‘New tax regime gives spending flexibility’

Finance Minister Nirmala Sitharaman: First of all, when you look at the economy, you can see that it is showing very clear signs of robust revival. When robust revival happens, and especially when you take the example of the services sector, the kind of attrition that sector is facing but at the same time because they are moving towards greater and greater use of technology, sophisticated technology, they are also seeking people with such skills. To pay better is also to pay better for people with the required skills and that’s why the government of India, has in this budget, through various different ways underlined the importance of skilling, upskilling, skilling for industrial revolution 4.0. In that we placed specific emphasis because skilling is one thing, upskilling is there, but today the world is moving towards great use of Web 3. For that, if Industry 4.0 is coming up, employers will also pay more when you have people with the right kind of appropriate skills. We are spending that kind of money and bringing in that kind of training for people to be better paid.

So, the government is pushing it from a different supply side readiness, obviously that will have to be absorbed by the industry.

For the common people, the most striking thing about the budget is the new tax regime. What is the rationale behind that?

FM: Whenever there is discussion about Bharat’s (India) direct taxation, it is usually on two issues – reduce tax rates and secondly, don’t complicate taxes so much, where you are reducing a certain tax and implementing a surcharge on another, or you will get exemption only when you take insurance. So due to such complications, if the old regime seemed beneficial to you, it would also appear to be complicated. For this reason, regarding the old (tax) regime, many committees also reported that it needs to be simplified. One of the key reasons for tax evasion and avoidance is that when the rate is high, people find other ways to avoid it. If the rate is reduced, people will be more willing to pay up. Keeping all these factors in mind, two years earlier, we had brought in the second tax regime in which the rate was low. But this time we have reduced the rate in each tax slab, and finally the surcharge which has the highest tax rate in India, has been reduced significantly. So whatever suggestions were made on reducing rates and simplifying it, everything has been incorporated in the new regime. And we are creating a default system, which means when you log into your computer to file taxes this is the form that will appear first. This doesn’t mean you have to compulsorily follow this. If you want to follow the old regime, you can, but take that decision thoughtfully. Gradually, we are trying to attract people from the exemption regime to the new regime.

A lot of people are saying that in the old regime, for long-term savings for their retirement, etc, they could invest in PPF, NPS or other 80C exemptions so that they have some savings in the future. But in the new regime, these exemptions would not be there. Why do you then think this is a more lucrative option?

FM: We need to change this thought process. When the rate is low, and you are saving money, it is your choice where you want to invest it. In the old regime, the rate was high. In the new regime, there is no pretension that the rate is high but we are giving you some exemptions. This regime is simple. You are paying less, and with the saved money you can invest anywhere, your child’s education, whatever you wish. I think the tax payer knows how to spend his money.

The simplification of taxes is obviously going to increase the compliance and help in formalizing the economy because a lot more people are willing to participate. Is the informal sector merging into the formal sector on a natural course or are you giving some incentives to them to draw them in and formalize them?

FM: We are trying to make sure that people get into the formal sector because of the incentives we are giving for digital payments also. When people put their account into the formalized routine –for instance, one of the announcements we made today for MSMEs and professionals, that if 95% of your operations are formal, if it cheque based at least we are giving you a higher level of showing your claims. We are promoting the informal sector to gain from formalizing. The 59-minute loan giving which happened through the digital format where people could convey to the bank they want it, and get an in-principle loan in that time, and after that without visiting the bank you still get bank assistance. These are ways in which we are formalizing.

Today the country saw a very strong picture of women empowerment, when you went to meet the President. The budget also focuses on women empowerment which was praised by the Prime Minister. When through SHGs (self-help groups) you are trying to create a paradigm shift, bring in a new culture, you also said that in Amrit Kaal this would be a big weapon to drive growth. How will you tackle growth through women empowerment?

FM: Just as comparison, the Prime Minister in 2016 brought in a policy for startups, after which in every budget there is something or the other for their facilitation. Because our youth is so innovative, startups have been rising in numbers, and there are more than 80,000 startups today. Over 100 among them are already unicorns. In India, men or women, they should be encouraged through policy support without any discretion.

In the same way, if SHGs can be united in large numbers into clusters, and are supplied good quality raw material and help them in running in a professional manner, with marketing support etc, we believe that like the startup revolution happened in such a short period, the same can happen for women empowerment and through that we can do well in both manufacturing and services.

If we talk about fiscal consolidation, globally, governments are spending for their people, but you are talking about consolidating fiscal deficit to 6.4% and talking about the sticking to the gliding path to reach 5.9%. How are you managing this fiscal consolidation? And what is the signal you are sending you global investors through this budget?

FM: I keep talking about management of finance. It’s not just about allocating funds to different departments in the budget, but there are gaps in revenue raising that are not being filled. On both sides, you need to fill up the revenue gaps, bring in efficiency, use technology to find out if someone is not paying though he can. Secondly, when you are giving departments funds to spend, are they being efficiently utilized? If the money doesn’t reach to the bottom, the whole motive that funds will help in increasing demand, that’s not achieved. I believe that if the finance ministry pays attention to the budget attention, it should pay thrice the attention to implementation, plugging loopholes, stopping evasion, stopping diversion of funds and taking action, throughout the year. The finance ministry needs to work on their toes to implement all of these. The banking sector, for instance, during covid implemented the emergency credit guarantee scheme that the government had announced. If banks didn’t implement this efficiently, the purpose of the scheme would have failed. Each sector within the finance ministry, each department needs to deliver topnotch performance.

The fact that you have increased public investment for three years continuously, what was the rationale behind that?

FM: The money that is spent through public investment, in that the returns are high. There is a multiplier effect on every paise (penny) spent on infrastructure investment. We firmly believe that this is route which will uplift the economy. We have been seeing this since covid, and it has yielded positive results. If we want to grow at that pace, then public expenditure is the sure path to do so.

The full interview is available on Doordarshan.