The Hindu Business Line : The great jugglery act

LIKE a trapeze artist in a circus, the Finance Minister, Mr P. Chidambaram, had to reconcile diverse and sometimes conflicting needs such as pushing reforms to their logical end and even while conforming to an election manifesto going under the name of the National Common Minimum Programme.

Added to this is the self-imposed constraint to contain the Budget deficit within the limits under Fiscal Responsibility and Budget Management Act.

Given the shortfall in revenue collections in the current fiscal the question props up immediately as to how far the optimistic estimates will translate into reality in actual terms. But all said, the Budget has been deftly crafted, not upsetting the expectations of many vital segments and is somewhat growth oriented giving way to a possible spurt of investments.

The opening of select sectors to Foreign Direct Investments and the plan to throw open further areas such as mining, retail trade and pensions are steps in the right direction and, hopefully, will not be sabotaged by some of its own allies. The plan to utilise a portion of the forex reserves through a special purpose vehicle should spur infrastructure activity. Given the enormity of the tasks the Government has set for itself, one would have expected the Finance Minister to augment the revenues instead of indulging in reduction exercises.

The reduction of Customs duties to South East Asian levels though logical could have waited for a year or two. Likewise, the tinkering with excise duties could have been deferred to a more opportune time. The reduction of corporate tax without eliminating the various exemptions is another unwarranted step, particularly when there is a great demand for additional resources to take care of the people below the poverty line.

It is however a matter of comfort that the depreciation rate has been reduced. The rationalisation of direct taxes by removing standard deduction and the various exemptions with an omnibus exemption could have been done without reducing the total incidence of tax on the individuals. The one sure way of raising resources — disinvestment — is conspicuously absent. There is also no reference to the targeting of subsidies, labour reforms and the power sector. The 50-paise cess on petrol and diesel, the enlargement of the service tax net, the increase on transaction tax on securities and the tax on cash withdrawals exceeding Rs 10,000 are the few new revenue yielding measures.

Mere allocations of larger outlays for education, health and rural poverty elimination by themselves do not signify their fulfilment unless money is found and the outcome realised.

The coming fiscal can be bright if there is a steady and large flow of FDI and significant growth in all sectors. Too many new things are being attempted concurrently — introduction of VAT and for Plan schemes by borrowing, a greater role of NGOs in micro finance, greater FDI and FII inflow, and so on. Notwithstanding all these, there is buoyancy all round.

(The author is a Chennai-based freelance writer.)

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