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Been told I am the worst FM, open to criticism, says Nirmala Sitharaman

FE Bureau
Nirmala Sitharaman, Finance minister, Narendra Modi government, corporate tax cut, NDA government, corporate tax cut, fiscal deficit, personal income tax

Finance minister Nirmala Sitharaman on Monday asserted that the Narendra Modi government has always taken criticism in the right spirit and termed as "unfair" comments from Opposition leaders and some industrialists that the government can't stomach criticism.

Stating that the performance of the NDA government on the fiscal front has been creditable (the deficit has been well below 4% of GDP since 2015-16), Sitharaman sought to allay concerns over the risk of the deficit overshooting the 3.3% target for FY20 owing to the corporate tax cut and the lower-than-expected tax buoyancy. "Let the RE (revised estimate) stage come and we shall take a call on the fiscal deficit," she said. The government has so far been maintaining that the deficit target will be adhered to.

The minister said a lot of Indian and foreign companies have shown interest to make fresh investments in the country, post the tax cut, even as she added that it was too early yet to assess the impact of the step on corporate investments.

On the demand for reduction in personal income tax, she said if at all it would be considered it would be on its intrinsic merit, rather than in relation to the reduced corporate tax cut.

Her statements in Parliament came days after Rahul Bajaj's question to home minister Amit Shah at an event of Economic Times on Saturday in which the veteran industrialist held that people were afraid of criticising the Modi government and didn't have the confidence that it would appreciate criticism. Biocon chief Kiran Mazumdar Shaw, too, weighed in later, tweeting: "Hope the govt reaches out to India inc for working out solutions to revive consumption n growth. So far we are all pariahs n govt does not want to hear any criticism of our economy."

Sitharaman said in Parliament: "I have been told that I am the worst finance minister… Many have called me names. But to say that the government isn't inclined to take criticism is unfair." "If it is in anyone’s DNA to ask questions and run away before answers are given, it is some other party and not our party… If there’s one government that listens, it is the Modi government."

Sithraman said that new manufacturing units have been provided with a concessional corporate tax rate of 15% as the government wanted such companies to respond quickly to the changing global scenario which had prompted many emerging economies to change tax rate in the context of US-China trade war. She was speaking in Lok Sabha after moving the Taxation Laws (Amendment) Bill, 2019 to amend the Income Tax Act to ratify the Ordinance issued on September 20, slashing corporate tax rates.

Sitharaman said that gross direct tax collections had grown about 5% on year in the April-November period and expressed confidence that the mop-up could improve further given that traditionally collections tend to be higher in the last quarter. According to budget estimate for the current fiscal, the gross direct tax collection is pegged to grow at 17.4% to Rs 13.35 lakh crore.

On the tax cuts not getting extended to partnership firms and limited liability partnerships (LLPs), the minister clarified that while the effective tax on corporate income along with the new reduced rates and dividend distribution tax is around 40%, partnerships and LLPs are taxed only at the level of the firms (at around 34.5%), while there is no further tax on the income earned by partners from such firms. The minister also made it clear that companies opting for the new regime can’t avail themselves of the unutilised incentives, including accumulated MAT credits.

Of course, there is little evidence on the ground to suggest that the corporate tax cut has started prompting investors to loosen their purse strings. At just 1%, growth in gross fixed capital formation in the September quarter was the lowest since the third quarter of FY15 and its share in GDP (31.3%) was the meanest since the second quarter of FY18. According to an RBI report, the business sentiment and expectations are at the lowest level in at least the last five years, as business assessment Index fell sharply from 108.4 in Q1FY20 to 92.5 in Q2FY20. "Sentiments on the overall financial situation reflected lower optimism on availability of finance from internal accruals, bank finance and overseas sources in Q2 2019-20. Cost pressures emanating from interest payments on borrowings, purchase of raw materials and salary expenses were assessed to have softened in Q2, but manufacturers were pessimistic about profit margins in view of slack demand and negative sentiments on selling prices," the survey said.

In a bid to buttress the fact that the minister has constantly sought inputs from India Inc to the ongoing economic crisis, Sitharaman's office on Monday tweeted that she had held at least 23 meetings with key stakeholders between August 5 and October 15. In fact, the minister met traders and industrialists the most - seven times. This was the period when she convened a series of meetings with stakeholders of critical sectors, including auto and real estate, to seek their inputs in reversing a slide in economic growth that dropped to its slowest in six-and-a-half years in the September quarter.

Similarly, representatives from state-run and private banks, the financial market and financial institutions met Sitharaman 2-3 times during this period. She also met industry bodies - CII and FICCI - once each. Similarly, she met foreign portfolio investors on August 9. Subsequent to this meeting, the government rolled back the surcharge on long and short-term capital gains arising out of transfer of equity shares as part of various stimulus measures in August.

After the corporate tax reductions, for all companies that don't avail exemptions or incentives, the new rate is 22% (effective rate inclusive of surcharge and cess 25.17% against 35% earlier), while for new manufacturing firms, established after October 1 (and who start production before 2023), the tax rate is just 15% (effective rate 17.16%). However, companies opting for concessional tax rate can’t avail earlier exemptions and MAT credits. While MAT has been abolished in the new regime, for companies continuing with the earlier regime, the MAT rate is now 15%, as against 18.5%.