Tax and fiscal practitioners, who have observed the annual Budget presentations over half a century, recognise the fact that the euphoria emanating from the event evaporates into ether in a matter of about 36-48 hours, almost the same time it takes for the excitement that comes with the Indian cricket team winning a match to end!
Similarly, the industry captains, who jump on the table to welcome and hail the proposals sink down to sobriety when they enter their office the following day and the marketing head talks about one more quarter of muted sales!
Anyone with little else to do can read this article without the fear of being polluted with some contrarian ideas on what has been exciting the media as the topic covered here is an analysis of some historical data that is contained in the budget documents.
The present regime has maintained a continuity in office over a decade and the data available helps to place in perspective how the decisions taken in the course of the dozen Budgets that have come out so far have shaped the economy.
Out of the 14 Budgets in the course of this period, eight have been by the incumbent finance minister, Nirmala Sitharaman, and five by the late Arun Jaitley. A rare record, perhaps, for any dispensation.
Right from assuming office in May 2014, there has been a continuing policy thrust to promote manufacturing, Make in India, boosting the small and medium industry and atma nirbharta. All the Budgets presented over the years included many policy announcements touching on these.
It has also reduced and restructured the corporate tax and introduced direct subsidies to businesses through the production-linked incentive (PLI) scheme.
The latest Budget also contains the usual quota of assurances to support micro, small and medium enterprises (MSMEs) and manufacturing.
Against this background, it is interesting to look at the data on corporate tax payers which is available for a decade, to assess the outcome of the policy choices made overtime.
However, to understand the progress of the MSME (micro, small and medium enterprise) and the manufacturing sector only through the prism of corporate taxpayers may be less than perfect. But the data available pertains only to the corporates.
Table 1 below gives the data of the number of companies who filed tax returns at different levels of profit before taxes in the period between 2012-13 and 2022-23, the latest financial year for which data is provided in the 2025-26 Budget annexures.
The choice of 2012-13 is to capture a 10-year horizon, though the said year falls outside the period Narendra Modi headed the government at the centre.
The category <0 PBT (profit before tax) is easy to understand as these are loss-making companies. The ‘0’ category is not easy to figure out but the government data follows this pattern. It is difficult to conceive that so many companies reported an exact zero PBT! But this doesn’t impact the analysis.
The first aspect that may strike the eye is the sharp rise in the number of companies reporting book loss. The number has grown significantly (doubled) since 2012-13.
The number of companies with more than Rs10 crore profit has increased from 1.04% in 2012-13 to 1.75% in 2022-23. The growth may look reasonable in a 10-year time frame.
However, for the country to become an economic powerhouse and achieve the level of both aggregate GDP and per capita income five times the current one to be regarded as a developed economy by 2047, the number of companies which are midsize, say, Rs10 crore-Rs100 crore may have to accelerate significantly.
Even Rs100 crore in US dollar terms is insignificant and may count for nothing in the eyes of foreign investors or global partners.
Table 2 gives the picture of the share of companies in each class in the total PBT of all the companies mentioned in Table 1.
This is useful to understand if the policy prescriptions directed at the MSME sector is helping that segment to grow and letting new entrants come into the fold of doing business.
There may be differing perceptions on interpreting this data. Companies making profits up to Rs10 crore, most likely to be MSME, have in the 10-years lost their share of total PBT from 9.91% to 8.02%.
Does this signify that MSMEs are not helped by the thrust and the narrative repeatedly heard in Budget presentations and other official communication; or is it that the MSMEs of the yesteryear have graduated to become bigger and thereby the policy is working well?
Do make your own conclusions! Also, the Rs10 crore-Rs50 crore range shows a marginal decline from 9.27% to 8.99%. The ones grabbing a greater share of the bottom-line are those at the bottom of the table!
While an increase in the number of companies with more than Rs500 crore PBT is quite necessary for the speedy growth of the economy, it may not be ideal that their share in the PBT also grows. This may indicate the concentration of economic power!
Table 3 looks at the effective tax rate (ETR). With the corporate taxes having been brought down in September 2019, there is an observable, though marginal change at each line item. However, it is interesting that the overall ETR is almost unchanged over this decade!
The concessions that existed in the past let the ETR go down from the headline tax rate. The new approach has been to eliminate concessions and keep the headline rate lower. The mega tax concessions in 2019, which the opposition decried as a giveaway to the business, was actually not.
(The figure of 29.49% as ETR in 2017-18 is due to some adjustment in the figures reported and anyway that number is not very critical to draw any inferences from this table.)
The companies with profits >Rs100 crore have ever remained at the lowest ETR in the overall corporate taxpayer universe. That situation prevailed pre-2014-15 as well and is not a recent creation.
Table 4 cuts the corporate tax data between manufacturing companies and other businesses. This data is quite important to appreciate how far the policies promoting manufacturing have worked.
The share of manufacturing in the total corporate profits, which was 48.79% in 2012-13, has reduced to 31.11% in 2022-23. Government sources should dissect this clinically and examine what has caused this lopsided distribution where manufacturing has lost its primality.
The ETR of manufacturing and other sectors has hovered around a small range over the 10-year period. The ETR of manufacturing has slightly moved up in 2022-23 compared to 2012-13.
Should manufacturing get some specific tax props, and others, like financial companies, be subject to a higher rate, so that there is a conscious cross-subsidy?
The new tax law, which the FM smartly postponed by a week as its introduction could have marred the excitement of the tax cut, should ideally consider the significance of the data analysed here and seek greater public consultation.
Upfront consultations in framing the tax policy should replace the secrecy in cooking the changes.
Nani Palkhivala gave his last speech on the Budget almost 30 years to the month, and said that Budgets should be once every two years and should not be prepared in secrecy and unveiled suddenly on a fine morning (evening in those days) like a magician pulling a rabbit out of the hat!
(Ranganathan V is a CA and CS. He has over 44 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
