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Budget to give thrust to investment, speed up reforms: Sinha

The government was aware of the challenges faced by the economy and the coming budget will give thrust to investment and speed up reforms, Finance Minister Yashwant Sinha said on Wednesday.

"The past year has been full of challenges and we are aware of the challenges in the coming year," Sinha said, emphasising the need to carry forward reforms and promote investments to achieve 9 per cent growth.

In his three-hour pre-budget consultations with economic editors, Sinha also underlined the need for improving the delivery mechanism for better implementation of social sector projects.

"Not merely increasing the allocations were enough. What was important was quality of allocations," he said, adding that in this context that the state governments and local bodies played an important part.

Participants at the meeting cautioned the government against raising tariffs, saying, instead the focus should be to make industry competitive to face the global market.

Sinha, however, said protection and level of tariffs were contentious issues. While one industry demanded reduction of tariffs on a product, others wanted increase in tariff for the same product.

So the government had a difficult task in balancing the conflicting demands, he added.

Several participants wanted the finance minister to dispense with fixing a target for divestment as year after year the targets were not met.

Also they felt divestment would face less criticisms from the opposition if the government committed itself to spending divestment proceeds in the social sectors.

The economic editors wanted the government to resurrect the feel good factor to restore investor's confidence.

High real interest rates have distorted the trade off between risk and return profile of investment. The interest rate could be reduced by reducing the interest rate on contractual and small savings and by monetising part of the fiscal deficit.

The government policy should ensure higher return for those who take risk.

The participants emphasised the need to have a realistic exchange rate management policy to make exports competitive.

To reverse the stagnation in tax-GDP ratio, they suggested widening of the tax base by bringing services into the tax net and drastically reducing tax exemptions, besides improving the efficiency of tax collection machinery.

They wanted the budget to focus on well-defined national objectives instead of merely reflecting on sectional interests. Also there was need to make the budget-making process more transparent.

The participants wanted the tendency to give subsidy on ad hoc and piecemeal manner to be dispensed with. The budget should signal acceleration of reforms, promote competition and more investments in agriculture and infrastructure.

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