Reflections on the Budget proposals

All Union Budget speeches sound good. They highlight the positives and contain many announcements of schemes and financial benefits, especially for the poor. As usual, much depends on the finer print and how things play out. The one presented last week is no different.  

Last year, the Budget estimated? 2,450 trillion in Customs revenue. The revised estimate is? 1,352 trn or 55.2 per cent of this. The reason probably is the withdrawal of additional duties of customs on items covered under goods and services tax (GST)

The revised estimate for the current year in Central GST is? 2,214 trn but the estimate for next year is ?6,039 trn, an increase of 272 per cent. The current year’s revised estimate for Integrated GST is? 1,619 trn, whereas the budget estimate for next year is? 500 trn, about 30.9 per cent of the current year estimate. The carryover of transitional credit from the earlier regime or spill of due refunds to next year do not  account for this apparent anomaly.  The government should give suitable explanation.

Customs duties have been raised on over 50 items — mobile phones, their parts, select consumer goods, parts of televisions, consumer durables, imitation jewellery, automobile parts, fruit juices, etc. Yet, customs revenue is projected to fall to ?1,125 trn, from ?1,352 trn this year, a dip of 16.8 per cent. So, the decision to increase customs duty rates have little to do with raising revenues but more to do with helping local producers. Whether these protectionist measures will help domestic industry is a matter of doubt. 

Henceforth, import will not attract a two per cent education cess (EC) and one per cent secondary higher education cess (SHEC) but will attract a 10 per cent social welfare surcharge (SWC). On petrol, high speed diesel, silver and gold, the surcharge is only three per cent. For now, this surcharge will be levied on basic customs duties (BCD), on only items that earlier attracted EC and SHEC. It cannot be taken as an input tax credit. Notifications exempting it on import under export promotion schemes such as the advance authorisation one have not been issued separately but since BCD is nil here, automatically the SWC as a percentage of BCD will also be nil.  The Finance Bill proposes some changes to the Customs Act, to align certain provisions with commitments under trade facilitation agreements. Noteworthy among these are to provide for pre-notice consultation, definite timelines for adjudication and deemed closure of cases if those timelines are not adhered to. These welcome measures can help smoothen dispute resolution and reduce litigation.  

The finance minister said India’s agricultural export potential was as high as $100 billion, against the current $30 bn. To realize this potential, export of agri-commodities are to be liberalised. Easily said, considering the need to balance the interest of domestic producers and consumers. However, his expectation of 15 per cent export growth is achievable, provided the issues flagged by exporters, like a strengthening rupee and GST refunds are addressed. Overall, the Budget rightly focuses on key issues in agriculture, infrastructure and the social sectors but falls short on allocations. Fiscal prudence is maintained despite slight slippage but higher commodity prices, a strengthening rupee and rising interest rates could hurt the competitiveness of domestic producers and exporters.

E-mail: tncrajagopalan@gmail.com