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'The Budget has become more of a media event'

Budget 2000

Devina Mehra

I think the Budget is becoming largely irrelevant as far as the impact on a number of sectors in the economy is concerned. The area to concentrate on is government finances which is long on rhetoric and short on achievements and specific measures.

I am concerned that there are no concrete measures on expenditure control beyond the fertiliser price hike. That means the only hope of bridging the deficit gap is the economic growth itself. Also, if the finance minister was serious about the 'Income is income' bit, there should've been some tax on agricultural income.

The quality of the deficit is another cause for concern (revenue to capital and non-plan to plan ratios). On the indirect tax front I am still waiting for the full details, but prima facie it appears negative for toothpaste manufacturers due to the increase in excise duty. Plus, of course, the increase in IT surcharge.

It does appear to me as well that the Budget has become more of a media event than anything which actually has a major impact on our lives. This is probably as should be the case in a liberalised environment, the government should not be able to dictate the realities for the economy or the market place. I don't have the data on the TRPs but it should be interesting.

Probably the reaction is precisely because the whole exercise is so hyped and, therefore, unrealistic expectations are built up. In any case the market has been very volatile of late.

The on-the-ground changes have been in some excise rates, the higher IT surcharge and the tax on export earnings. The reaction to the last has been particularly violent, but in my opinion it is out of proportion to the actual impact on software exporters. Also the market usually gives a higher P/E ratio for tax paid earnings as compared to non-tax paid earnings which should also help.

Exporters run a business like anyone else and make money. There is no reason why they should be permanently exempted from paying their dues to society at large. The reason for exemption can be either that the industry is at a nascent stage and requires incentives, or that the balance of payments position requires that foreign earnings be encouraged. If neither is an overwhelming priority, some taxation is perfectly equitable.

[To former finance minister P Chidambaram] Thank you for your answer. I do agree that your government did not have the chance of governing for the full year. But a couple of statistics maybe of interest.

In your 97-98 Budget, taking into account the reductions in income tax rates, assessed incomes would have had to grow by 41, 42 per cent to meet your estimates. Adjusted for tariff changes, customs revenues were to increase by 27 per cent. It would have been tough to achieve these numbers in the best of times. And even in Budgeted terms, the quality of the deficit was scheduled to deteriorate. Capital expenditure was to rise by only 12.6 per cent against a 15.4 per cent Budgeted growth in revenue expenditure.

Devina Mehra is Director, Research, at First Global, Bombay.

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