FM's emergence as god of small things By Yashwanth Sinha, The Financial Express | March 01, 2006 http://www.financialexpress.com/fe_full_story.php?content_id=119053
Budget's done little for infrastructure; is timid on taxation; won't propel economy's growth The economy has been on a high growth path for the past three years. Except for some underlying concerns, this trend is likely to continue. What is more, confidence level in Indian economy, in India and abroad, is very high. The conditions were, thus, most favourable for the finance minister (FM) to present a courageous and path- breaking Budget. Instead, this Budget has turned out to be a non- event. The FM has not addressed the underlying concerns in the economy. Inflation has been kept artificially low by not passing on the full impact of the petroleum price increase. The Rangarajan committee recommendations have not been touched in the Budget. Maybe, they will raise prices when Parliament is not in session. But it will add to inflation. There is already pressure on interest rates. There is also a liquidity crunch in the economy. This is bad news for the economy. The single most important factor which triggered the economy's growth was the softening of interest rates during the NDA regime. Higher interest rates will have their adverse impact on consumer spending, house construction and the economy as a whole. It is already affecting the balance sheets of Indian companies. There are already emerging signs of slowing down of the industrial sector. The index of industrial production is lower this year than last year. In December 2005, it touched a low of 5% growth. The growth rate of intermediate goods has fallen from 6.9% in April- December last year to 2.2% this year. Infrastructure is a key area of the economy. The FM has done precious little for it in this Budget. In fact, by raising MAT from 7.5% to 10% and abolishing Section 10(23)(g) of the Income Tax Act, he has made life more difficult for infrastructure companies. Concessions to farmers were long overdue. The then Prime Minister, AB Vajpayee, had announced before the 2004 elections that interest rates for them would be reduced to 6%. Therefore, reduction of interest rate on short-term loans to farmers to 7% is welcome, but inadequate. I wish the FM had recognised the contribution of the Kisan Credit Card Scheme in augmenting farm credit. According to the Economic Survey, over 556 lakh cards had been issued to farmers by November 30, 2005. The worrisome feature in agriculture, however, is decline in capital formation to 1.7% of the GDP in 2004-05 compared to 2% in 2003-04 and 2.2% in 2001-02. It is regrettable that the FM has not thought it fit to implement the Farm Income Insurance schemes proposed during the NDA regime. He could have easily called it the Indira Gandhi Farm Income Insurance Scheme and implemented it to take credit for it. As for rural development (RD), increase in allocation to Rs 24,026 crore compared to Rs 21,334 crore in the RE of 2005-06 is only a nominal increase, considering it is the RD ministry that's responsible for the National Rural Employment Guarantee Scheme and most of the Bharat Nirman schemes. There is a decline in the allocation to the department of road transport and highways from Rs 21,886 crore to Rs 18,378 crore. The shortfall, of nearly Rs 5,000 crore in the RE compared to the BE, is a matter of concern. The allocation for the ministry of urban development is also less than last year's. In HRD, has the cess been completely passed on? The Budget does not talk about economic reforms at all. Disinvestment has not been mentioned. Pension reforms have been mentioned in passing. The question of subsidies depends on consensus. The Budget is timid on taxation. There is no new initiative on housing or on savings, though the rate of household saving has declined. He has tinkered with excise duties when he should have gone for a bold step like reducing the mean rate from 16% to a lower figure. Similarly, on the custom duties front, he should have reduced the peak rate by a full 5% instead of the announced 2.5%. The CVD of 4% on import duties, sectoral adjustments as in the case of steel, and the across the board increase in service tax will have an inflationary impact on the economy. The idea of levying service tax on ATMs is a bad idea. Financial intermediation should not be taxed. The FM should have also abolished such harsh taxes as the Banking Cash Transaction Tax and the Fringe Benefit Tax. The economy is already on auto pilot. It has a built-in momentum of its own. Perhaps, we should be grateful that the FM has not done any great damage to it with his Budget. But he has certainly missed a golden opportunity to present a Budget which would have helped make a paradigm shift from 8% to 10% annual growth rate. Alas, he has proved to be a god of small things. There is no big picture in this Budget. The writer is a former Union minister of finance «¤»¥«¤»§«¤»¥«¤»§«¤»¥«¤»§«¤»¥«¤»§«¤»¥«¤»§«¤»¥««¤»¥«¤»§«¤» This is ZESTEconomics. Post economics-related articles and event info to [email protected] If you got this mail as a forward, subscribe to ZESTEconomics by sending a blank mail to [EMAIL PROTECTED] OR, if you have a Yahoo! ID, visit http://groups.yahoo.com/group/ZESTEconomics/join ==theZESTcommunity====================================== [1] ZESTCurrent: http://groups.yahoo.com/group/ZESTCurrent/ [2] ZESTEconomics: http://groups.yahoo.com/group/ZESTEconomics/ [3] ZESTGlobal: http://groups.yahoo.com/group/ZESTGlobal/ [4] ZESTMedia: http://groups.yahoo.com/group/ZESTMedia/ [5] ZESTPoets: http://groups.yahoo.com/group/ZESTPoets/ [6] ZESTCaste: http://groups.yahoo.com/group/ZESTCaste/ [7] ZESTAlternative: http://groups.yahoo.com/group/ZESTAlternative/ [8] TalkZEST: http://groups.yahoo.com/group/TalkZEST/ Yahoo! Groups Links <*> To visit your group on the web, go to: http://groups.yahoo.com/group/ZESTEconomics/ <*> To unsubscribe from this group, send an email to: [EMAIL PROTECTED] <*> Your use of Yahoo! Groups is subject to: http://docs.yahoo.com/info/terms/
