Budget has ‘milestones, but no roadmap’

In many ways, the latest Budget is a continuation of not just numbers but also the philosophy of the earlier regime, according to C. Rangarajan, former Chairman of the Prime Minister’s Economic Advisory Council, and Chairman, Madras School of Economics.

Delivering the inaugural address at a meeting on the Union Budget 2014-15, organised by the Madras School of Economics and the Southern India Chamber of Commerce and Industry, he said many of the tax proposals were welcome as they would improve transparency.

Uniform tax rate with respect to withholding tax on all bonds issued by Indian corporates abroad is also a good recommendation, he said, but added there are some important policy decisions, such as on land acquisition, environment and coal production, that need to be taken by the Government to achieve sustainable growth.

What is missing is the Government not spelling out how it is going to contain the fiscal deficit to 4.1 per cent of the GDP. “There are milestones, but no roadmap,” he said. There is a need to relook the subsidies issue. There is a also the need to cap subsidised gas cylinders to households, and subsidies on diesel and urea.

Despite revenues falling and expenditure increasing, the Finance Minister was able to maintain the fiscal deficit at that level because of a substantial increase in non-tax revenues, which he has assumed. “My point is if the revenue falls short of expectations, the Government must have a contingency plan ready to control the expenditure by postponing new investments and allow the existing projects to go on.”

The Budget has proposed a significant investment in public sector. For example, he said, the NHAI has been provided with ₹38,000 crore, a large amount. “ My view is that in the short run, completion of public infrastructure projects will act as a catalyst to encourage private investments,” he said.

Development finance While lauding the proposal to enable banks to go for long-term bonds to finance infrastructure projects, it would be preferable to revive the development finance institutions, he said.

“Let me also say I feel guilty of winding up of those institutions earlier. It was all done in the early 1990s. Because, we thought universal banking would be the solution.

At that time, we expected that the capital market would develop, the bond markets would develop and provide the required amount of finance. But unfortunately that did not happen. Because we have also not allowed the insurance and pension funds to invest adequately in long-term equity and long-term bonds and that is why we got into the situation,” he said.

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