You have presented some substantive issues in the budget, but the minute you say something like personal income tax cut, that grabs all the headlines.
Yes, that is one, and also see normally, tax relief will not be this range, and will also not be simultaneously across the board. You were at two (lakh rupees starting tax slab), then you’ll raise it to 2.5 or you were at five (lakh), you will raise it to seven (lakh). Now, from seven (lakh), I am taking it to 12. So that’s a big deal.
And it will also benefit those who are earning ₹25 lakh.
Yes, because the rate change has happened simultaneously. So as a result, you find that the benefit is accruing to every income holder, irrespective of the amount that he earns. Everybody gets benefit. Other than that, those who have been given the rebate, get the clean knockout — no tax to be paid. So we targeted the group with rebate, and also because of the rate change, everybody derives benefits.
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What was the motivation for the personal income tax cut? This is a demand every year, but this time you have responded…
From 2019, or 2020, Prime Minister (Narendra) Modi clearly told me to “use technology and get the faceless (assessment) going”. We want to have trust in the taxpayers. We don’t want any rent-seeking happening. We also want the taxpayer to do his own assessment and make it simpler. We brought in faceless assessment. We also brought in ‘Vivad Se Vishwas’ clearance at that time. We brought in a taxpayers charter. We also used to issue certificates to prompt taxpayers, regular taxpayers. So, the attempt was to tell the taxpayer that we respect his contribution and we continuously recognise that contribution and also that we respect him. And this is true from 2019.
So now it was very clear that… Prime Minister was very clear that for the taxpayers…for their respect, samman …something needs to be done. So we worked out different possibilities and came back with this. It is first and foremost a measure to respect those taxpayers, honest taxpayers, who, without fail, are paying towards the country’s nation-building attempts. It will certainly have a follow-up, in that consumption will improve, hopefully they will save a lot more than before. Discretionary spending may happen. We don’t know, but our intent and the primary motive was to make sure we honour the taxpayer.
What is the philosophy behind the new income tax bill?
Simplification. I said this in my July (2024) budget — simplification, easy compliance, taxpayer friendly. Above all, interpretative problems should not be there. Language should be a lot more tightened, not loose.
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So it will be smaller?
Yes, we hope that it will be at least half the size of the (old tax code).
When do you hope to get it passed?
Well, let’s see, I want to pass it in the session. First (half of the budget) session ends and the second (half of ) session commences. Normally, standing committees go through this (kind of bill).
Do you think this new income tax law would be as radical as the GST legislation?
Definitely, this will be simpler than what it was earlier, it will be easier to comply, it will use less words to convey the same things. And several amounts that we used as either benchmarks or ceilings are all being reviewed — whether they are relevant today, whether they need to be there today. And there will be a very decriminalised approach to dealing with the penalties. As it is, Income Tax (the department) does not arrest you and take you anywhere. It is only in other offences, in Companies law etc. But even here, we are going on the route of trust and saying “alright, you tell me where you are…you self-declare the reasons” and so on. To that extent, I think it will be a very progressive approach to dealing with income tax.
Global factors are changing at a frenetic pace. For example, these US tariffs, which were introduced on Canada, Mexico and China. Do you think there will be some ripple effect that will be felt by India? And do you envisage a situation where we get into a large-scale global tariff war, and if we do that, is it going to affect our economy?
We don’t know what it is going to be for us. But you raised a pertinent point. On Mexico, on Canada, on China, whatever is being imposed, will that have a bearing on us. It may indirectly have a bearing on us, but specifically on us, we don’t know yet what is going to happen. We’ll be watchful, but we can’t predict at the moment what the effect on us will be.
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How do you think we can insulate India from a full-blown trade war? Exports, after all, are one engine of growth, which you mentioned in your speech on Saturday…
We’ll have to make sure that industries are facilitated to find newer markets, and that because of atmanirbharta (self-reliance) we are able to produce many of the things that we need to produce for our essential commodities. But finding new markets is part of what the export promotion engine is speaking about. And in that we have highlighted finding new markets, increasing the capacity of ECGC (Export Credit Guarantee Corporation) and Exim Bank to fund more trade. All this is happening. So we are constantly strengthening the institutions which help in trade promotion.
What are the factors that are prompting India to lower custom duties? Is one reason the (prospect of the) Trump tariffs?
Customs duty rationalisation is being carried forward for the last two years. As a sequence to that, this time also customs rationalisation has happened. This is an ongoing exercise for us to make sure India is able to import without duty burden. Items that we don’t have in this country and that are important for raw material purposes, for the MSMEs (micro, small and medium enterprises), we need to get them at affordable prices. Similarly, there are labour intensive (industries), whether it is leather, footwear, or textile, or toys. We need to get some things from abroad. We need to get them at affordable prices. So these are considerations why we are rationalising customs, not in response to anything else.
How are you looking at Chinese investments now in this country? Maybe, perhaps they come here to manufacture more..
Well, Press Note 3 still governs today. [The note mandates prior government clearance coming into India from any country with which it shares a land border; that includes China, which was the main target of the note]
The government has been trying to crowd in private investment by investing in capex. But private investment doesn’t seem to be happening. Now, with this consumption stimulus, have you given up hope on the private sector to invest? Or do you think this consumption stimulus will now prompt them?
In an economy where everybody is a stakeholder, how can I give up on anyone? The economy needs all the stakeholders to play.
