The DRAMATIC SHIFT IN THE TAX STRUCTURE from one dominated by indirect taxes when he was full-fledged finance minister in the 1980s is the first thing that will strike Pranab Mukherjee as he rises to present his budget today. Nearly two decades of reforms have seen more stable tax regimes with less room for discretion. With corporate India contributing more than four per cent of GDP as taxes and the bulk of investment, keeping it in good health is critical.
Tax collections and revenue expenditure have grown faster than GDP, a tight squeeze on capital expenditure ensured overall expenditure levels grew a tad slower than GDP since 1990-91. This trend is in danger given the lower revenues that follow lower GDP growth and the increased pressure to spend on social sector schemes. Higher interest rates, arising from greater borrowings will hit Mukherjee’s plans to revive the economy. Disinvestment will be critical.
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