The forthcoming Union budget will be a realistic one and introduce reforms, economists said in a roundtable discussion.
The pre-budget discussion was organised recently by BW Businessworld in partnership with News X channel. The panel consisted of economists Arun Kumar and Arvind Virmani, Prof Ashwani Mahajan, national co-convenor of Swadeshi Jagran Manch, and chairman of BW Businessworld Annurag Batra.
Virmani said the budget should be about reforms of direct taxes. In previous budgets, the government has proposed corporate income tax (CIT) reforms that are in the right direction, but have been carried out too slowly and must be accelerated, he said.
Taking the discussion forward, Batra said he expected the budget to bring structural changes in both economy and in direct tax. "Hopefully, it will bring down CIT, will provide fillip to facilitate cashless economy, will focus on providing affordable housing to the service class, and there should be a break in the tax structure," he said.
He concluded by saying that the government has to be a real social manager.
Kumar said he is bullish on the new budget. He sees two sides of the budget – one is where the wishes needs to be fulfilled and secondly, where the expenditure has to be taken care of by the finance minister.
Mahajan said as the cash crunch following demonetisation seems far from over, the government needs to use the upcoming budget to provide stimulus and pursue structural reforms to accelerate growth.
Will the Union budget come out with new targets as far as growth goes? Virmani said: For the current year till March, they will go by the CSO's estimates but as far as implication for budget is concerned, you got to remember that past numbers really do not affect the budget. There seems to be a big misperception that because growth is overestimated or under-estimated for the current year, they have a huge problem. That is just not true because they have the actual expenditures which come through the accounts of the RBI and the revenues that is collected and that will form the base."
He said that last year was a budget of good intent and this year the budget should be of action.
To which Batra said that the agriculture sector should be given rural incentives and loan waivers and structural changes should be made to CIT.
Kumar said that the government should try to boost the economy, given that their rate of growth has turned negative, tax collection would not be as buoyant as expected, and therefore the fiscal deficit will rise.
He said if the fiscal deficit rises, then the credit agencies will downgrade ratings.
If the governmewnt doesn't allow the fiscal deficit to rise, then it cannot boost expenditures on capital items and on social sector, which is needed to get the economy out of the recessionary phase.
Virmani pointed out that the retail sales will go down and production will not be affected. More important will be tax reforms an opportunity for which has been created by demonetisation.
"Of course the GST is in the works. CIT or corporate income tax reforms was promised earlier. In my view, it has been a bit slow and I hope the finance minister is able to accelerate it. There are two more areas of reforms. Personal income tax is one area where there is a great opportunity for reforms," he said.
Mahajan seconded Virmani's views.
Kumar, a former professor, said the nominal GDP is important and it implies the rate of inflation plus the real rate of growth. The real rate of growth is probably close to negative at this point of time. The wholesale price index is going at about 3.5% or thereabouts. Kumar said the budget exercise will be a nightmare for the finance minister.