In FY25, India will not be spending all the money allocated for capex. Have we reached that stage the system lacks capacity to absorb this kind of money?
Not at all. In fact, the states are more keen to get more money invested, and (so are) the departments in the Centre that are also doing the investment. The prominent four big ticket capex spenders are roads and national highways, railways, defence and home. Home has spent so much in the vibrant villages (programme), the border road villages (scheme). Roads are ever-expanding. We have taken over some of the state roads also because they are not able to maintain them. So the expansion possibilities exist in these four (departments), and these four are still wanting more. They are continuously growing. The capacities are growing. The need is growing.
So, there is appetite and capacity in terms of capex execution. But there was also a disclosure in the budget that ₹1.6 trillion is unutilised as of December 31 because states have not been using the money allocated under centrally sponsored schemes. So what is the problem there?
Just in time release is happening (by the states). So when they are in a position to put their share (of funds; some of the schemes require states to contribute a share), our money also goes. Otherwise they receive (central funds) and keep it (in the) Treasury account. So, the single nodal account, when it came, we made it clear that the moment you put the money, I send the money. This is a transitional phase as regards central and state financing, and also between department financing, everybody is now coming on board to the digital system. So there are mismatches with that. They’re getting corrected.
You had an entire section in the budget speech on investment, and talked about making regulations easier so as to make it easier to do business, reduce cost of compliance and everything else. What are the two or three things that you think can really catalyse this?
That is where the high-level committee has been formed now to see how best we can bring in simplified soft-touch regulation. Several regulators, the non-financial regulators, are also possibly looking inwards or very clear that their agenda is within their silo. That it can have an impact on others is not probably appreciated. So when this high level committee will look into these sort of things and come out with a report, we expect that there will be a lot more smooth flow between people who have common cause.
A lot of these non-financial regulators are also state level regulators like for example, factory inspectors and drug controllers. The unfortunate thing is they don’t talk to each other…
We’ll have to first of all standardise from among the central government regulators, and then it depends on the high-level committee, how it wants to look at it. The terms of reference will have to also be drafted. That will happen soon, sooner rather than later. Once that is done, they will be able to come up with a report.
Nominal GDP growth for FY24 and FY25 is less than 10%. Now inflation is also expected to come down in FY26. What factors did you consider when projecting a 10.1% nominal GDP growth for the next year?
I think we have placed emphasis on all the three sectors we want to boost. That is why you find that low productivity districts are also being taken up for agricultural enhancement, improving production, providing skills, providing storage, warehousing. Money is going to all this through various different rules, cooperatives, primary agricultural cooperative societies, district cooperative societies, and so on. So, agriculture value addition, marine value addition, MSMEs, exports — so this is where I think we are pulling all the stops to make sure money flows and with RBI (Reserve Bank of India) also opening up the window for liquidity, greater credit will be available.
Do you think there’s going to be an interest rate cut by the monetary policy committee?
I won’t be able to say.
There has been some criticism, given the fact that you managed to keep the fiscal deficit under check by contracting spends in certain categories in certain areas.
No, this year’s capital expenditure contracted because of the elections, which you yourself admitted. Where else have I cut the expenditure? Otherwise, there’s never been a cut in any item at all. When we are wanting to give stimulus for growth, why would we want to cut down on expenditure anyway?
The Survey projects real GDP growth at 6.5 to 6.8% in FY26. The CEA (chief economic adviser) said that we need to grow at 8% if we have to become a developed country by 2047. Where do you think the increment will come from?
I think the central government is (boosting) every segment where there lies potential through either PLI or employment-linked incentives. (We are) pushing the agenda forward on semiconductors, mobile manufacturing, in sunrise sectors — renewable energy, atomic energy. Now, artificial intelligence is getting a global capability centre framework. So we also think many states are keen to move forward on these lines. So I think a lot more cooperative federalism between the Centre and State is one of the very important ways in which we can move forward.
You talked about the shift to the debt-to-GDP ratio and given a glide path for that. But what about the states? Is there any such plan to also, you know, look at their debt-to-GDP ratio?
No, as it is the Constitution gives me power under Article 293, to see how the states and their borrowings are and we broadly guide them on it, and their respective FRBMs (fiscal responsibility and budget management) also guide them on it. So beyond that, there isn’t any plan.
There’s nothing to stop them from being irresponsible. There is no bar, right?
Yes. As a result, many states suffer as well. Like Punjab, Himachal…their debt is being moved to the next generation. That is hard reality, which they have to face.
One of the larger issues we are seeing now is this increased spending on welfare that is happening across all states. There is a cost to this, and there has to be some sort of rationalisation of this that happens at some level. Where is that leadership going to come from for that rationalisation?
It’s a very interesting question. I think it’s also at the state level, these kind of questions should be asked. It’s not just the Centre driving it. Every assembly should discuss it, because opposition parties in the states are also responsible towards the people in that state. So this discussion is a very critical discussion, irrespective of parties, and it should happen at the state level. I would think, because the centre has shown, at least under the Prime Minister’s leadership, we’ve all been very careful about how we are managing our finances. And if we have come out openly to say how much my debt-to-GDP will be in the coming years, these kind of discussions should happen at the state (level too).
Is there a rethink on part of the government on divestment and privatisation?
No, I’ve explained that several times. It will run its course.
Was this your most fulfilling budget?
(Smiles) I don’t know yet.