|HOME | BUSINESS | BUDGET 99 | CHAT TRANSCRIPT|
February 27, 1999
'It is a good Budget, and should stimulate the economy'
Dr Kirit Parikh
I think it is a good Budget. It should stimulate the economy through its incentives given for housing and the stockmarket. The most important feature, however, is the promise to institute zero based budgeting from next year. If the government can deliver on that promise that would be a revolution.
Generally, the simplification on excise and customs are welcome as they reduce the differential in taxes. Also, the maximum rate has not been increased. A more or less uniform tax structure is more efficient.
The announcement on educational guarantee schemes to have a school within one km radius of every habitation is an excellent proposal.
The tax exemption given to dividend income from mutual funds should bring in small investors in the stock market. The reduction of capital gains tax from 20 per cent to 10 per cent should also help. Elimination of stamp duty on transfer of debt instruments and paperless trading should stimulate trading and increase liquidity.
However, the main stimulus to the stock market has to come from industrial growth and investment in the industrial sector. Indirectly, the Budget has some measures which should help in this aspect too. The main measures which can help here are some stimulation to exports by making credit to exporters cheaper and promise to simplify transaction costs.
The cess on diesel if properly utilised to increase substantial investment in road construction and the stimulation given to the housing industry should all help in stimulating industrial output. Of course, a little bit of devaluation would boost exports and give stimulation to industrial growth. This, however, may not be a part of the Budget..
The intentions are good, however, the problem of disinvestment in the past has been mainly the reluctance of line ministries to disinvest units under their control. An announcement of setting up of a separate body independent of the line ministries do this would have been welcome.
The measures to stimulate the watershade development and management are welcome. One hopes that 20 per cent withholding of central assistance to states for better water management would stimulate the states to collect operational maintainance charges for irrigation systems..
Most of the measures relate to increasing the credit availability to farmers. I would have liked to hear some announcements on greater liberalisation of the agriculture sector and removal of all controls on storage, transport and domestic movement. I would also have liked to see government trading dismantled and all commodities on an Open General Licence.
The fiscal deficit is the most important problem facing the finance minister. His promise to bring it down to 4.4 per cent of GDP is great. But will he be able to deliver? Last year he targeted 5.6 per cent and achieved 6.5 per cent. So this year, this depends very much on the assumptions made on the growth rate of GDP in preparing the Budget. We don't have the details at this moment.
The automatic clearance and 100 per cent ownership promised to NRIs and 70 per cent to other investors may not stimulate FDI inflows because a major problem is other procedural bottlenecks and poor infrastructure. Of course, it would help on the margin.
I agree that the focus on SSIs is misplaced. There is need to reduce reservation for SSIs. The Budget seems to give even more concessions to SSIs. The fact that they need concessions is an indication of poor competitiveness. Of course, in some area there is a justification for promoting and protecting SSIs.
There has been very little change in direct taxes except that a 10 per cent surcharge has been added to corporate tax and for individuals who are in the 20 per cent and 30 per cent tax slabs.
Dr Kirit Parikh, the wellknown economist, is the vice-chancellor, Indira Gandhi Institute of Development Research, Bombay.
|Tell us what you think of this Budget report|
BOOK SHOP | MUSIC SHOP | HOTEL RESERVATIONS | WORLD CUP 99
EDUCATION | PERSONAL HOMEPAGES | FREE EMAIL | FEEDBACK