With the global economy going through a tough phase and the Indian economy bearing that brunt, there were high hopes from Union Budget 2020. Though the markets reacted adversely, initially, to the longest-ever budget speech in the Indian Parliament, delivered by Finance Minister Nirmala Sitharaman, the reality gradually dawned that the government has taken this opportunity to bring in structural changes while catering to its ideological commitments also. 

First, about the key structural changes. One of the less talked about measures which would have a far-reaching impact on the opening of the Indian economy to global investors is opening up of the Indian debt market for foreign investors. This would be done through government \securities. It would help some of the biggest financial giants to come and buy these securities and hence bring in more liquidity as well as integrate the Indian debt market with the global debt market. This key financial sector reform had been pending for quite some time.

The second important structural reform is the removal of the dividend distribution tax. This has come as a relief to equity holders as well as companies. The foreign companies would, especially, considerably benefit from it. The message from the government is quite clear; that it wants to simplify the country’s taxation structure. This is key to better tax management.

As part of simplifying the tax structure, the income tax structure has also been simplified and taxpayers have now been given an additional option to move towards a tax regime where they pay lower flat taxes without seeking exemptions.

In most developed economies, there are no provisions for exemptions when it comes to personal income tax, but in India there are a large number of such exemptions. For a common household or an individual taxpayer, exemptions make the tax structure quite complex.

Hence, the government brought in a new tax structure while giving the option to taxpayers to choose, to stick to the older tax structure with exemptions if required. However, an indication has been given that finally, India has to move to a personal tax regime where there are no exemptions. It would help to bring India’s personal income tax regime on par with global practices.

One of the most understated yet pathbreaking measures announced in this budget is related to the ‘tax charter’ for taxpayers. This ushers India into a new era where the rights of taxpayers in terms of imposition and payment of taxes are recognized for the first time. This changes the pole position of taxpayers who have largely been at the receiving end so far. This would also help to fix the accountability of the Income Tax department. 

The government also announced that, to reduce tax litigation, disputes pending in various tax tribunals can be sorted out by paying the difference in the assessed tax and the tax paid. This would bring relief to taxpayers and considerably reduce the burden of litigation on the tax department, saving crores of rupees for the Indian exchequer. The settlement amount paid to settle the cases would also increase the tax revenue.

The budget has proposed several measures for protections of micro, small and medium enterprises (MSMEs) by raising import duties on certain items that are produced domestically. This has been a long pending demand of the Swadeshi Jagaran Manch (SJM), an organisation promoting economic nationalism, backed by the Rashtriya Swayamsevak Sangh (RSS), the BJP’s ideological mentor. Echoing the concerns of the SJM, about the need to protect Indian MSMEs, the government said it would discourage imports of those products which are produced by Indian MSMEs and that maintain certain quality standards.

The Union Budget also announced a scheme, with a budget of around INR 900 crore for this year, to provide pensions to small and marginal farmers. It has underlined the fact that reckless use of fertilisers should be stopped and there should be a gradual shift to organic farming, which it perceives to be zero-debt farming. These demands have been raised by another RSS-backed organisation that works in the farm sector, the Bharatiya Kisan Sangh.

On the cultural front, the government announced plans to construct museums at five archaeological sites, including Rakhigarhi, in Haryana. The archaeological findings from this site have challenged the theory promoted by India’s Left historians that Aryans had come from outside and fought with the local population here. The RSS  has always had a clear stand that the Aryans were the original residents of India and the theory of the Aryans being invaders had been promoted by British historians and perpetuated by Left historians to create fault lines in Indian society.

It can be clearly said that the Modi government has been able to achieve a balance between ideological commitments and long-term structural reforms in the economy. Both economically and politically, the gains may not be immediate, but they would come, ultimately.

(The writer  is CEO of RSS-affiliated think tank Indraprastha Vishwa Samvad Kendra)