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Budget 2019: Govt pins hopes on revenue windfall — “tax buoyancy” — to fund populist schemes

Budget 2019: Govt pins hopes on revenue windfall — “tax buoyancy” — to fund populist schemes

Budget 2019: Govt pins hopes on revenue windfall — “tax buoyancy” — to fund populist schemes
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By CNBC-TV18 Feb 2, 2019 7:01:53 AM IST (Updated)

The government pledged Rs 75,000 crore to support poor farmers and reduced the tax burden for the middle class on Friday, as it looked to rally support from voters with the final budget before a general election. The action was widely expected as the government was heading into the polls that must be held by May facing discontent over depressed farm incomes and doubts over whether policies are creating enough jobs.

The government pledged Rs 75,000 crore to support poor farmers and reduced the tax burden for the middle class on Friday, as it looked to rally support from voters with the final budget before a general election.

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The action was widely expected as the government was heading into the polls that must be held by May facing discontent over depressed farm incomes and doubts over whether policies are creating enough jobs. Remember, the government was vying with a rejuvenated  opposition that has also trumpeted budget-straining populist measures to support from poorer voters,
On Friday, the interim Budget for 2019-20 offered direct cash support of Rs 6,000 to 120 million poor farmers and allocated more funds for a rural jobs guarantee scheme and rural development, like building roads and homes. The government said it would launch a pension scheme for workers in the unorganised sector, which employs some 420 million people. The budget proposals also reduced the burden for the lower middle class, by exempting people earning up to Rs 500,000 from income tax from an earlier cap of Rs 250,000.
So far, so good. But the big question is where is the money for this kind of largesse.
CNBC-TV18’s Latha Venkatesh asked the government’s principal economic adviser Sanjeev Sanyal about this.
Here’re excerpts from the exchange:
Q: In the current year’s tax collection in FY19 budget estimates (BE), the tax revenue was assumed to grow by 19.2 percent and actually year-to-date, it is less than 2 percent. But when the revised estimates (RE) of FY19 is with us, it shows an estimate of 19.5 percent, do you think that in the last two months the tax collection can rise by that much?
A: Yes, this is what the revenue department is — there is very large amount of tax buoyancy that is expected. So there is an expectation that this money will indeed come in particularly from direct taxes. So there is fair amount of buoyancy in direct taxes that is there in the Budget, if you look at the Budget at the glance that has been put together.
Indeed, Radhika Rao, economist at DBS Group Research, said the breakdown of the fiscal reveals that the government has built in aggressive revenue assumptions in FY20, despite factoring in a slowdown in nominal growth to 11.5 percent vs the revised 11.8 percent in FY19. Higher revenue projections are meant to plug an increase in spending requirements, as the government adopted a pro-consumption focus in the interim Budget, according to her. 
Citigroup said to achieve the higher revenue collection, the GST growth has been pegged at 18 percent much higher than what has been achieved so far, it said.
Pegging is one thing. Achieving is another.
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