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'No effort to improve investment or productivity of capital'

Professor B B Bhattacharya

The last Budget promised a lot but failed to implement most of the promises for various reasons. The finance minister this time wants to consolidate the reform measures already announced rather than initiating any major schemes. But considering the fact that the economy has responded negatively to his last Budget, he should have taken some bold initiatives.

This the first Budget of the tenth five year plan which has a very ambitious growth target of 8 per cent. Considering this, there seems to be no effort in this budget to improve either investment or productivity of capital. So, in this respect, it is a disappointment.

As regards the tax incentives, I think the Budget did not want to alter the tax structure. Probably, the finance minister did not want to take a chance in a deep recession year

The common man may benefit from freeing of trading of agricultural goods. The reduction in prices of petrol and diesel would also benefit the common man. However, there is a steep rise in the price of LPG and kerosene. Other than these, there are no other implications for the common man.

The growth implications of the Budget is quite limited. However, agriculture and infrastructure may accelerate after some time due to some new reform measures. On balance, the Budget is very cautious on the negative side.

The implication of the Budget for Nasdaq-listed Indian companies is positive. Indian companies can now invest more in foreign countries through automatic route. However, the total amount permissible under this is going to be very small for any individual company.

I agree that the incidence of taxation is comparatively higher on the middle class mainly because the income earned through salary cannot be hidden from taxation. I also agree that the uncertainity in the capital market is now going to be a major problem restraining the saving incentives of the middle class.

The finance minister has announced some measures to reform the capital market. But the governments effective regulatory power in this respect particularly corresponding to stock market and mutual funds has so far proved very inadequate. We hope that this time the government can improve its regulatory mechanism. The middle class saving incentive would also be marginally lowered by reduction in the interest rates.

It is unfortunte that many of the proposals announced in each Budget remain hidden in the bureaucratic files. Further the actual utilisation of many of the schemes fall far short of expectations. This year the FM has promised a look into this loophole. Let us hope things may improve in the future.

Currently, there is a deep recession in both industry and many segments of services.Our projections indicate a mild recovery towards the end of the fiscal 2002-03. However, if the world economy continues to be in recession, then the Indian recovery may also get further delayed.

In the current fiscal year, there has been a severe shortfall in the tax revenue collection thus even though the Non-Plan expenditure was restricted to the budgetary targets. The fiscal defecit increased by nearly 25 per cent. The most important cause of revenue shortfall is the industrial recession.

Ideally, the government should privatise loss making hotels, tourist complexes and other enterprises producing low priority consumer goods. Unfortunately, the government is not able to sell these enterprises. So out of sheer revenue compulsion, it is selling the more lucrative enterprises like VSNL and ONGC.

There are two benefits for the industry in this Budget. One, the corporate tax rate is reduced. Secondly, the government has reduced the customs duty on many industrial inputs. The industry may also benefit indirectly from governments efforts to reform infrastructure. But as such there is no step to stimulate the industrial growth through the Budget.

As far as infrastructure is concerned, the ports are to be corporatised. In the case of power, the government has linked central assistance to states to power reforms. The government has also announced other incentives to the states to improve efficiency in the utilisation of the infrastructure. However, most of the incentives are symbolic rather than substantial.

For the first time, the government official economic survey has accepted the fact that it is not able to collect taxes from businessmen and services sector. However the Budget as such offers no measures to tackle this problem. In effect, the burden of taxation would continue to be more on salaried than on other professions like industrialists or entrepreneurs.

Professor B B Bhattacharya is director, Institute of Economic Growth.

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