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HindustanTimes Mon,22 Dec 2014
On the right track
None
February 15, 2013
First Published: 21:18 IST(15/2/2013)
Last Updated: 11:49 IST(21/2/2013)

There is a lot of concern about the economy. There have been worries about low rates of growth, about a widening current account deficit and about a growing fiscal deficit. These are statistical facts. Fundamentally, there was a lack of confidence among investors about some of our policies, which were extremely awkward.

But the way economic management has improved under the present leadership in the finance ministry, the worst seems to be over.

In recent pronouncements, there is a definite commitment to reforms and to hold the fiscal deficit down.

The most important aspects that need to be addressed are enhancing the flow of public investment in infrastructure and giving confidence to private investors through policy reforms.

There are reasons to believe that these are on the cards. Frequent tax changes don’t help any economy. The single most important move in this Budget could be a reduction in complexities in terms of taxes and rates.

The government had submitted a concept of a long-term fiscal policy as long ago as 1985. It would be nice if the budget focuses on policy reforms. On how to increase capital expenditure, both private as well as public.

On how to reduce revenue expenditure, particularly on administration — a Planning Commission study has concluded that in the public distribution system for the population living below the poverty line (BPL), 48% of disbursements made by the government are diverted.

The fundamentals of the economy are strong. The India of today is vastly changed compared with earlier decades, when there used to be a constant balance of payment problem, we were dependent on foreign aid, the rate of growth was low, the investment rate was low, the record on project execution was poor, and the corporate sector was bound by a licencing system.

Fortunately, much of that is over. We are on the forefront so far as technological capabilities are concerned, so far as entrepreneurship is concerned, so far as the investment drive is concerned.

Yet, there still is a lot more to be done. There is the broader question of the administrative design of policies.

In the National Rural Employment Guarantee Scheme — an exemplary policy so far as objectives are concerned — the wage rate and kind of work that can be taken up are prescribed by the Centre. Ruling market wages, however, vary significantly across states.

Likewise, the preferred kind of work may differ across states. The problem with such a model is that the administrative expense constitutes a very big proportion of the total spending on the programme.

This is limited not just to one specific scheme. The whole structure has evolved over a period of time and become extremely complex. Why is it that the execution record on infrastructure is poor? It is purely because of administrative intervention.

Therefore, it is imperative to design policies which are implementable with minimal government interference.
With inflation where it is, our interest rates are not all that high. Having said that, however, one can say that compared with borrowing abroad, it is certainly costlier to borrow at home.

Given this background, the budget this year can provide the perfect opportunity to signal the government’s intent that it wants investment and growth to pick up.

The finance minister has already announced that the government will keep the fiscal deficit under control. While managing overall liquidity between the government and private sector is a long-term issue, the finance minister’s commitment to keep government borrowing under control will greatly boost confidence among investors.

We also have to devise a system to accelerate the implementation of infrastructure projects to generate jobs and multiply income.

This may well be the most appropriate time to empower the National Highways Authority of India with more independence and autonomy, with the government’s role defined more towards monitoring the pace of projects.

This will greatly hasten the execution of large road projects, bringing along with it all the attendant benefits on employment and income.

On the indirect taxes front, aligning central excise duties with the proposed goods and services tax is a good idea for the finance minister to consider.

While economic priorities differ from time to time depending on the set of conditions at a particular point in time, the most important priority in our tax system is simplification, to have a long-term view, fix tax rates at a certain level and leave it at that.

The budget may well be the perfect opportunity to announce a long-term fiscal policy that would imply tax rates — both indirect and direct — do not change every year and there is stability in the taxation regime.

There is also the larger question of raising revenues, which is particularly relevant in a year of economic slowdown. A transparent, non-controversial and simple tax system is the most appropriate way to optimise revenues.

There is also a very strong case for cutting down on subsidies, particularly those that have been proved not to have benefited the poor.

A good beginning has been made on phasing out of subsidies in the oil sector. This may be the right time to take a firmer view.

(Excerpts from an interview)
Bimal Jalan is former Governor, Reserve Bank of India
The views expressed by the author are personal


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Highlights: Budget 2013  »

