Of course, the circumstances under which Ms Gandhi
presented her only Budget in February 1970 and Ms Sitharaman
will present her first Budget on July 5 are completely different.
presented her Budget a few months after major disruptive policy steps like the bank nationalisation and the enactment of the monopolies and restrictive practices law that imposed curbs on expansion of large industrial houses. As later events would show, Ms Gandhi’s Budget in February 1970 would turn out to be the last before the next general elections, which were held ahead of schedule in March 1971.
In contrast, Nirmala Sitharaman has no such legacies — hers is virtually a clean slate as her Budget is expected to kick off the economic policy journey of a new government after the elections. Nor is her Budget immediately preceded by major disruptive policies. Demonetisation or the goods and services tax did cause major disruptions, but they happened at least two to three years ago.
The circumstances under which the two became finance ministers were also different. Ms Gandhi
added the finance ministry to her portfolio after Morarji Desai quit just before bank nationalisation in July 1969. Ms Sitharaman succeeded her senior, Arun Jaitley, who had earlier indicated his unavailability for taking any such responsibility due to his poor health.
And yet, the concerns that Ms Sitharaman will have to address in her first Budget are not very different from what Ms Gandhi had faced while finalising her Budget in 1970. Consider the last paragraph of Ms Gandhi’s Budget speech.
She said: “Sir, before I conclude, I should like to say that in presenting my first Budget to this Honourable House, I have become acutely aware of the challenges as well as the constraints of the contemporary-epoch of development of our national economy….If the opportunities for growth which are so much in evidence are to be seized fully, no effort must be spared in raising resources for the purpose….If the requirements of growth are urgent, so is the need for some selective measures of social welfare. The fiscal system has also to serve the ends of greater equality of incomes, consumption and wealth, irrespective of any immediate need for resources. At the same time, the needs of these sectors of our economy which require private initiative and investment must also be kept in mind in the interest of the growth of the economy as a whole. I can only hope that the proposals I have just presented steer clear of the opposite dangers of venturing too little or attempting too much. Thank you.”
The need for measures to boost growth, raise resources, provide for social welfare and revive private investment was uppermost in Ms Gandhi’s mind as she presented her Budget. The same need must also be exercising Ms Sitharaman’s mind as she finalises the Budget for 2019-20. But the state of the economy today is far more complicated than what it was 50 years ago and the finance minister’s policy options today are far more limited than what they were for Ms Gandhi. How she will achieve all these difficult goals is a question that will be answered on July 5.
On the question of taxation, for instance, Ms Gandhi underlined the need for widening the tax base. “In enlarging the tax base, our first concern must be to ensure that the taxes which are already levied are not avoided or evaded by devices which just manage to keep on the right side of the law. Accordingly, I have tried to plug some major loopholes in our tax system and to withdraw some of the concessions which have outlived their utility.” Widening the tax base and removing tax loopholes are the staple diet for most finance ministers and Ms Sitharaman could be expected to follow the same route.
But where she can hardly emulate Ms Gandhi is on the question of tax rates. Ms Gandhi raised the maximum tax rate on income above Rs 2 lakh to 93.5 per cent including a 10 per cent surcharge. By 1973-74, the maximum rate had risen further to 97.5 per cent. But things changed after that. More than 20 years ago, India had moved to a moderate tax-rate system for individuals with three slabs of 10 per cent, 20 per cent and 30 per cent. From 2017-18, the 10 per cent slab was lowered to 5 per cent.
Even for corporation tax rates, the government in the last few years has brought down the rate to 25 per cent for all companies with an annual gross turnover of up to Rs 250 crore and 30 per cent for companies above that turnover. The expectation now is that all companies should be brought under the 25 per cent tax net. Thus, the challenge for Ms Sitharaman is of a completely different order and certainly more formidable.
For Ms Sitharaman, it will not be an easy exercise. Most finance ministers lighten the mood that pervades during the reading out of the Budget by throwing in some humour and wit. In her entire speech, Ms Gandhi chose to use humour only once. While proposing to rewrite a tax proposal made in 1968 by her predecessor, Morarji Desai, she said: “Those who are united in Heaven should not be put asunder by a mere tax collector. On this view, the income and wealth of husband, wife and minor children should be aggregated for purposes of income and wealth taxation. But in matters like this, enforced unity sometimes leads to sharper division. It is, therefore, proposed to examine the matter in greater detail and to bring forward the necessary legislation subsequently, giving opportunity for discussion in this House and outside.”
Could Ms Sitharaman be expected to throw in more humour and wit during her Budget speech?