Tax Reprieve May Not Spur Growth

It may merely end up enhancing the fiscal burden. The focus should be on reforming the agriculture and labour sectors

- RK Pattnaik

The reduction in the corporate tax rate and other relief measures announced by the government as part of a stimulus package will mean foregoing of revenue to the tune of ₹1,45,000 crore, or 0.68 per cent of the GDP. This is a huge incentive by any account. It comes on top of a slew of other measures relating to sector-specific fiscal concessions and funding for recapitalisation of public sector banks.

The fiscal arithmetic of the revenue foregone from the government budget needs to be contextually addressed. The headroom for absorbing such a huge hit in revenue emanates largely from the surplus transferred from the RBI to the tune of ₹1,75,987 crore, or 0.83 per cent of the GDP, including advance surplus payment of ₹28,000 crore. Though this is not explicitly set out in the budget, reports have said that the Union Budget for 2019-20 estimated the RBI surplus payment at ₹90,000 crore, or 0.43 per cent of the GDP. This amount, thus, has already been taken into account by the Government of India relative to the GDP while estimating the revenue deficit (2.3 per cent) and fiscal deficit (3.3 per cent) relative to the GDP. Thus, ceteris paribus, the net impact on the budget will be 0.28 per cent, and as a result, revenue deficit and fiscal deficit will turn out to be around 2.6 per cent and 3.6 per cent, respectively.

Economic plunge