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A full Budget, implementing pending reforms to keep finance minister busy

While the ministry has started work on the Budget, it is expected to begin industry consultations


Illustration: Binay Sinha

Ruchika ChitravanshiShrimi ChoudharyHarsh Kumar

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The first challenge before the finance ministry, under the new coalition government, will be to present a full Budget for 2024-25 in about a month.

While the ministry has started work on the Budget, it is expected to begin industry consultations. Whether the government sticks to the fiscal-deficit target of 5.1 per cent of gross domestic product as pencilled in in the Interim Budget presented in February or goes for aggressive fiscal consolidation, given the record Rs 2.1 trillion dividend from the Reserve Bank of India, will be closely watched.  

The S&P Global Ratings has said it will closely observe India’s fiscal consolidation path for the next two years and could give a ratings upgrade if the government stays committed to the fiscal glide path.

The finance ministry may seek to resolve the controversy after it amended the Income Tax Act in the FY24 Budget, mandating that if a large company does not pay a micro, small, or medium enterprise within 45 days in the case of written agreements, starting April 1, 2024, it cannot deduct the expense from its taxable income, leading to potentially higher taxes. However, traders and certain micro, small, and medium enterprises (MSMEs) have expressed apprehension that it may shift business to unregistered MSMEs, leading to their loss of business.

Union Finance Minister Nirmala Sitharaman last month hinted at reconsidering the matter, asking MSMEs to make representations before the Budget.

The finance ministry will look to speed up the long-pending strategic sale of IDBI Bank, Shipping Corporation, and NMDC. Their privatisation is at various stages. Secondly, it will also try to fast-track secondary market offers of different public-sector enterprises, given the favourable valuations and to maintain overall fiscal balance. 

However, fresh plans of privatisation or divestment in central public sector enterprises (CPSEs) and public-sector banks (PSBs) might take a back seat this financial year because these may require a large consensus among coalition partners.

On goods and services tax (GST), the government’s efforts to rationalise rates may require the GST Council to be cautious. A state panel needs to be reconstituted to review the matter afresh. That may involve some members from allies. The issue of the compensation cess to states and having petroleum within the GST net would emerge again and may need discussion in the GST Council.

On direct taxes, implementing the long-delayed Direct Tax Code (DTC) may be prioritised. In 2019, a task force constituted to prepare the code had submitted the draft report. Some suggestions have been implemented independently. The new government may take a fresh look at the code, keeping emerging tax issues in mind, particularly the digital space. 

Revamping capital gains tax, reworking legislation governing penalties, and bringing uniformity in taxing all asset classes are among the other items on the agenda of the finance ministry. 

The ministry may also prioritise the long-pending amendments to the insurance law. The pending Bill, which proposes several changes including composite licences, however, may require a greater political consensus among coalition partners.

On the anvil

> Sticking to fiscal glide path to achieve fiscal deficit target of 4.5% of GDP by FY26

> To speed up the long-pending strategic sale of IDBI Bank, Shipping Corporation, and NMDC

> To resolve tax controversy related to MSMEs

> Implement the long-delayed Direct Tax Code

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First Published: Jun 09 2024 | 11:30 PM IST

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