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Sinha may talk tough but deliver a soft budget, says economist

Contrary to speculation and some official pronouncements, economists discount that the coming budget will be ''hard'' in spite of the alarming fiscal situation.

While they agree that the revenue deficit situation is adverse and the finance minister may not be able to fulfil the revenue and fiscal deficit estimates, there are several reasons which may prevent Yashwant Sinha from taking ''very hard'' options. Economists cite several reasons for this.

Professor J D Aggarwal, director of the Institute of Finance in New Delhi, said the good economic situation as a reason obviates the need for a harsh budget. Sinha may not be able to take hard decisions as the BJP has to keep its allies who are strong in states happy.

Sinha requires the support of the people to restructure and revamp the economy and some of the public sector undertakings. "It is not the time for him to open all points at the same time," he said.

Prof Aggarwal said the finance minister intends to open the economy to larger flows of foreign direct investment, multi-national corporations, privatisation of banks and opening up of insurance. The result could be that he might go slow.

Prof Aggarwal, a financial expert and editor of Finance India, said the fiscal deficit and revenue deficit in the coming year would be within control for three reasons. First, there will be a larger ADP base. Second, there will be a larger tax base. Third, due to reduction of subsidies, the fiscal deficit will be manageable.

Prof Agarwal said in the wake of the WTO also, the finance minister cannot be hard either on excise or the customs front. He said the fiscal deficit may be expected to be about six per cent of the GDP.

The one manner the budget may be hard is because the finance minister may take away some of the exemptions and incentives currently made available to the people and industry. He might not give the much needed relief to the salaried class.

The finance minister may also bring agriculture and the rural rich under the tax net. Sinha may also extend six criteria schemes in operation in 54 cities to 70 or 75 cities with a view to bringing more people into the tax net. His target might have be to be more than 25 million people filing income tax returns during 2000-2001.

''I feel that the existing fiscal deficit in the budget may be kept at about 4.5 per cent. This may give him bouquets," he said.

Dr Agarwal said the finance minister may extend certain facilities to agriculture and rural development through extending some credit schemes and also involving banks.

Prof Agarwal said the finance minister is likely to announce expenditure control mechanisms particularly targeting the interest payments in its borrowings. To resort to repayments of debts, the finance minister might privatise banks as also financial institutions in order to increase his gross receipts on the revenue side, he might tax financial institutions and cooperatives, particularly sugar cooperatives. He might also withdraw excise exemptions given to small-scale industries.

Prof Agarwal said the uniform sales tax in the process of implementation would yield more revenue to the central government. Sinha may also tax some more services, particularly the Internet. He might raise postal tariff as well as telephone tariff and cut down on subsidies. This may involve reduction on subsidies on diesel, cooking gas and better targeting of subsidies.

Prof Agarwal said there could be some rationalisation in terms of excise and customs duties.

The finance minister is likely to increase the budget allocations for defence substantially in the wake of hostile military regime in Pakistan. The finance minister may raise the minimum exemption limit marginally but would not remove the surcharge on corporation tax.

Prof Agarwal said as the capital market is already booming and the Sensex has reached a respectable level, this indicates the prospects for the Indian economy are bright. He might not offer additional concessions as were offered last year.

According to Prof Agarwal, the fears that the information technology industry might be taxed appears to be unfounded because it is a major targeted industry to facilitate foreign exchange earnings. The government might even consider imposing tax on software coming into the country so as to earn larger revenues and promote development of indigenous software. Once again, the finance minister would target FIIs and foreign direct investment to generate more foreign exchange.

Prof Agarwal said the finance minister may give some attention to the social sector, unemployed youth, rural development and infrastructure development.

Prof Agarwal, however, felt that in spite of the prospects of the economy being bright, the government's policies of restructuring PSUs, banks and insurance might result in strikes in the next year which might in turn hamper its industrial growth. The finance minister might target a growth rate of about seven per cent for the year 2000-2001.

UNI

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