What the broad thrust of the budget should be like?
The economists are making a suggestion that the budget has to focus on building
the investors confidence and bringing the focus back to the India growth story,
which is lost. They repeatedly said that the investment cycle is declining, the
private investment is not happening and therefore, budget will have to become
instrument of restoring confidence in investors.
They have given three suggestions; one is that the finance minister has to
undertake fiscal consolidation because the rising fiscal deficit is causing lot
of nervousness and it is also not preventing the inflation from being managed.
Secondly, the tax-GDP ratio is declining; the rate of growth has declined too.
It is not just cyclical but there are structural factors and therefore, steps
must be taken to raise the direct tax collection because only 10,000 people are
declaring above Rs 10 crore.
A lot of evaluation is happening through the agricultural income root. So,
economists have been suggesting to try and plug that and raise the direct tax
collection. Finally, if the tax revenues are not sufficient, then you need to
have non-tax measures like privatization. And if the stock market does not
permit that, then you should use the option of finding the strategic investors
to try and raise revenue on that account.
There was also a suggestion on the expenditure side, about cutting subsidies and
decontrolling diesel price. One suggestion was little different that if you
can’t decontrol diesel price, then at least you could raise its revenue by
charging a high excise duty on diesel cars, so that those who are getting a
disadvantage, will at least pay to the government.
You spoke about fiscal consolidation. You are aware that in the West, there
is a huge debate going on whether the austerity measures should be brought in at
the time of declining growth or it is counter-productive. You do austerity;
bring down tax revenues and your fiscal problems become worse in some ways. Does
that debate apply to India this time?
Our growth rate is not down because consumption demand is down; our growth rate
is down because our investment demand has taken a real beating. So, the
government should improve the investment sentiment and attract investment back
from the private sector and from abroad. For that to happen, what you need is
the assurance that the micro-economic stability is maintained. And this is not
contradictory to achieving greater investment demand if you take the reform
step; structural reform steps that are necessary for it.
For example, people today talked about an accelerated depreciation rate or if
some investment allowance can be brought back. We see things like a beleaguered
industry like aviation being given infrastructure status or power generating
sector being given the tax relief under section 81A, which has ended into 31
March 2011. But a number of us felt that it should have been extended for six
So, getting the growth back is not a tradeoff, it is not contradictory to
achieving fiscal consolidation. In fact, I would argue that at this point of
time, achieving rates of fiscal consolidation would be a stimulus to investment
rather than the other way round.
Are any major changes being anticipated on the tax side?
There is the shift to the negative list on the services tax from the positive
list and that will add the significant collection to the services tax and that
is a necessary part of a GST package. However, that is only factor that we could
see that was suggested by the economists. As I said, it will perhaps be included
in the coming budget as it will also give the finance minister much needed
revenues from the service sector.
What were the suggestions made on the government expenditure on the subsidy
There was of course a fair bit of conversation on rationalizing public
expenditure and on making sure that you get a better bank for buck by making
expenditure reforms that are necessary and also to cut down subsidies that are
running up and down and not to take steps which will further inherence the
One of the steps that was suggested by them was to actually take control of the
entire PDS system at the minimum support price because it was pointed out that
we had a situation of rising food stocks and prices and that is because the way
we procure our food and the amount we spend on it. So why don’t we replace it
with conditional transfers, etc, which will make this whole system much better
rather than the current situation?
Do you prefer a quiet budget or a big bang one?
It is very important to restore the credibility of the government this time and
therefore, the economists suggested several measures which do not require any
legislative effort. For example, you can notify the multi-brand FDI, you can
actually bring to some of the projects to closure that have been hanging for a
long time. These are steps which are real, practical and can be taken. So, we
need a budget which shows a real intent of implementation on a solid ground.
NDTV, India, dated