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'The govt has lost control over the fiscal situation'

BUDGET 2000

P Chidambaram

I have my own benchmark for grading a Budget. This year I had set the benchmarks of expenditure controls, enlarging the tax base without raising the tax rates, promoting investment led growth and disciplining the states's finances.

On these four benchmarks, I am afraid the Budget is a big disappointment. I am happy about the reduction of customs duty on imports relating to IT and telecom. But I am not happy with the scaling down of export benefits from 100 per cent to 80 per cent with a further threat to abolish all tax incentives for exports within five years.

I have not seen the details but from what I have heard, I suspect that the FM has gone back to what I proposed in 1996-97 with a slight reduction in the rate. I would wait for the comments of industry.

I think the increase in the final witholding tax on debt mutual funds from 10 per cent to 20 per cent will certainly have a negative impact on sentiment. Obviously, the net pay out will be propotionately lower.

Well the FM has said that defence allocations will be increased from about Rs 450 billion in the current year to Rs 585.57 billion in 2000-01. This represents an almost 29 per cent increase. This is a real increase. Whether India can afford such an increase and whether we should go in for such extensive military spending are debatable issues.

I don't yet know how the market has reacted. But the increase in the tax rate on distributed dividends, the increase in final witholding tax on debt mutual funds, the retention of surcharge on income tax, the increase in surcharge to 15 per cent on the highest bracket -- all these will surely have a negative impact on sentiment.

Like said before, I would have focused on four issues: expenditure control, enlarging the tax base without raising the tax rates, promoting investment led growth and disciplining the states' finances. All other matters would have received brief references. I would have kept my Budget speech short -- no more than 60 minutes.

The government has thrown in the towel. They have lost control over the fiscal situation. They have run out of ideas. I suspect they are too proud to take ideas from others.

This Budget is particularly disappointing because while they had a correct diagnosis in the Economic Survey presented yesterday, they have run out of ideas on how to deal with the situation. We are back to the old days of high fiscal deficit and high tax rates. That is why you feel disappointed and I share your disappointment.

If tax rates and tax exemptions are gender based, they will be distorted. After all, an income earner is an income earner, irrespective of whether the earner is a man or woman.

If you are really very poor, there is not much in the Budget for you. Money has been provided, but no instruments are in place to ensure that the money is spent wisely and prudently for health care, education, roads etc.

If you want me to be strictly objective, based on accepted figures published by the CSO, the truth is that India's economic performance in 1996-97 (my first year) was the best under all parameters. This can be verified. For 1997-98, I presented a bold Budget in the hope that I will have one full and stable year to deliver. The government of Mr Gowda was brought down within 30 days.

The Gujral government lived from day to day until it was brought down six months later. I did not have a full year. I did not have a stable government. Hence, the performance in 1997-98 was not satisfactory, although we had a modest 5 per cent growth in GDP despite the Asian crisis. My two years delivered an average growth rate of 6.25 per cent.

Further, the increase in tax rates and the withdrawal of export incentives would have also affected the stock market.

Where are the revenue gains? Against the projected fiscal deficit of 4 per cent, 1999-2000 has ended with a fiscal deficit 5.6 per cent. This is because of overshooting of expenditure and a fall in revenues.

Unless the infrastructure sectors are opened to private investments, mere allocation of public funds will not yield results. The government has a terrible record of implementing infrastructure works.

The FM has given the customs duty benefits for IT and telecom. He has also reduced export incentives by 20 per cent. Hence, it is a mixed bag.

P Chidambaram is a former Union finance minister.

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