All budgets are important, just that some budgets acquire cult status due to some specifically important announcements. Here is a selection of some of the cult budgets from the past.
A look back at some of the cult budgets over the years
• The first budget after India became a Republic was always supposed to be the first big cult budget. Presented by John Mathai, the 1950 budget was known for setting the base for the formation of the Planning Commission, under PC Mahalnobis.
• Under the Indira Gandhi led Congress government, finance minister Morarji Desai presented a rather path breaking budget in 1968. The Budget 1968 made the shift to self-assessment by manufacturers, rather than excise inspectors. That has remained the standard till date, including for GST.
• Cascading effect of excise duty was always a big challenge. Under the Rajiv Gandhi government, finance minister V P Singh presented a landmark budget in 1986. This budget ushered in the concept of value-added tax (MODVAT), which is the basis for manufacturers getting input credit. Even GST is based on this principle. Budget 1986 ushered in the computerization of government for the first time.
• Few can forget the Big-Bang reformist budget by Dr. Manmohan Singh in 1991. Dr. Singh dismantled the license regime, cut customs and excise rates to competitive levels and opened the doors to FDI and FII investments. This budget actually put India on the growth path, which has continued since.
• Services accounted for more than 50% of GDP but were not taxed. Union Budget 1994 changed that with introduction of 5% service tax. This was later progressively increased to 15% and subsumed into 18% GST in 2017. Thanks to service tax collections, India was able to cut excise and customs to make Indian manufacturing more competitive.
• Chidambaram’s dream Budget came in the year 1997. It was the first reformist budget by a coalition government. It introduced the Voluntary Disclosure of Income Scheme (VDIS), which collected Rs10,000 crore and also cut income tax rates and corporate tax rates sharply to improve compliance.
• Indian IT industry owes its big bang moment to Yashwant Sinha’s Budget 2000. The FM announced phasing out of perpetual tax incentives. It was painful but created self-sufficient billion dollar software behemoths in India.
• Big bank infrastructure allocation began with the 2003 Budget. A massive allocation of Rs.75,000 cr was made for the Golden Quadrilateral project to connect India with high quality national highways. This connectivity triggered the structural bull market rally.
• Budget 2004 was all about securitization transaction tax (STT) on capital markets and that has continued till date. STT made markets more transparent, resulting in an unprecedented surge in market volumes post the introduction of STT.
• Union Budget 2007 was meant for the common people with substantially higher income tax exemption limits and more tax breaks. This put more investable funds in the hands of people and was the last of the big tax savings budgets for people.
• Budget 2016 led the shift out of dividends by imposing additional dividend tax of 10% on dividends beyond Rs. 1 million. Since this was over and above DDT, this encouraged buybacks in a big way. Companies looked at non-cash reward methods for investors.
• Budget 2018 will be remembered for 2 things. Firstly, it introduced flat 10% LTCG tax on equities and equity mutual funds above Rs1 lakh per annum. There was no benefit of indexation and this was despite paying STT. Later in 2019, dividends were to become fully taxable in the hand of investors. But Budget 2018 also set the minimum selling price (MSP) at 150% of the cost of producing Kharif and Rabi crops for farmers. This was a big boost to farm incomes and pushed foodgrain production to record levels.
• Budgets 2020 and 2021 were presented in the shadow of COVID-19. Budget 2020 will be best remembered for its pathbreaking Product linked Incentives (PLI) scheme to promote domestic manufacturing. This has been a big boost to a slew of sectors including textiles and electronics. The Budget 2021 will be best remembered for extremely generous fiscal deficit targets of 9.5% and 6.8% respectively.
Over the years, there have been a lot of extremely interesting budgets presented by various finance ministers. That helps us understand how Indian economy has evolved over the years.