he NDA government will present the first full-time Budget of its second term July 5. Reviving growth, creating jobs, boosting economy and doling out tax relief, while staying fiscally prudent, may be some focus areas of Finance Minister Nirmala Sitharaman. The first female Union Finance Minister has quite a task on her hands. Unemployment has touched a 45-year high and India has lost its tag of the world’s fastest-growing economy to China in the last quarter of the fiscal year. Farm growth has stuttered. Going forward, there is little hope from agriculture, as there already is a 35 per cent deficit in rain during June. In most states, sowing and transplantation have been delayed. Among the other major challenges she faces is the need to find resources for welfare programmes announced by Prime Minister Narendra Modi, including Rs 870 billion ($12.6 billion) for a new measure to support farm income. And she must do all that, while keeping the national deficit below 3.4 per cent of GDP. Turbo-charging the economy, which has been on a slide, will be a Herculean task for the finance minister.
Another challenge will be boosting both consumption and investment. But some signs are ominous. While industrial production turned negative in April, auto companies are facing an inventory pile-up in the face of plunging demand. One way to address this problem is by putting more money in the hands of consumers by lowering income tax. The expectation of the middle class salaried people from the Modi government is very high. Income tax relief on salaries up to Rs 5 lakh announced in the interim Budget by Piyush Goyal has not come to their expectations. However, this will be easier said than done, considering the tight fiscal position.
GST mop-has come down. Direct tax receipts have also come southward. The new minister should also look at easing the GST structure and processes. Her predecessor and mentor Arun Jaitley earlier this week tweeted about the need to coalesce the multiple GST slabs into two. Jaitley said it is only a matter of time when that is given effect to. To that extent, Sitharaman will try to achieve this. She will be also trying to address infrastructure bottlenecks to inject competitiveness to exports. The slowdown in export has hurt the manufacturing sector, and in turn, jobs. There is also a need to boost foreign investment by providing more incentives. Land and labour reforms are two other areas that call for government attention.
Sitharaman will also face some tricky issues such as meeting the 2018-19 numbers presented in the interim Budget by Piyush Goyal. Many of the projected numbers have since changed. Most disconcertingly, the next tax revenue numbers have shrunk from the revised estimates by about 11 per cent or Rs 1.6 trillion, from Rs 14.84 trillion in revised estimates to Rs 13.17 trillion according to the provisional actuals. As these numbers had been projected by a BJP minister, she would feel embarrassed debunking those figures in the revised estimates. A new finance minister of the Modi government would be explaining what went wrong with the revised estimates in the interim Budget, presented by another finance minister of the previous Modi government. Questions will certainly be asked why the government’s net tax revenues fell by 11 per cent compared with the revised estimates. How well Sitharaman will walk the tightrope would be known today.