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Chances of Sinha presenting tough budget dim

Contrary to the forecasts by some economic analysts, the new millennium's first budget -- Indian government's statement of its proposed revenues and expenditure from April 2000 to March 2001 -- to be presented by Finance Minister Yashwant Sinha on Tuesday is not likely to be harsh.

The Budget 2000-01 is likely to be growth-oriented, investment- and industry-friendly with thrust on job creation and rural development.

The protagonists of the theory of tough budget argue that with political stability at the Centre for a long time, a leader such as Atal Bihari Vajpayee at the helm of affairs, parliamnetary and assembly polls far away, sound economic fundamentals and inflation at an all-time low, the present time is the most opportune to take hard decisions to collect revenue to bridge the growing fiscal deficit.

However, political and economic considerations will not allow the government to take hard decisions. There are some grey areas and it would be difficult for the government to take any decisions which will hurt the common man.

The verdict of the assembly polls in the four states indicates an erosion of the support base of the BJP. As such BJP would not like to antagonise the vulnerable sections of the society.

In fact, the compulsions of a coalition government, with regional parties having an upper hand, will make it very difficult for Finance Minister Yashwant Sinha to drastically cut subsidies.

Besides, the industry has just started picking up after a slow time for a number of years. Any hike in corporate tax now will reverse the process.

In fact, industry has been demanding that surcharge should be withdrawn.

In fact, there are fears in some quarters that the pace of economic reforms would slow down as the regional parties which are ruling in states like Haryana and Orissa, will view the reforms as they will impact on local people. Reforms will be judged from the point of view of electoral prospects.

Any coalation government anywhere has inherent limitations, more so in the case of India where the major party is totally dependent upon the coalition partners which have divergent agenda.

This is corroborated in the Railway Budget as Railway Minister Mamta Banerjee did not raise passenger fares which are subsidised by freight. She was well aware that railway freight is losing to road freight. Despite this, she did not tax the travelling public. This may not be economically sound but is politically wise.

In the area of personal taxation, it is not expected that the Sinha will make any increase. In fact, the chances are that surcharge may be withdrawn and exemption limit raised to Rs 75,000 from Rs 50,000 at present.

Excise duty may be increased in the case of petrol and petroleum products as there has been substantial increase in international prices. Thus, kerosene, diesel and LPG prices may be hiked. There is every possibility of a hike in excise duty in the case of automobiles, consumer durables and luxury items.

In the area of customs duty, the government is likely to increase the duties on items where the duty is lower than what is prescribed by the World Trade Organisation. This will yield more revenue to the government as well as protect domestic industry. This is all the more necessary with the removal of quantitative restrictions.

The government may increase the outlay for social infrastructure, education, health, irrigation and rural development.

In the housing sector, which has the potential of giving fillip to industry such as steel and cement as well as generating large-scale employment and providing the much-needed shelter, the incentives would include lower rate of interest on housing loans.

The interest paid to housing loan upto Rs 75,000 is exempt from income tax. This limit is likely to be increased to give boost to the housing industry.

IT, software and pharmaceutical industries which are witnessing impressive growth and profitability may be taxed.

The service tax is likely to be extended to many more sectors like health clubs and beauty parlours. These are among the 16 sectors identified by government yielding substanial revenues.

The divestment target was Rs 100 billion but only Rs 16 billion have been realised. There may be substantial increase in the divestment target and the money so realised may be used for retiring and reinvesting in the infrastructure projects.

It is likely that the government may allow deduction from income tax money invested in sectors pertaining to infrastructure and rural development, observers said.

UNI

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