Tough measures expected in the Budget

The Economic Survey having painted a grim fiscal situation, the Finance Minister Yashwant Sinha is expected to press the reform accelerator in the Union Budget on February 28 by taking tough measures like cut in small savings rate, no tax sops to salaried class and bring in more services into the tax net.

Sinha is known for presenting "dream Budgets", but has a poor record as far as implementation of tough reform measures go. He has no choice but to carry forward harsh reform measures in his fifth Budget to revive the economy, which has slowed down to 5.4 per cent with fiscal deficit mounting to 5.1 per cent this year, official sources said.

President K R Narayanan has already set the roadmap for reforms to push the economy to high growth path of 8 per cent.

It Included freeing agriculture from the shackles of the past by modifying Essential Commodities Act and allowing inter-state movement of farm products.

Sinha is also likely to take steps to strengthen rural credit cooperatives to provide critical input to farmers at their doorsteps and formulate comprehensive strategy to check post-harvest losses totalling Rs 700 billion annually.

The poor financial health of both the Centre and states gave little room for manouverability in lowering tax rates of both direct and indirect. But keeping in line with his promise to move towards Asian levels, Sinha is expected to announce a five per cent cut in peak import duties and reduce duty on textiles and automobiles to kickstart the economy.

Apart from agriculture reforms, a major exercise to reform the tax system is on the anvil, which included phased elimination of tax exemptions and rationalising some of the export incentives to check misuse and leakage of revenue, which has not been buoyant this year.

The expectation is Sinha would also deepen financial sector reforms by announcing setting up of an Asset Reconstruction Company for tackling the problem of non-performing assets of banks and financial institutions, which have mounted to a staggering Rs 1000 billion.

There would be movement forward in dereservation of small scale industries to make them more competitive and elimination of labour market rigidities. More steps are likely to move towards full capital account convertibility in the face of comfortable foreign exchange reserves, which has swelled to $50 billion.

The Economic Survey attributed the deceleration in industrial slowdown to continued high real interest rates, infrastructure constraints in power and transport besides delay in setting up creditable regulatory framework for private participation in key sectors. The industry grew at 1.3 per cent this year, the lowest in 20 years.

Sinha is expected to address some of these issues besides pump-priming the economy by stepping up public expenditure by about 40 per cent to spur demand particularly in rural area. There could be some monetisation so that a moderate increase in money supply results in multiplier effect to spur demand and growth, analysts said.

Far-reaching agriculture reforms would have to include hard decisions like a cut in food and fertiliser subsidies.

The economic survey has also stressed this reform measures besides rationalisation of user charges for public utilities like power and transport.

Keeping in line with his promise, Sinha may lower average customs duty from 26 to 23 per cent. Also, he is likely to introduce 8-digit level classification of customs duty to make the duty structure more balanced.

The Budget is expected to contain measures to step up infrastructure and rural development particularly power, roads, irrigation, ports and civil aviation to revive steel and cement industry which now have excess capacity.

To revive the rural economy, radical agriculture reform measures are likely to bring about a second green revolution, sources said, adding there could be a relook at minimum support price, which is now higher than the open market price of certain foodgrains.

PTI

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