|
Even globally, the prime
focus amongst the advanced and developing economies is on the timing of the exit
policies. The IMF has projected a global growth recovery to 3.1% in 2010, with
OECD pegging the figure at 1.9% for its member countries. While these countries
continue to face concerns such as unemployment and fiscal imbalances, India's
growth is coupled with an additional challenge of high food inflationary
pressure, causing a serious fiscal dilemma. Taking a cue from the G20 Nations'
framework for sustainable and balanced growth, the forthcoming Budget would
ideally need to continue with the fiscal stimulus measures for some more time.
However, with the threat of a high fiscal deficit of 6.8%, the government would
be hard pressed to look at some tough, revenue generating fiscal measures. Thus,
the stimulus measures extended to the industry last year would certainly be
reviewed. Taking cognizance of the high inflation, fuelled by food price
inflation at 17.4%, which has the threat of translating into a generalized
inflation, the RBI has already tightened the earlier expansionary monetary
policy by increasing the CRR by 75 basis points.
For responsible fiscal consolidation, the government should target to achieve a
zero revenue deficit as against the current level of 4.8% and rein in the fiscal
deficit to under 6%. This would have to be managed through subsidy reforms,
rationalization of expenditure, monitoring expenditure outcome and convergence
of plan schemes.
The other priority areas highlighted by the G20 framework include stepping up
investment in infrastructure through public-private partnership, augment capital
investment in agriculture; support investment in green energy research,
generation and use; and strengthen exports. Incentivizing private sector
savings, focusing on education, skill development, healthcare and social
security aspects are other areas. Improving access to financial services through
strengthening micro-finance activities, and rationalization of tax structure,
are other important aspects that will need to be addressed.
Two major tax reforms the new Direct Tax Code (DTC) and the Goods and Services
Tax (GST) — are on the anvil and all eyes would be on what contours these
proposed tax reforms assume. The government's stated intent is to bring
stability, simplicity and rationalisation in the tax structure. This is indeed a
welcome move and should be further backed by continuous strengthening of the tax
administration.
On the direct taxes front, the government is unlikely to bring in the important
and substantial measures suggested in the DTC until there is greater
acceptability. On the structural side, a review is likely of some of the
structural and radical proposals contained in the code and come out with a more
balanced approach. However, some of the other expectations from the Budget,
specifically relating to number of procedural changes including few of them
contained in the DTC could be brought in to remove the ambiguity on procedural
bottlenecks and empower the tax administration to focus on certain cross-border
transactions.
Further, some critical sectors like infrastructure and services may get a small
dosage of interim tax incentives, wherever these are expiring. On a performance
basis, direct tax collections up to November 2009 was Rs 1,83,822 crore from Rs
1,77,251 crore, registering a marginal growth of 3.17%.
In case of indirect taxes, one of the facts which need to be borne in mind is
that indirect tax collection has dipped 21% despite the growth of 7.5% seen in
the industrial output till October 2009. In all probability, one can assume that
there could be a partial and phased rollback of the fiscal stimulus package. The
excise duty rates may be marginally revised upward and the service tax net
widened without a change in the existing rate of 12%. Logically, even the
Central Sales Tax should be brought down to 1% as a preparatory move towards GST.
The GST offers a great opportunity to accelerate India's economic growth. While
there are some areas of divergence in the structures outlined by the Empowered
Committee and the Thirteenth Finance Commission, it is hoped that the final GST
structure converges towards the recommendations given by the Finance Commission.
Till then, the time gap must be utilized for addressing other issues such as
putting in place sound IT infrastructure and administrative mechanisms, etc, to
facilitate a smooth transition. The Indian economy has shown great resilience in
the period of serious global downturn. It now looks ahead to forward looking
reform measures that would help India achieve her true potential.
Source:
Times of India, India, dated
11/02/2010
|