  • Expect higher revenue next year: Chidambaram
  • Unclear what the expense on food subsidies be at this stage: Chidambaram
  • Fuel subsidy likely to be lower this year: Chidambaram
  • Immediate goal is to achieve growth rate of 6%: Chidambaram
  • We have to be patient and wait for the economy to pick up: Chidambaram
  • We have not put impossible burdens on people: Chidambaram
  • The only way to contain current account deficit is to increase exports: Chidambaram
  • Confident that RBI will do it's part: Chidambaram
  • Economy is challenged in a number of ways: Chidambaram
  • This is a lollypop election budget: CPI leader Gurudas Dasgupta
  • Budget has ignored SC/ST: Mayawati
  • Budget will only benefit industrialists, not common man: Mayawati
  • Budget will give impetus to Bihar's demand for special status: Nitish Kumar
  • FM has taken important steps to reverse pessimistic mood with regard to our economy: PM
  • There is need to convert challenges into opportunities: PM
  • The Finance Minister has done a commendable job: PM
  • Direct Benefit Transfer scheme to be rolled out
  • Ships and vessels exempted from excise duty
  • Direct tax code to be introduced in budget session of the Parliament
  • Set-top box import duty hiked
  • Gold duty limit raised to Rs. 50,000 for men; Rs. 1 lakh for women
  • 100% customs duty on luxury cars
  • Increase in import duty on high end bikes from 75% to 100%
  • 6% duty on mobile phones worth more than Rs. 2000
  • Excise duty on cigarette, cigar and cheeroot increased by 18%
  • Import duty on raw silk hiked to 15%
  • Luxury imported items to cost more
  • Donations to National Children's fund will be eligible for 100% tax deduction
  • No plans to revise direct taxes
  • No change in customs and excise duty
  • Tax credit of Rs. 2000 for those with income upto Rs. 5 lakh
  • Education cess at 3%
  • donations to be tax free
  • Surcharge of 10% on individuals, companies whose income is above Rs. 1 crore per year
  • No revision in tax slabs
  • Planned expenditure to be 33% of total expenditure
  • Rs. 1,000 crore allocated to women safety fund
  • Defence budget allocation increased to Rs. 2 lakh crore
  • Insurance and pension funds can now directly invest in debt funds
  • Domestic workers, Anganwadi workers, others to get group insurance
  • 13 public sector banks to get Rs. 14,000 crore
  • Propose to provide Rs. 14,000 cr for capital infusion in public sector banks
  • Inflation indexed bonds and NSCs to be introduced
  • JNNURM is being continued in the 12th Plan; Rs. 14,873 cr to be provided to the Mission
  • Rs. 33,000 crore to be allocated to MNREGA
  • Rs. 6000 crore for rural housing fund, Rs. 2000 cr for urban housing fund
  • Two new ports to be built in West Bengal and Andhra Pradesh
  • All towns having population of 10,000 to get LIC office
  • Rashtriya Swasthya Bima Yojna to be extended to rickshaw pullers and rag pickers
  • List of eligible securities will be enlarged: Chidambaram
  • SEBI to simplify procedures for entry of foreign portfolio investors in India: Chidambaram
  • India's first all-women public sector bank to be set up
  • All public sector bank branches to have ATMs
  • Focus on modernisation of powerloom sector
  • Propose to continue with the technology upgradation, funds scheme for textile sector: Chidambaram
  • Rs. 1650 cr allocated for AIIMS like institutes
  • Natural gas pricing policy will be reviewed: Chidambaram
  • Person taking home loan for the first time to get tax cut of Rs. 1 lakh
  • Regulatory authority to be set up for road sector
  • Rs. 17,700 crore to be allocated for Integrated Child Development Scheme
  • Rs. 5000 cr allocated to NABARD
  • Income level of Rajiv Gandhi equity schemes increased by Rs. 2 lakh
  • Rs. 80, 194 crore allocated for rural development: Chidambaram
  • Rs. 25,000 cr to be raised through tax free bonds: Chidambaram
  • Rs. 10,000 crore for food security bill promised by UPA: Chidambaram
  • Infrastructure debt fund to be encouraged: Chidambaram
  • Rs. 37,330 cr allocated to ministry of health and family welfare: Chidambaram
  • Rs. 41,000 allocated for scheduled caste welfare: Chidambaram
  • Rs. 27,49 cr to be allocated to the agriculture ministry: Chidambaram
  • Plan expenditure in 12th Five Year Plan revised to Rs. 14,30,825 cr or 96% of budgeted expenditure
  • Scholarships for students from SC/ST, minority communities: Chidambaram
  • Rs. 110 cr to be allocated to department of disability: Chidambaram
  • Increased allocation for safe drinking water and sanitation: Chidambaram
  • Increased allocation for mid-day meal schemes: Chidambaram
  • Rs. 65,000 cr allocation for education schemes: Chidambaram
  • Rs. 110 cr to be allocated to department of disability: Chidambaram
  • Need $ 75 billion to bridge current account deficit: Chidambaram
  • 2013-14 budget has sub-plans for SC, ST, youth and women: Chidambaram
  • Foreign investment imperative for growth: Chidambaram
  • Our economy has slowed down after 2010: Chidambaram
  • No choice but to cut spendings to control inflation: Chidambaram
  • China and Indonesia are growing faster than India: Chidambaram
  • Getting back to 8% growth is a challenge for country: Chidambaram
  • Our goal is higher growth: Chidambaram
  • Between 2004-2008 and again in 2009-10, 2010-11 the growth rate was over 8%: Chidambaram
  • P Chidambaram begins budget address in Lok Sabha
  • Cabinet endorses Union Budget 2013-14, to be presented in Parliament shortly.
  • Finance minister P Chidambaram reaches North Block.
  • Chidambaram set to present India's 82nd national budget.
  • Today's Union Budget will be Chidambaram's eighth personal exercise.
  • It's two short of the record of 10 set by former PM Morarji Desai.
  • Since Independence, the country has seen a total of 25 ministers hold the finance portfolio.
  • India has also seen budgets - 65 normal annual budgets, 12 interim budgets and four mini-budgets.
  • Morarji Desai presented eight normal and two interim budgets.
  • Thursday will see Chidambaram equal the eight-budget track record of Pranab Mukherjee.
  • Chidambaram will surpass Yashwant Sinha, YB Chavan and CD Deshmukh who all presented seven budgets each.
  • PM Manmohan Singh and TT Krishnamachari have presented six budgets each.
  • Jawaharlal Nehru, Indira Gandhi, Rajiv Gandhi have presented one budget each.
  • Sensex closed up more than half a percent a day before the union budget 2013-14
  • It will be the eighth such personal exercise for him
  • Chidambaram set to present India's 82nd national budget in Lok Sabha

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