Financial Daily from THE HINDU group of publications
Wednesday, Mar 01, 2006
A difficult task well done
As the Economic Survey had stated, the macro-economy is on a roll and the Fiannce Minister, Mr P. Chidambaram, had the advantage of a well-performing economy to serve as a setting for his Budget.
The Budget he has presented today is broadly on expected lines. It has carried forward the programme of fiscal consolidation, while at the same time strengthening the incentives and providing funds for investments in infrastructure with special reference to rural areas.
The Finance Minister has not yielded to the temptations of introducing new fancy taxes or announcing any new schemes as poll-oriented giveaways.
While he has been under the compulsions of coalition politics in regard to liberalisation of FDI and encouraging privatisation, he has not yielded to the Left partners' implied pressures to raise tax rate on the so-called rich and on luxury consumptions.
INDULGENT WITH CORPORATES
As I read the Finance Minister's speech, I do not see any material change in the Capital Gains Tax, while he has tweaked the Service Tax, Excise and Customs. He has kept an indulgent eye on corporate entities' expectations on the need for encouraging fresh investments.
While there may be much quibbling on his proposals to make changes in the Fringe Benefit Tax or on the exemptions in regard to donations to charities, or to modify the Minimum Alternate Tax, by and large, he has not rocked the boat.
Not to disturb the markets and the FIs seems to have been one of the objectives, very much in his radar. He has not disappointed investors in the market.
While he has raised taxes on the Finance Minister's customary target `tobacco', he has left many of the other targets well above.
The story on the macro-economic front is, of course, creditable and credible. The Finance Minister has managed to establish a record in reducing both fiscal and revenue deficits without too much of an effort, basically on the strength of the rise in GDP and better tax compliance. Credit is due to his efforts for systematic application of the PAN in all expenditure transactions.
He seems to have tired of his one in six rule, which was more of a nuisance. On the macro side, he has spelled out his objective to introduce a General Sales Tax on goods and services very much on the lines of the Kelkar Task Force recommendations.
RATIONAL TAX REGIME
Mr Chidambaram has conjured a vision for India to move towards a rational tax regime by 2010. It is, however, doubtful whether in the coalition politics dominated India of tomorrow, he will be able to accomplish his objective even by 2010.
It is surprising that he has not announced any decisions of substance on Dr. C. Rangarajan Committee's significant recommendations on petrol, diesel, kerosene and LPG prices. Maybe, we have to await post-Budget announcement on this.
By and large, the Budget has helped to keep the economy on its growth path and not shocked the consumer and the investor, as is the experience with most Finance Ministers.
The purists may find that Shri Chidambaram has made a number of references to public-private partnership and he has not much progress to show on the all India infrastructure finance facility company. The outcome budget he has promised for this year will be a severe test on the FM's skills at implementation.
It is obvious that every Budget is as good as the translation of its promises to reality.
Hopefully, the Finance Minister will have a good story to tell not only on the fiscal consolidation front but also another aspect of his promises for its poll eve Budget.
The task before any Finance Minister is difficult. But, that before Mr Chidambaram is particularly so, given the petro-product price rise issue and the coalition politics.
He has produced a sensible and almost benevolent Budget, which is, indeed, a tribute to his command over macro-economic reality and the political landscape. That he has kept the growth impulses in mind, especially with respect to rural areas and backward regions not ignoring the modern sector of IT and telecommunications, speaks volumes for his political sagacity and economic vision.
The Finance Minister is an emissary of Government to the investors not only in India but abroad. He has conveyed a sensible message of credible growth, infusing confidence in the economy.
The Budget, above all, is an exercise in brand-building, besides being an attempt at substantial changes in economic policy. Mr Chidambaram has served both purposes well, balanced his books and kept the growth impulses alive.
Three cheers, therefore, to Mr Chidambaram for achieving an almost impossible task presenting a sensible Budget for growth and stability, not breaking the Indian dream, and for sowing seeds for further growth and prosperity with an eye on equity, both between regions and individuals.
On the whole, a difficult task well done!
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