The upcoming Budget is undoubtedly the right opportunity for the government to introduce some bold measures to achieve these objectives.
My suggestions on some measures that the finance minister could consider in the upcoming Budget are:
1. Increase taxpayer base:
The number of taxpayers in the country and, thereby the tax-to-GDP ratio, continues to be alarmingly low despite several past attempts. Increasing the taxpayer base should, therefore, be the top most priority of the finance minister. Increased use of technology in tax administration would help to bring in non-tax payers. Increased customer focus in tax administration and recruiting additional manpower would be critical to servicing an increasing tax base. It may also be worthwhile to explore taxing agricultural sector selectively by introducing measures like income or asset threshold-based taxation or taxing income from selected high-end crops, etc.
2. Kick-start growth through deficit financing:
A bold move could be to trust the India growth story and resort to deficit financing, which is an important tool for revival of the economy. The government should evaluate the merits of extending tax concessions to the infrastructure, power and manufacturing sectors, export-oriented industries, abolition of MAT [Minimum Alternate Tax], lower individual and corporate tax rate to boost investments. Measures to divert savings to productive investments through tax breaks and making available funds at low rate for the small and medium sector would also facilitate growth. Though any such measure needs to be calibrated against any potential adverse impact on inflation, additional revenue from increased business activity and growth could offset any revenue shortfall.
3. Non-tax revenue sources:
The finance minister should set aggressive targets to garner additional revenue from non-fiscal sources such as disinvestment of shareholdings in non-strategic public sector enterprises, telecom spectrum auction and coal block allocation and dividends from public sector enterprises. Further, better supply chain management and focus on exports to bridge the current account deficit could play a crucial role in currency management and thereby managing inflation. Implementation of tax reforms like introduction of the Goods and Services Tax, Direct Taxes Code and administrative reforms suggested by the TARC [Tax Administration Reform Commission] would be critical. Clarity and certainty in tax policies (e.g. deferment of GAAR [General Anti Avoidance Rules], removal of retrospective amendments etc.) and policy reforms on the foreign direct investment front could also encourage much-needed foreign investments into the country, thereby strengthening the rupee.
(The author is CEO, KPMG in India)