Reliance on Small Savings to Fund India Budget
Government is increasingly tapping citizens’ small savings to fund India’s budget plans, a costlier method as traditional avenues face a glut of debt.
The administration estimates it will borrow about 5 trillion rupees ($69 billion) in the year through March 31 from this pool meant to support households and pensioners, double the 2.5 trillion rupees initially budgeted. Even that’s a steep rise from almost nothing under previous governments.
The increased reliance may eventually prove costly. The federal government pays about 8% for 10-year small savings, compared with the 6% yield on a sovereign bond of similar maturity. The higher rates on a competing product limit how steeply banks can cut deposit — and consequently lending — rates, hampering monetary transmission. Interest costs are budgeted to account for 20% of total expenditure in the year starting April 1 — up from 18% estimated in the previous year — even as total borrowing is projected to dip.
With no changes in personal income tax slabs and a slew of hikes in customs duty to benefit Make in India, the Budget speech focussed on the Centre’s Atmanirbhar Bharat vision.
The Budget has introduced a provision to remove the tax exemption on income from investments in provident funds, relatable to investments exceeding Rs 2.5 lakh a year. This exemption without any threshold benefits only those who can contribute a large amount to these funds as their share.
Relief for senior citizens – many of them, despite having foregone several basic necessities of their own, have strived to build our nation. We shall reduce compliance burden on those above 75 years. This means people above 75 years, who get pension and earn interest from deposits need not file IT returns. Presently an assessment can be reopened for six years. This time limit has been reduced to three years. In serious tax evasion cases, when the concealment of income is more than Rs.50 lakh per year, it can be opened for up to 10 years.