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The Rediff Budget Jury/S S Bhandare

'This year's 'feel-sad' aspects have undone last year's 'feel-good' factors'

BUDGET 2000

The Budget was expected to strategise the resilient economy which had held promise of widespread industrial recovery.

However, it has belied our expectations. It lacks a clearcut sense of direction on the strategy for sustained high industrial growth.

There are very few positive features and one has to really struggle hard to identify them. If the stockmarket reaction during the Budget week is considered to be an appropriate barometer, the Budget has failed to inspire confidence for business and industry.

Much was expected in the area of stimulating infrastructural investments. Budget promises to spend more on plan ependiture but one wonders how much of it has really happened.

Budget was expected to deal with fiscal deficit management more effectively, but the finance minister seems to have given up the battle to manage and control revenue expenditure.

Last year, he promised to set up Expenditure Management and Control Commission. But there is virtually no mention about it in the current Budget.

The FM seems to give an impression that he has rationalised excise tax structure. I wonder whether the indirect tax structure in India will now provide Indian industries with any competitive advantage and whether the FM is more concerned about making his tax proposals WTO-compatible, particularly the reduction in the peak rate of customs and phasing out of tax benefits on export profits.

In terms of good intentions and series of programmes, the Budget gives an impression of doing a lot of things for the rural sector. But I have my strong reservations on the effectiveness on the implementations of the programmes.

The agricultural sector has witnessed violent fluctuations in production performance in the post-reforms period. Much of it is due to deceleration in the productivity growth. Public sector investments have suffered a setback and the private sector investments have not been able to overcome the deficiency.

Therefore, more concerted efforts are required to stimulate the rural economy. The Budget makes a feeble attempt in this area.

The positive part of the Budget is so lacklustre that it would not give any major thrust to robust industrial growth. There are a few small initiatives: 1) The moderate reduction in general provident fund rate by one per cent; 2) The withdrawal of tax on interest on bank and financial institutions; 3) Step-up in plan expenditure; 4) Some measures for the shipping industry.

Of course, the initiatives in the area of interest rates will also have to be supported by RBI's action on bank rate and CRR cut, to make an impact on the lending rates.

The Budget encompasses each and every sector of the economy. In terms of its sheere size of over Rs 3.35 trillion of expenditure, it would represent almost 15 per cent of the GDP. It not only deals with tax structure and policy but also initiates a series of steps for the reform of external sector, financial sector, social sector and so on. Therefore, the Budget makes tremedous impact on the overall economy and various sector-specific areas.

However, in the framework of coalition government, compromises are inevitable.

The continuation of income tax surcharge and raising it to 15 per cent may partly hurt the salaried class but this is a small price to pay for the enormous burden of managing the fiscal deficit.

The Budget does not hold out any promise to swadeshi industrialist, it does not contain any specific provisions to lighten their burden or offer additional protection; in fact the provisions relating to excise structure have to be carefully monitored and evaluated.

There is also a moderate reduction in the peak rates of tariffs and most of the quantitative restrictions will have to be phased out in the next few months. So will they be able to withstand the forces of competition with inadequate stimulus from the Budget?

The FM should have been able to send clear signals about the government's commitment to roll back growth of non-Plan revenue expenditure, progressed with vigorous privatisation and dealt with the issues of implicit subsidies eroding the fiscal base.

The FM's dream of going down in the history with so many firsts, reflecting the knowledge-based new economy, is going to remain unfulfilled. He wants to put India on the high-growth map, but I will be surprised that this strategy can sustain even our long-term trend growth rate of about 6.5 per cent achieved in the last decade.

Even without this Budget, India would have been able to perform. But with this Budget, there is a question mark on the growth prospects. Last year, Sinha delivered feel-good factors; this year, he has undone them by 'feel-sad' factors.

S S Bhandare is economic advisor to Tata Services Limited.

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