One of the most hyped up issues is the Union budget. Everybody wants something from what was originally a plain financial statement of the government. This has evolved to be expected to be a catalyst for everything that is good for the economy.
Individuals want to pay less income tax and want prices to come down with indirect taxes being reduced. Corporates want the tax rates to come down and expect more leeway to enable investment.
Economists want fiscal prudence to be maintained. Rating agencies want to see progressive reforms as merely stating palatable numbers does not mean that anything will be achieved. Then, there are the elections coming up and prudent politics may dictate that the government should do things like loan waivers or higher outlays on NREGA which others may not approve. Any FM facing these expectations would have a tough job on hand.
The journey through 2012-13 has been challenging. The final numbers may look true, though it has been achieved by forcing disinvestment and cutting ruthlessly expenditures of various ministries which may not be the best way to go about things. Therefore, the starting point is to get the numbers right. The FM should have a budget where growth numbers assumed are realistic — say 6% real GDP growth and 6% inflation to get in nominal growth of 12-12.5%.
Instead of working backwards from expenditure allocation and then revenue projections, the approach should be to fix revenue first and then be uncompromising on expenditure. Just like we had assumed subsidy bill will be 2% of GDP and nothing more, the number once fixed should be sacrosanct.
It will be easy this time on the fuel side as we are now used to having market-linked prices. The task will be on food security where the impact could be on the food subsidy bill. This is where the FM should show resolve during the course of the year and ensure that allocations stop once the limit is reached. There could be warning triggers when 75 and 90% of the amount is reached.
At any rate, for this exercise to be successful, the assumption of growth should be right as it would have a bearing on the resources raised through tax revenue in the form of excise and corporate taxes. Any unrealistic assumptions would mean problems in future.
This done, the next step is to ensure that capital expenditure on projects takes off. Last year around Rs1 lakh crore was to be spent on this purpose. Even if the number is lower, it should be spent for sure so that the government can kickstart the growth process in a limited manner. Typically this gets spent in the infra space and should be expedited so as to have a chain effect on other sectors.
Having populist measures is a necessity and need not be debated. That is so because governments are not corporates and have to spend where no one else does. Governments come to power based on manifestos that promise certain largesse which has to be met.
Besides, everyone gets benefits from the government and this can be seen from the revenue foregone statement of the Budget where the corporates benefit a lot. So why not the common man? The only condition should be that these numbers should not be breached. If this is done, then the budget can be a success.
The budget would definitely make every segment pay a little more in the form of taxes. Corporates would probably have to bear a higher MAT. Richer individuals would probably have a surcharge on their incomes. More services under the net would be a certainty and taxing of transactions in the commodity market may be inevitable in certain areas such as non-farm commodities. Custom duties on gold would be increased further to deter purchase while excise duty rationalisation across some commodities would be in order within the overall framework of GST.
But, quite certainly the FM will have to manage expenditure in a more effective manner. The focus should be on doing things within the limitations of growth which takes place exogenously over which the state has no control. If this is done, half the battle would be won. The FM is astute and probably will follow the same path and draw a balance between political expediency and fiscal prudence.
Individuals want to pay less income tax and want prices to come down with indirect taxes being reduced. Corporates want the tax rates to come down and expect more leeway to enable investment.
Economists want fiscal prudence to be maintained. Rating agencies want to see progressive reforms as merely stating palatable numbers does not mean that anything will be achieved. Then, there are the elections coming up and prudent politics may dictate that the government should do things like loan waivers or higher outlays on NREGA which others may not approve. Any FM facing these expectations would have a tough job on hand.
The journey through 2012-13 has been challenging. The final numbers may look true, though it has been achieved by forcing disinvestment and cutting ruthlessly expenditures of various ministries which may not be the best way to go about things. Therefore, the starting point is to get the numbers right. The FM should have a budget where growth numbers assumed are realistic — say 6% real GDP growth and 6% inflation to get in nominal growth of 12-12.5%.
Instead of working backwards from expenditure allocation and then revenue projections, the approach should be to fix revenue first and then be uncompromising on expenditure. Just like we had assumed subsidy bill will be 2% of GDP and nothing more, the number once fixed should be sacrosanct.
It will be easy this time on the fuel side as we are now used to having market-linked prices. The task will be on food security where the impact could be on the food subsidy bill. This is where the FM should show resolve during the course of the year and ensure that allocations stop once the limit is reached. There could be warning triggers when 75 and 90% of the amount is reached.
At any rate, for this exercise to be successful, the assumption of growth should be right as it would have a bearing on the resources raised through tax revenue in the form of excise and corporate taxes. Any unrealistic assumptions would mean problems in future.
This done, the next step is to ensure that capital expenditure on projects takes off. Last year around Rs1 lakh crore was to be spent on this purpose. Even if the number is lower, it should be spent for sure so that the government can kickstart the growth process in a limited manner. Typically this gets spent in the infra space and should be expedited so as to have a chain effect on other sectors.
Having populist measures is a necessity and need not be debated. That is so because governments are not corporates and have to spend where no one else does. Governments come to power based on manifestos that promise certain largesse which has to be met.
Besides, everyone gets benefits from the government and this can be seen from the revenue foregone statement of the Budget where the corporates benefit a lot. So why not the common man? The only condition should be that these numbers should not be breached. If this is done, then the budget can be a success.
The budget would definitely make every segment pay a little more in the form of taxes. Corporates would probably have to bear a higher MAT. Richer individuals would probably have a surcharge on their incomes. More services under the net would be a certainty and taxing of transactions in the commodity market may be inevitable in certain areas such as non-farm commodities. Custom duties on gold would be increased further to deter purchase while excise duty rationalisation across some commodities would be in order within the overall framework of GST.
But, quite certainly the FM will have to manage expenditure in a more effective manner. The focus should be on doing things within the limitations of growth which takes place exogenously over which the state has no control. If this is done, half the battle would be won. The FM is astute and probably will follow the same path and draw a balance between political expediency and fiscal prudence.
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