Interim Budget options for Mr Jaitley

Finance Minister Arun Jaitley has stated that he would go by past precedents while finalising the Interim Budget for 2019-20 to be presented next month. “In an election year, there are certain things you can present and certain things you cannot,” he said in an interview.
 
What are those precedents that Mr Jaitley can go by? Can he announce tax proposals in his final Budget under this government? An assessment of what the last three Interim Budgets had proposed by way of taxation proposals, therefore, would provide an indication of what Mr Jaitley might have meant.
 
The last three Interim Budgets were presented by three different finance ministers — Jaswant Singh in 2004 under the Atal Bihari Vajpayee government, Pranab Mukherjee in 2009 and Palaniappan Chidambaram in 2014, the latter two under the Manmohan Singh government. The circumstances under which these Budgets were presented were also different.
 
In 2004, the Indian economy was just beginning to take off as the government had cut tariffs, opened the economy to increased competition and paved the way for more tax reforms. Mr Mukherjee’s Interim Budget in 2009 was presented in the backdrop of a financial crisis triggered by the global financial meltdown of 2008. And Mr Chidambaram presented his Interim Budget when the Indian economy was not doing too well, with oil prices beginning to rise and both the fiscal deficit and the current account deficit coming under strain.
 
Of the three past Interim Budgets, only one of them, presented by Mr Mukherjee, completely refrained from announcing new taxation proposals. Instead, what Mr Mukherjee’s Interim Budget for 2009-10 did startlingly well was to reveal how the government’s fiscal consolidation plan had gone awry.
 
The Budget for 2008-09 presented in February 2008 had projected a fiscal deficit of 2.5 per cent of gross domestic product or GDP and a revenue deficit of 1 per cent. That Budget was presented by Mr Chidambaram. But by the end of November 2008, after the Mumbai terror attack, Mr Chidambaram was shifted to the home ministry and Mr Mukherjee was made the finance minister.
 

Mr Mukherjee told a shocked Lok Sabha in 2009 that the government’s fiscal deficit had actually widened to 6 per cent of GDP for 2008-09 and the revenue deficit, too, had increased to 4.4 per cent. These numbers remained unchanged even when the actuals for 2008-09 were announced a year later. Few other Interim Budgets in recent times have brought out so starkly the government’s failure in sticking to its promise on fiscal consolidation just before going in for elections.
 
In contrast, the other two Interim Budgets actually revealed an improvement in the government’s fiscal consolidation plan. Jaswant Singh announced that the fiscal deficit for 2003-04 had been brought down to 4.8 per cent of GDP, compared to the Budget Estimate of 5.6 per cent. Similarly, Mr Chidambaram announced that the fiscal deficit for 2013-14 had been brought down to 4.6 per cent of GDP, compared to 4.8 per cent projected in the Budget Estimate for 2013-14. Indeed, when the actual numbers for these two Budgets were revealed a year later, the fiscal correction recorded was even greater.
 
The Interim Budgets of Mr Singh and Mr Chidambaram differed from that of Mr Mukherjee in another respect. Both of them presented taxation proposals in their respective Budgets, but in differing ways.
 
Mr Singh did not propose any amendment to the Income-tax Act, but outlined what the government’s action plan would be for the next year. Thus, he announced the government’s commitment to examine the following concessions for taxpayers: The fiscal benefits available to new projects in the power sector should be extended up to 2012, the exemption from long-term capital gains tax for listed equities acquired on or after March 1, 2003,should be extended for a further period of three years and the standard deduction allowed to individuals for calculating their income-tax burden should be revised.
 
As for indirect taxes, Mr Singh announced the government’s intention to examine fresh relaxations and concessions for several sectors, including capital goods, power equipment and fuel oils used for power generation. He also raised with immediate effect the duty-free baggage allowance for Indians returning from abroad, cut the customs duty on baggage not covered under the duty-free baggage allowance and introduced a host of user-friendly tax administration norms for imports and service tax compliance.
 
Mr Chidambaram went a step further in his Interim Budget for 2014-15. He said the “current economic situation demands some interventions that cannot wait for the regular Budget”, and reduced excise duty on a large number of goods in a bid to stimulate growth in capital goods and consumer non-durables. In addition, he cut the excise duty on cars, two-wheelers, sports utility vehicles and commercial vehicles, restructured the excise duties on a wide range of products to encourage their domestic production and exempted a few sectors from service tax. Many of these duty changes were effective only till the end of June 2014.
 
For Mr Jaitley’s Interim Budget, therefore, the precedents from the last three Interim Budgets offer him a limited range of choices. This is because Mr Jaitley’s options on indirect taxes are restricted to only the customs duty as the Goods and Services Tax Council has already announced many changes in the rates for many items. So, he does not really enjoy the options that Mr Chidambaram exercised in 2014. But if he were to follow what Jaswant Singh did in 2004, the Interim Budget for next year could well outline the government’s intentions on overall tax changes, without actually effecting them. And if Mr Jaitley decides to follow Mr Mukherjee, then there is no chance of any change in tax rates.
 
Will Mr Jaitley follow only one of these precedents or pick and choose from the different options his predecessors had exercised? You will know the answer on February 1.