Finance minister Arun Jaitley on Friday said the government was committed towards consolidation of banks and privatisation of IDBI Bank. “I stand by both these announcements and they will happen at appropriate time once the financial health of banks strengthen,” he said. Jaitley argued that merging two weak banks or merging a weak bank with a strong one is not an option. A day after presenting the Budget for 2018-19, Jaitley said the government initially considered adopting a universal approach for health insurance scheme but settled for a bit limited coverage, given the fiscal ambiguity over it. He announced the scheme to provide health cover to 10 million households or 50 million people, constituting roughly 40 per cent of the country. The scheme, which is expected to be launched in FY19, is likely to be entirely state-funded. “A social security regime is beginning to take shape in India,” Jaitley said, adding “As of now, Rs 20 billion has been provided for the scheme.” Speaking at an interactive session organised by Open magazine, he said a scheme to boost the minimum support prices (MSPs) would be worked out by the NITI Aayog, the agriculture ministry and states. He reiterated his government’s commitment to provide MSPs equal to 50 per cent more than the production cost. “There is a lot of stress in rural India. It requires government support. The MSP has to be reasonable. The exact formulation of the scheme will be worked out by the agriculture ministry, NITI Aayog and state governments,” he said. On the specific industry concern that the Budget had not lowered tax rates on large corporates to 25 per cent as was promised, the finance minister argued that as conceived earlier, the tax rates can be lowered only in conjunction with the removal of exemptions. “But most exemptions in India have a sunset clause,” he said.
And as investments are often made on the basis of these clauses, withdrawing them abruptly could lead to accusations of retrospective action, he cautioned. “As the sunset dates approach, the exemptions will go. Then it is possible to lower the tax rate,” he said. He pointed out that currently, the effective tax rate for the 7,000-odd companies above the Rs 2.5-billion threshold is only 22 per cent because of the exemptions. But once these exemptions are removed, their tax rates would go up. On the low level of compliance under the goods and services tax (GST), the finance minister argued that not all anti-evasion measures have been put in place. “Once these measures are in place, the increase in compliance will also help boost revenues,” he noted, adding “Further rationalisation in the GST rates will happen only when collections rise.” An intriguing aspect of the current Budget has been the rise in customs duty. While the trend over the last few years has been to bring them down, this year there has been a deviation, but it is limited to a few items. The explanations put forth by the finance minister rest on the argument that cheaper imports in items such as mobile phones could scuttle manufacturing and endanger the government’s ambitious Make in India programme.
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