BUDGET 1999-2000
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The Rediff Business Interview/ Dr U Shankar

'Budget likely to pave way for wider income-tax net'

Part I

Part II

Are you happy with the way the government is handling the economy?

You see there is a hope for recovery in some of the South Asian countries. What they have done is, they have followed a timetable and then tried to implement it. They are able to do it partly because of their dictatorial form of governments. But we don't have any timetable at all. We should have created a time schedule for each and every action.

Unfortunately the political system is India is not very satisfactory. The government has to respect the Opposition. Here whatever one party does, the other party criticises. It is not very healthy.

Even in this recession, rupee remains stable...

One of the reasons why rupee remained stable was because agricultural situation is fairly comfortable. Food production, I think, is definitely higher than last year's. There is no likelihood of any big rise in the agricultural prices. We have been quite lucky to have ten years of good monsoon.

In the manufacturing sector, there is a recession in automobile, cement, steel, consumer goods, etc. Therefore the recession keeps the price down. But the agriculture supply is very favorable.

There is a global recession too. How long do you think will it take for the Indian economy to recover?

From whatever data we have, particularly from exports, it shows that until November, our exports declined. But in December and January, there is a pick-up. That means the world situation is improving slightly. The only big question is, what will China do about devaluation? Chinese economy is also facing problems.

Of all the recent Budgets, which one do you rate as the best Budget?

In terms of setting policies and directions, that is restructuring public finance and change in the direction of taxes, Manmohan Singh's 1991 Budget was the best.

His idea was that we must reduce indirect taxes. Indirect taxes lead to rise in prices and in India indirect taxes amount to 50 per cent, 70 per cent and even 100 per cent. It is one of the important sources of inflation apart from money supply.

Just compare it with other countries where indirect taxes are five to ten per cent. If we want to have any comparative advantage in trade and also to protect the poor, indirect taxes must be reduced.

What about P Chidambaram's Budget which was called a Dream Budget?

Unfortunately, three things went against him. One, he went too fast by reducing income tax, customs duty, etc. Two, it was his bad luck that the world recession affected the external sector and thus the Indian economy also suffered. Three, the Fifth Pay Commission report.

We have to understand that Chidambaram was against implementing the Pay Commission recommendations. It cost Rs 500 billion to the nation. If the whole package were accepted, it would not have become that disappointing.

They could have cut the size of the government by 30 per cent. They could have reduced the number of holidays. But all these were ignored and only the expenditure part was incurred. It was beyond his control.

How do you rate Yashwant Sinha's 1998 Budget? Do you expect this year's Budget to be better than the previous one?

Last year, he had a disadvantage because the government came in March and he had less than two months to prepare. Now he has ten months behind him with a new team of competent advisors. I expect the Budget to be better than last year's. But in coalition politics, you cannot say anything.

So, you don't expect it to be like Manmohan Singh's dream Budget?

Manmohan Singh had the one-party advantage. And he had the full support of then prime minister P V Narasimha Rao. Even though there was some opposition in the Congress, Manmohan Singh was able to manage well at least initially. Later on the political pressures came and against his will, he had to tolerate many things like giving Rs 10 million to each and every member of Parliament. He did not like it a bit.

But Sinha has to please the BJP and its nine allies. And each one has its own political agenda.

Do you think Sinha will seek to appease the swadeshi lobby?

Now the BJP is moving away from the VHP and the swadeshi lobby. Still they may have some support for the Indian industries. Industries like steel have been badly hit by liberalisation. They may put some minimum import duty to satisfy the domestic lobby.

What about the macro economic scene?

I feel there will be some incentives to encourage investments and some measures to step up infrastructure investment. They may give some incentives for savings.

We have to generate demand for steel, cement, manufacturing products and raw materials which will automatically create a demand for the final product. I don't think consumption will fall down. Now you have surplus money and people do not know where to put the money. I don't think increase in savings will have any negative effect on consumption.

I expect rationalisation of indirect taxes, particularly excise duties. Instead of too many duties, they may go for three classes, low, medium and high. Lower rate for essential commodities and higher rates for relatively non-essential commodities. That will simplify things and avoid unnecessary arbitration, classification, litigation etc.

I also have a feeling that because of the financial crisis and the fear that fiscal deficit may exceed six per cent, they may increase income tax marginal rate on very high-income people, those who have an income of Rs 300,000 or more from 30 per cent to 35 or 40 per cent. This is quite possible. They may try to bring more people into the tax net. They have not yet been successful.

There are only ten million income tax assessees in a country where you have 50 million middle and upper class people! And 98 per cent do not come under the tax net! That is why I am against lowering the income tax limit. I feel the natural thing for India to do is raise the income tax base and bring more people into the income tax net. In many countries, 80 per cent of the people pay income tax.

Direct taxes must go as a percentage of GDP. We should also increase non-tax revenue. Charges for water, sanitation, etc are unrelated to the cost many times.

Now most of the things that affect the common man come under the state preview: agriculture, rural development and so on. Now they have these centrally sponsored schemes where the state governments pay 50 per cent and the central government the other 50 per cent. The idea now is to transfer all of them to the states and later on to the local bodies so the local people are involved in deciding what they want. I do not know how far they are going to do that.

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Budget 1999-2000

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