Union Budget 2024: Need a long-term vision

The Budget could have outlined a three-tier Customs duty structure with minimum rate on raw materials, a slightly higher rate on intermediates, and the highest rate on finished products

Why does the Budget in India evoke so much hype and expectation? Normally, it should be regarded as a routine annual accounting exercise, as in many other countries. The reason for this difference in India lies in the reforms of the 1990s when the Budget became a medium for announcing widespread policy reforms and signalling medium- and long-term priorities.  

In this Budget, the emphasis was more on programmes than on policies, reflecting the government’s serious concerns about employment, especially youth unemployment. The priorities outlined by the government sought to address this area in many ways. What was gratifying, however, was that the government continued to signal its commitment to fiscal  prudence by keeping the fiscal deficit as a percentage of gross domestic product or GDP at 4.9 per cent for the  current fiscal year (against the target of 5.1 per cent) and promised to reach 4.5 per cent next year. 
 

On the taxation side, both for indirect and direct taxes, the approach has been to simplify procedures and slowly phase out the multiplicity of schemes and exemptions. The other priority area has been to reduce tax litigation. In this endeavour, the value limits for filing appeals in the legacy tax cases on the indirect tax side like excise and service taxes has been enhanced. Priority has also been accorded to digitisation of taxpayer’s services so as to make the tax payment experience less stressful.  
 

The introduction of goods and services tax (GST) has precluded policy announcements in the Budget, as these are decided by the GST council jointly by the Centre and the states. The Finance Minister, however, did mention that going forward there would be rationalisation of rates and simplification of the procedures so as to improve the ease of doing business. The specific proposals have been on the Customs side where the government has again thrown away the opportunity to bring down the average Customs duty rate of 18 per cent to less than 10 per cent. Within this, the Budget could have outlined a three-tier duty structure — with minimum rate on raw materials/components, a slightly higher rate on intermediates, and the highest rate on finished products. This would also have corrected the inverted duty  structure across the board. Instead, the government has opted for a sector-by-sector approach. It has reduced the basic Customs duty on raw material/components for a number of industries, which have done well on the export side like marine export (stock and feed for shrimps), gold jewellery, and platinum (significant reduction on the basic customs duty for gold jewellery and platinum), mobile phones and accessories like chargers, and on certain components used in electronic products. 

The Budget also significantly reduced import duty on capital equipment used for manufacturing solar cells and panels, and on critical minerals used in strategic sectors like space and nuclear power. It also provided relief for specific inputs used by labour-intensive industries such as leather and textile. 
 

To address the problem of duty inversion in textiles, the government reduced basic Customs duty on inputs like methylene  diphenyl diisocyanate (MDI) used in the manufacturing of spandex yarn. In consonance with India’s climate goals, the government increased basic Customs duty on plastics like PVC Flex banners, which are non-biodegradable and hazardous for the environment and  health, to cub their imports. 
 

However, more could have been done for these industris to achieve the employment objective by giving import duty reliefs on a wide spectrum of raw materials/components. 
 

An interesting aspect of the Budget speech was that the government would prepare a ‘economic policy framework’ for reforms in factor markets, such as land (impacts agriculture and urbanisation), labour (impacts health and education), and entrepreneurship, to boost total factor productivity growth. This is significant because the reforms of the 1990s concentrated on product market and tariff policy reforms. The new framework can provide interesting ideas for reforms, especially in the regulatory framework. However, the reforms that the central government could implement alone have largely been completed, and factor market reforms would require active cooperation and consultation with state and local governments. Perhaps, this is an opportune time to create a GST Council-like structure for land and labour market reforms. Such an institution can help build consensus for these reforms. One idea that the government could borrow from the earlier Empowered Committee of Chief Ministers  (implementing the earlier vat reform) is to vest leadership in these bodies with chief  ministers or finance ministers from Opposition-ruled states, thereby fostering greater buy-in for the reforms. This would align with the recent observation of the Prime Minister that “desh is more important than dal”. 
 

Therefore, the clarion call for moving towards a “Viksit Bharat” must be three cheers for cooperative federalism.

The writer is former member, CBIC