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Business News/ Politics / Policy/  No plans to cut expenditure to rein in fiscal deficit, says Sitharaman
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No plans to cut expenditure to rein in fiscal deficit, says Sitharaman

Nirmala Sitharaman said the government is not planning to cut its expenditure to meet the shortfall
  • Sitharaman had earlier said infrastructure ministries has been asked to front load expenditure to revive capital expenditure
  • Finance minister Nirmala Sitharaman(Photo: Pradeep Gaur/Mint)Premium
    Finance minister Nirmala Sitharaman(Photo: Pradeep Gaur/Mint)

    Finance minister Nirmala Sitharaman on Sunday ruled out an immediate reduction in spending to balance this year’s budget despite fears in some quarters that fiscal slippage may undermine India’s economic stability and fuel inflation.

    Speaking to reporters in New Delhi, Sitharaman said she is not revising any budget target, including that of the fiscal deficit. “On the contrary, the expenditure secretary is meeting secretaries of each department and pushing them to spend the allocated money. He has so far held four such meetings," Sitharaman said.

    “I will take a review closer to the stage when revised estimates will be estimated," she said.

    The finance minister said the meetings are held separately with department secretaries and public sector units on a weekly basis to monitor their expenditure plans. Sitharaman had earlier said infrastructure ministries were asked to advance spending to revive capital expenditure.

    On Friday, Sitharaman announced that manufacturing companies that are not availing tax sops can opt for a 22% corporate tax rate, while new manufacturing companies that register and start production between 1 October and March 2023 can avail of an even lower tax rate of 15%. The effective tax rate, including cess and surcharges, for the existing companies comes down from 34.94% to 25.17%, while for new companies it falls from 29.12% to 17.01%.

    Analysts have pointed out that fiscal deficit could widen by as much as 70 basis points due to the 1.45 trillion revenue shortfall.

    Sitharaman said the move to cut corporate tax rates is a calculated risk. “Whether this year I am going to get adequate tax as compared to what I am forgoing through better compliance or widening of tax base is only for the future to say, but yes, I have taken a calculated risk," she added.

    Defending the supply-side measure of cutting corporate tax rate instead of taking a demand-side measure of putting more money directly into the pockets of consumers, Sitharaman said the level of interventions she could have done on the demand side, she has already done. “At the sectoral level, I have addressed the demand question as I wanted to. It’s not that I have completely forgotten that problem. But the other thing is reform, which needs supply-side changes, which I have now come up with," she said.

    However, she said the corporate tax cuts are not purely supply side. “Supply-side interventions also take into account both short-term and long-term effects. When the profits of companies will be higher because now the tax rates are far lower, they will give more dividends. This will also positively impact demand. Even industries can have more money to think of R&D or keep it aside for a future investment proposal. All of it leads to more expenditure in the economy," she added.

    Asked whether companies will pass on the benefits of lower corporate taxes to consumers, Sitharaman said companies have a business formula and are driven by their shareholders and boards. “This is not for government to decide. Each company will take its own call."

    Sitharaman said if Apple and its entire ecosystem moves to India, it will have a greater effect on other companies. By early November, the government will have an initial idea of how many foreign companies are interested in setting up manufacturing units in India, she said.

    “What earlier would have put India at a disadvantage are a couple of factors: at the top it was taxation. If we would have reduced taxes by one notch or two notches, mood would have been where it was. The top consideration on which India is always rejected has not just improved, it is better than anybody. Having no sunset clause for the tax benefit is the biggest advantage for investors," she said.

    Sitharaman said it will now be difficult for any government to increase the corporate tax by amending the Income Tax Act in Parliament as it will be hard to justify. “Nobody will easily accept now a proposal to increase tax. The upward revision is not as easy. That message has encouraged investors," she added.

    When asked whether she was going to provide a festive bonanza to individual taxpayers, she said: “Nothing is ready. I have not even applied my mind to it yet."


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    Published: 22 Sep 2019, 05:55 PM IST
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