A day after presenting Union Budget 2018, finance minister Arun Jaitley reiterated his government’s commitment to providing minimum support price (MSP) equal to 50 per cent in excess of the production cost.
“There is a lot of stress in rural India. It requires government support. The minimum support price (MSP) has to be reasonable,” said Jaitley. “The exact formulation of the scheme will be worked out by the ministry of agriculture, NITI Aayog and state governments,” he added.
Jaitley was speaking at an interactive session organised by Open magazine.
The scheme, conceived by officials at the NITI Aayog, originally considered adopting a universal approach. But given the fiscal ambiguity surrounding the scheme, Jaitley said it was limited to covering 10 million households or roughly 40 per cent of the country. Likely to be launched in FY19, the scheme is expected to be entirely state-funded. “A social security regime is beginning to take shape in India,” Jaitley said. “As of now, Rs 20 billion has been provided for the scheme.”
On specific industry concerns that the Budget had not lowered tax rates on large corporates to 25 per cent as was promised, the finance minister argued that as conceived earlier, the tax rates can be lowered only in conjunction with the removal of exemptions.
“But most exemptions in India have a sunset clause,” he said. And since investments are often made on the basis of these clauses, withdrawing them abruptly could lead to accusations of retrospective action, he cautioned.
“As the sunset dates approach, the exemptions will go. It would then be possible to lower the tax rate,” he said. However, he also pointed out that currently the effective tax rate for the 7,000-odd companies above the Rs-2.5 billion threshold is only 22 per cent due to the exemptions allowed. But once these exemptions are removed, their effective tax rates would actually rise.
On the low level of compliance under the Goods and Services Tax (GST), the finance minister argued that not all anti-evasion steps have been implemented. “Once these measures are in place, the increase in compliance will also help boost revenues,” he noted, adding, “Further rationalisation in GST rates will happen only when collections rise.”
An intriguing aspect of this year's Budget has been the rise in customs duty. While the trend over the past few years has been to bring them down, this year there has been a deviation. However, the customs hike has been limited to a few items. The explanation put forth by the finance minister rests on the argument that cheaper imports in items such as mobile phones, could scuttle manufacturing and endanger the government’s ambitious Make in India programme.
On the government's bank merger plan, Jaitley argued that merging two weak banks or merging a weak with a strong banks is not an option.