In what is a sensible, pragmatic document, Finance Minister Pranab Mukherjee has pushed forward an agenda of achievable reform. Seen together with the outline of the government’s vision in the Economic Survey, his Budget has opened doors, promising the country big-ticket reforms in taxation, fertiliser subsidy, employment exchanges, a goods and services tax (GST), a fiscal responsibility bill. There’s also indication that experts will look very hard at the (overdue) reform of oil-product pricing. Again, read this with what came just before: oil prices were hiked. Thus we can reasonably expect that the government is thinking very hard about the obvious next step, dumping the distortionary and problematic administered price mechanism. Doors have thus been opened; nor has the FM closed any doors, outlining areas for reform over the year.

One opened door: tax reform. That is clearly a vital aspect of this Budget, and is, after all, what should be the core concern of a proper budget speech in a mature economy. Deservedly scrapped: the Fringe Benefit Tax. Complying with it was too difficult and time-consuming for companies. But individual taxpayers could ask: are perquisite taxes any better? In particular, making employee stock options subject to both perk tax and capital gains tax holds back attempts to create proper incentive schemes. It’s a clumsy bureaucratic solution to a complex problem — a seriously regressive step. However, removing surcharge on higher-end incomes is proper rationalisation that can be welcomed — and a good sign that the government, even if focused on ensuring the rural poor have access to the benefits of reform, does not intend to leave India’s growing middle class hanging because of forgotten socialistic shibboleths. A GST rollout date has also been announced.

... contd.