Most of the feedback on Budget 2026 had been laudatory, if not euphoric. A set of a few of the abstract feedback: Businesslike, calm-collected, quick, boring and good. Over 95 per cent approval score — one thing I’ve not witnessed in over 36 years of energetic Budget-watching. I used to be requested to write down this text on Budget day, however politely refused. Motive: Bitter expertise that there was at all times a wicket-taking googly in the funds.
Solely after the mud of euphoria had settled did the googly emerge in the type of one more retrospective tax — beginning April 2026, there might be a new tax on capital positive factors made by way of the buy of SGBs or sovereign gold bonds. The SGBs had been launched in 2015-16 when gold costs had been low and secure (even declining from their native peak in 2011-12). This scheme of annual issuance of gold bonds was stopped in 2024 — properly earlier than the parabolic surge in worldwide gold costs. The phrases of the SGB settlement with the citizen and voter was that you simply purchase paper gold, and you’re returned paper cash once you promote. Capital positive factors, and losses, with the investor. No tax was to be paid if the value of gold went up, and if the value of gold went down, your loss. Now, retrospectively, as a result of gold costs have shot up, you’ll pay a long-term capital positive factors tax of 12.5 per cent. Paraphrasing Khrushchev, the authorities’s angle is: What’s mine is mine — what’s yours can also be mine.
Moreover being grasping and unfair — retrospective taxes needs to be unlawful — the authorities can also be being petty, and may one dare say it, silly and counterproductive. Nothing is gained and far is misplaced by way of investor confidence by way of this new tax. It’s going to web about Rs 200 crore a yr — about .005 per cent of our tax receipts in 2025-26.
A number of advantages have accrued to the authorities by way of gold bonds. SGBs lowered imports (much less bodily gold imports), and by way of a greater present account steadiness, helped preserve the rupee secure, if to not respect. And don’t cry for the authorities due to the trivial tax loss. My estimate is that the authorities made upwards of Rs 50,000 crore from borrowing from the investor (at an annual fee of two.5 per cent) reasonably than 7 per cent from the market. And it needs to get Rs 200 crore extra — I quit. A easy Occam’s razor rule for the Finance Minister: Any retrospective tax is unhealthy coverage, by definition, morally, and in any other case.
Retrospective taxes mirror very badly on the strategy of Budget- and decision-making in India. As I’ve been shouting to whoever has been inside earshot, the secret decision-making of the Budget is a relic of a number of bygone eras. We did so once we had been dominated by a colonial energy, and we’re doing it right this moment once we are ostensibly on the highway to Viksit Bharat.
For the final decade or so, I’ve advocated an open coverage in direction of Budget presentation. There is no such thing as a have to comply with the 200-year-old legacy of secret preparation (although the halwa ought to keep). Budget preparation needs to be an open, collaborative effort, with the remaining choice resting, clearly, with the policymakers.
Excluding the retrospective tax, Budget 2026 is a excellent instance of excellent policymaking. Main insurance policies had been introduced earlier than the Budget. Revenue tax reform was introduced final yr, GST reform in September. The latter remains to be incomplete, with guarantees to maintain. And for all the bravado (and incorrect and inappropriate) speak of self-reliance, India has acted in a welcome other way. In the quick house of a few months, it has develop into significantly extra open — have a look at the just-announced commerce offers! Main commerce reforms are actually exterior the Budget (in contrast to 1991). And main deregulation, as advocated in a NITI Aayog report (once more, exterior the Budget), is prone to develop into coverage.
In the run-up to the Budget, most commentators, each inside and outdoors the authorities, anticipated the Centre to take important steps in direction of addressing the primary ailment of the Indian financial system — lack of progress of personal funding. The share of personal funding in GDP is down about 10 share factors from its earlier peak of 30 per cent. Indian funding goes overseas and international funding just isn’t coming to India. Internet FDI is falling, is barely constructive, and is at the lowest degree (as a share of GDP) since our mega-crisis yr, 1990. The final three months’ web FDI has been adverse. Said bluntly, the funding local weather is unhealthy — and the new retrospective tax makes it worse. Indians need to make investments overseas, and foreigners don’t need to spend money on India. And don’t blame US President Donald Trump’s tariffs or the unstable world surroundings for this. Certainly, world progress is greater this yr and world inflation is decrease. Additional, many international locations have managed the uncertainty terribly properly. So, Indian policymakers don’t deserve the further credit score heaped on them by home specialists for “good” progress.
Personal funding is down big-time due to the UPA’s retrospective taxation in 2012 and the BJP’s Mannequin Bilateral Funding Treaty of 2015 (an awfully unhealthy mannequin). The latter stipulated that a divorce settlement between a international and a home agency may solely be achieved if two circumstances had been met — a five-year cooling and negotiation interval, failing which, adjudication by an Indian choose. Seeing these necessities, the international investor determined to vote together with her ft. (The new, revised BIT recommends a three-year cooling interval and possibly a global choose — some enchancment). Do we all know of any divorce that faces these stringent circumstances? No. Then why did two unhealthy legal guidelines made by the two main and contrasting political events occur? As a result of the supply of those choices was the similar — Indian politicians, suggested by our Sure Minister omnipotent bureaucrats, who imagine that India will and may do because it pleases as a result of the world can not do with out us. It might be humorous if it weren’t so unhappy.
Bhalla is chairperson of the Technical Skilled Group for the first official Family Revenue Survey for India. Views are private
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