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With several key financial sector reforms brought in over the past decade -- including the Jan Dhan, Insolvency and Bankruptcy Code, Goods and Services Tax, push for platform business models, the government under Prime Minister Narendra Modi should now focus on decarbonization, co-lending with NBFC, digital currency, ethical AI, among various others.
SBI Research suggested these aspects in a comprehensive pre-budget report. According to the report, the government should also put its efforts into reforming the customer redressal system; bringing tax parity on bank deposits in line with other asset classes; HR reforms and continued consolidation in public sector banks (PSBs); and awareness, innovation, and reforms in NPS and pension products. The short-term steps in the pension system could be the introduction of flexibility in investment options and the introduction of inflation-protected annuity products. The much-awaited full Budget for 2024-25 will be tabled on July 23 - the first Budget under Modi 3.0. The key reforms brought in over the past decade were Jan Dhan; Digitization, financial inclusion; recapitalisation of PSBs; API-based banking; Insolvency and Bankruptcy Code; GST; and platform business models, among others. "The Budget might propose a future agenda of the continued financial sector with an emphasis on ESG (environmental, social, and governance)," SBI Research report, authored and led by Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said. In particular to reforms in deposit interest, SBI Research proposed that the government should tweak the 'tax on deposits interest' and make flat tax treatment across the maturity ladder, in line with MF/equity markets. "Household net financial savings has declined to 5.3 per cent of GDP in FY23 and is expected to be 5.4 per cent in FY24. If we make deposits rate attractive in line with MFs, then this could push up household financial savings and CASA (Current Account Savings Account)," the report read. "As this amount will be in the hand of depositors, it could unleash an additional spending and thereby additional GST revenue to the government." An increase in bank deposits will bring not only stability in core deposit base and financial system but also financial stability in household savings -- as banking system is better regulated and having a superior trust as compared to other alternatives with high volatility/risk, it said. "Deposits are taxed on accrual basis and other asset classes only on redemption and there is also a need to remove this treatment," if further suggested. The interim budget, tabled on February 1, took care of the financial needs of the intervening period until a government was formed after the Lok Sabha polls, after which a full budget was supposed to be presented by the new government in July. With this upcoming Budget Presentation, Sitharaman will surpass the record set by former Prime Minister Morarji Desai, who as finance minister, presented five annual budgets and one interim budget between 1959 and 1964. Sitharaman's upcoming Budget speech would be her sixth. The government on Saturday announced the dates of the budget session of Parliament which will start on July 22 and conclude on August 12. (ANI)
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