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Sinha sees revival in last quarter

Savio G Pinto & Tamal Bandyopadhyay

Finance Minister Yashwant Sinha sees signs of a revival in the last quarter of 2001-02. The gross domestic product has soared to 6.3 per cent in the third quarter, riding on a 7.1 per cent growth in agriculture, though growth in the manufacturing sector is still lagging at 2.8 per cent.

But the picture is likely to have vastly improved in the last quarter, with the impact of last year's good monsoon reflecting in higher consumer demand.

In an exclusive interview with Business Standard on Sunday, just a month after presenting the Union Budget, Sinha said there was room for a further softening of interest rates and that the low interest rate regime was here to stay. He also said the freeing of administered rates was only the beginning and the government was determined to usher in far-reaching tax and pension reforms.

On being asked when he expected the long-awaited economic revival to start, Sinha said: "The impact of the monsoon is seen on the kharif crop and then on the rabi crop. This shows up with a lag in the demand for consumer goods. Hence the impact of last year's good monsoon is likely to be seen in the fourth quarter (of 2001-02)."

Admitting that the Budget had not implemented all the recommendations of the Y V Reddy Committee on small savings, Sinha said: "There is a larger process that is under way. We have not done everything that the Reddy Committee suggested but we are moving in that direction." He said the government would make progress in implementing the Project Oasis system, the innovative approach to unorganised sector pensions.

"We have to simply get out of the culture of expecting to have special financial instruments for the purpose of avoiding income tax. It is the duty of citizens to pay income tax, and after it is paid, households should form portfolios based on risk and return (and not tax considerations)," he said.

On the controversy over the imposition of service tax on life insurance, ignoring the recommendation of the final report of the expert group on taxation of services, headed by M Govinda Rao, Sinha said: "The risk part of the premium is already taxed in service tax in general insurance. We propose to extend this concept of risk insurance to life insurance also."

This implies that the tax will be imposed only on the risk portion of the premium, leaving the savings and investment portion untouched.

Strongly defending his Budget which has not gone down well with the vast majority of the middle class, Sinha said the budget had not targeted the salaried middle class, it merely taxed the rich.

"I just do not think that a person earning over Rs 500,000 a year belongs to the salaried middle class. I don't think that salaried middle class people purchase Rs 200,000 worth of RBI relief bonds a year. So if you look closer at our proposals, they do involve higher tax rates for rich people, but you can hardly call them middle class," Sinha said.

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