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What should Finance Minister do with the additional revenue generated from IDS?

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A Risk analyst with keen interest in Politics, Finance and Energy.

After Chief Economic Adviser Arvind Subramanian announcement of presenting economic survey on 31st Jan 2017, it’s almost confirmed that Finance Minister Arun Jaitley will present his budget on 1st Feb – a departure from the earlier tradition. With less than 4 months to go, preparation of budget has already started with finance ministry asking for suggestions from various chambers.

Also with the success of Income Declaration Scheme (IDS) 2016, it is now confirmed that the government will get at least 14,682 cr as additional tax revenue in FY 17-18. As indicated by Arun Jaitley, this year’s tax receipt is going to be used for bridging the fiscal deficit.

But if I were in finance minister’s shoes, I would have used this amount in more unorthodox way like:

1. Promotion of cashless economy: Government should promote cashless economy in much bigger way. We have almost 64 cr (debit and credit) cards in India while number of Point of sale (PoS) machines is only 12.6 lakh. Till the time people are convinced to use UPI to pay, government should help in installing more PoS machines across India. Ministry of Finance (like EESL of power ministry) should ask for a bulk tender of installing 10 lakh PoS across India (start from Major business districts like BKC in Mumbai, Karol Bagh in Delhi, T Nagar in Chennai etc ).

Government should target every shop (even pan shops) to have facility to pay through cards in each and every business district. With the economics of scale, cost would not exceed 5,000 for one machine. Already companies are offering at 7000 flat with no monthly charges. Overall cost would be 500 cr (5000*0.1 cr) for these 10 lakh machines. Rest of the amount can be further used for giving appropriate tax rebate to merchants if at least 75% value of merchants transactions are through cards or they can use this amount to limit MDR for cards (i.e Rs 5 for transaction amount 10,000)

2. On the other hand FM can use this 14,682 cr to win back middle class salaried people’s trust by partially fulfilling one of the election promises. From data released by Income tax department for 2012-13, we can see that 2.47 cr (out of total 2.89 cr) people filed tax with average of less than 5 lakh rupees as returned amount. My further calculations show that increasing IT slabs by every 50,000 effects IT collection by at least 6000 Cr. This is based on 2012-13 data. We can conservatively assume that these additional 14,000 cr would nullify the loss of IT revenue by raising IT slabs to 3.5 lakh from present 2.5 lakh. This would help Mr Modi to fulfill his promise (although partially) of rewarding honest tax payers and would consolidate image of BJP as pro middle class people. If we assume 3 dependent on each tax paying person, then effectively Modi can make 10 cr people happy at one step.

I can suggest more ideas and I am sure that readers would have some brilliant ideas as well but real question is whether Mr. Jaitley is ready to listen??

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A Risk analyst with keen interest in Politics, Finance and Energy.
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