, tax reforms, and infrastructure investment lays a sturdy foundation for economic resurgence. As the government navigates the intricate landscape of fiscal management and policy reform, the trajectory appears poised for sustained growth and resilience. With a keen eye on harnessing both traditional fiscal tools and innovative measures, India stands at the threshold of a transformative era, where prudent financial stewardship converges with a vision for inclusive development and prosperity.