'Budget has made a sincere attempt in widening and deepening G2 reforms'
Jiban K Mukhopadhyay
The Budget is a mixed bag of small granules of measures in terms of budgetary provisions while having an approach towards consolidating, widening and deepening of the reforms process. One has to remain stoic on such occasions because pre-Budget expectations as well as the immediate post-Budget reactions are not always based on sound rationale.
By now, the real picture has emerged. After going through the fine prints and critically analysing them we find that he has done a reasonably good job under the compelling circumstances. All said and done, while the finance minister started with an honest intention, he seems to have lost his way with his budgetary measures, which are full of too many small granules.
The broad-brush strokes are not there. Yet, realising his compulsions, the given over-pluralistic and stubborn political economy, the 24 party coalition government, the growing societal tensions, etc he certainly deserves to be wished good luck for whatever good he has attempted.
As there are over 80 companies within the Tata Group, each one of them would be impacted in a particular way. We will come to know the details once we do a detailed impact analysis. A detailed study of the impact of the Budget on the operations of the Tata Group is being done.
However, by and large, one can say the overall impact will vary from company to company. In some cases, impact would be neutral. In some other cases, it will be good and in certain cases negative. Watch the Group website www.tata.com. There could be a Note on our Budget analysis by the Department of Economics and Statistics titled, 'Budget 2002-03: Strident on Reforms, Muted on Revival'.
The Budget had made a sincere attempt in consolidating, widening and deepening G2 reforms. At the same time, focusing on taking a strategic initiative for agriculture and rural development, infrastructure, as well as trying to promote partnership between the Union and state governments for implementing G2 reforms.
Through these focal areas, the Budget has sought to achieve the economic challenges highlighted by the Economic Survey. Hypothetically, the approach is absolutely all right. However, for implementing the G2 reforms, there will be a need for setting up an institutional mechanism so that at the state's level, such reforms are uniformly implemented.
Technically, such a mechanism may be beyond the scope of the Budget per se. Without such a mechanism, the G2 reforms could not be implemented. It is important that the major political parties do agree and come forward in implementing G2 reforms. It is a national agenda for the Indian political economy.
In fact, I feel that this is not a bad Budget afterall. No Budget can fulfill the Wishes and Wishes of everybody. The best feature of this year's Budget is the focus on G2 reforms and making an effort for their implementation. This is priority No 1 for the Indian economy today.
As far as the comman man is concerned, he has to wait for the economy in general and market in particular to move up in a sustainable way. The Indian economy is gradully coming out of a slowdown which continued for six long years.
We believe that the overall performance of the Indian economy in 2002-03 would be somewhat better than the last two years. The overall rate of growth of GDP in 2002-03, according to the early projection of the Department of Economics and Statistics is likely to be 6 per cent as against 5.4 per cent in 2001-02 and 4 per cent in 2000-01.
The Budget has addressed the basic issues relating to the Indian economy in general. It attempted to make the operating environment competitive. As such, the focus is on G2 reforms. Unless the general health of the economy is improved and made competitive, various limbs of the economy cannot efficiently perform their functions.
In that sense, the overall thrust of the Budget is in place. It is not either way biased to one particular sector or the other. Or at the same time it could have provided a direct thrust for improving the continuing industrial slowdown.
After going down by 143 points on the day of the Budget, the Sensex had already recovered. As we had already predicted in our quick note on the Budget (see Tata website). After the immediate over-reaction the market is going to get back to its realistic behaviour. The Sensex is going to slowly move up.
Mr Sinha's approach towards increasing service taxes is absolutely in order. Service sector contributes 49 per cent of GDP and pays less than 2 per cent of tax revenue. There are reasons to widen the service sector taxes.
By and large the effect of the Budget on the middle class will not be adverse. Many of the policy measures announced in the Budget will have a fair chance to be implemented over the years, sooner rather than later.
As far as the defence Budget is concerned, an increase is required. But we do not foresee a full scale war. There however could be border skirmishes.
The Budget has also addressed the growth in the infrastructure sector as much as it could. Where divestment is concerned, I think we are late in implementing the divestment processes. After the Budget, the Consumer Confidence index should move up in 2002-03 over a period of time.
Middle class people have relatively higher income compared to the poor people of the country. Having higher income, it is expected that they pay more realistic user charges, example LPG. Over a period of time, the prices of petroleum products would be internationalised. And a user would have to accordingly pay. By and large it is the middle class who are also beneficiaries of the subsidy raj.
Participants may reach me on my e-mail id for any specific query at jkmukhopadhyay@tata.com. Let us wish ourselves goodluck for the coming year.
Jiban K Mukhopadhyay is economic adviser, Tata Services Limited/Department of Economics and Statistics.
YOU MAY ALSO WANT TO READ:
The Rediff Budget Special
More Budget Stories
Interviews
Money
