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'Budget overlooked expenditure compression'

March 01, 2013 14:40 IST

Ajit RanadeEconomist Ajit Ranade chatted with our readers on March 1, and explained how the Budget affects us all.

An alumnus of Indian Institute of Technology, Mumbai, and Indian Institute of Management -- Ahmedabad, Ranade is the chief economist at the Aditya Birla Group, a multinational conglomerate.

His professional career has spanned academic and corporate assignments, in India as well as in the US, and he has also been the chief economist at ABN Amro Bank.

Currently, he heads A V Birla group's economic research arm focusing on macro-economic, policy and sectoral issues.

Here is the transcript:

Dr. Ajit Ranade says, Hello friends happy to be here


rythm asked, Fiscal deficit of Centre and State taken together is much more then 5.2% of GDP. how would state manage its finances under the present budget.
Dr. Ajit Ranade answers,  at 2013-03-01 13:04:46centre + states deficit is almost 10% of gdp, much higher than 5.2%. what's under the control of centre is recoverable through a judicious mix of tax and expenditure compression. state govts have other compuslions.


udaymallya asked, Sir, if the governement had got all the black money from the SWISS and other accounts, could it have been used for wiping the fiscal deficit
Dr. Ajit Ranade answers, i have no idea how much black money there is in swiss banks. but i think there is quite a lot in india itself. as per election commission the unofficial spending by candidates is way above what is legally allowed. that by definition is black money. imagine the number of elections and the number of candidates we have, and do the math


vasu asked, dear sir, this budget gives me a feeling that finance minister is merely going thru motions, he has presented budget because he need to do it on feb 28th. its more on rhetoric than substance. fm has not initiated anything that will help reduce inflation, help in attracting fdi, nothing for farm sector, rural development. it on super rich is laughable as he mentions 47000 individuals come under this slab. whats your opinion
Dr. Ajit Ranade answers, presenting the budget (i.e. the finance bill) is a constitutional requirement. not just going through the motions. as for the 48,000 taxpayers - these are those that have declared TAXABALE income more than 1cr. if you earn only dividend income or agri income you could have any amount, and not pay tax.


maheshgb asked, Hello Ajit, Is there any provision for small and medium industries growth and IT product companies?
Dr. Ajit Ranade answers, SME's contribute almost 50% of industrial employment, exports and output. but they remain in the shadows of the informal sector. i think there is an attempt to get them into formal sector. giving them access to equity market without having to go thru IPO is a welcome step. also the 3 year grace period to avail SME preferential treatment.


KORDE asked,  1)HOW GOVT CAN CONTROL OVER GOLD IMPORT? 2) HOW MUCH IMPACT OF BUDGET ON SHARE MARKET ?
Dr. Ajit Ranade answers, you can't ban or excessively tax gold import. the only way is to have low and stable inflation, and other attractive investment avenues for the common man (and his wife!) the share market is reacting excessively to the mauritius angle which is still unclear.


Ashok asked, Do you think there is any optimality achieved in tax collection and social welfare undertaken by the goverment?
Dr. Ajit Ranade answers, india's tax to gdp ratio is barely 11% when UK is 30%. even brazil is much higher. so we are not collecting taxes optimally. it is as if indians don't like paying income tax, and govt of india does not like collecting it.


rajvedic asked, Is Chindambaram a wise finance minister?
Dr. Ajit Ranade answers, he has presented 8 full budgets, only other FM who presented more was Prime Minister Morarji Desai. so i guess his track record is quite strong.


rajeshbabu asked, Dear Sir, how this budget more focus on rural agriculture infrastructure & marketing of farmers product
Dr. Ajit Ranade answers, farm credit will go up to Rs 7 lakh crore. also farmer producer companies (like common stock companies) will get direct equity infusion from govt. it is like introducing corporate sector culture among farmers, and organize them not only as co-ops but also as common stock producer companies.


GOKHALE asked, Sir I would like to ask a generalized question, how does this budget affects a middle class income group person say a person with income @ 7-8 Lakh per year? Will it be a financially different year than the earlier for him?
Dr. Ajit Ranade answers, there is a separate rediff chat for personal tax queries. i urge you all to attend that chat. this chat is mainly about policy.


lwker asked, Surcharge on tax rate has been increased from 5% to 10%. How much tax rate a company will have to pay if they were paying 33% tax ? Also , the investment allowance of 15% on capex done above 1bn is a positive but will it still be beneficial for companies like Maruti , who are setting up plants in Gujarat but also have incentives in the form of tax sops from gujarat governments ?
Dr. Ajit Ranade answers, the surcharge i believe is only for one year. the investment allowance of 15% for all new projects above 100 cr is separate from any additional investment incentives that may be given by state govts


Deka asked, Dear Sir, I dont understand the logic of this new women's bank. What purpose will it serve exactly? Does the FM want our women to be cordoned off to a special bank just the way it is in some trains where we see ladies coaches? Is this progressive thinking? The FM could have rather announced some beneficiary schemes for the women (say easier loans, increased return in FDs etc.) accessible in any bank. Why this entirely new bank and spend money in its establishment, infra etc. What do you say?
Dr. Ajit Ranade answers, in mumbai city we have separate trains for women running during rush hour. we have separate taxis run by women drivers. we have millions of SHG's all over the country only for women. parliament is thinking of passing the women's reservation bill. most states of india have 50% reservation for women in panchayats. if all this is acceptable, then there is nothing unusual about a women's bank


mahendra asked, as it was in the news that finance minister will clear the roapmap for gst and its implementation, but it didnt put any light on this
Dr. Ajit Ranade answers, GST requires a voluntary consensus among all states of India. this has taken almost 10 years. but just like we were successful in implementing VAT (from old sales tax days) i am confident that GST is coming in a year or two


Sathe asked, Can Government abolish In-Come Tax and instead introduce Expenditure Tax
Dr. Ajit Ranade answers, i don't think there's any country in the world which has abolished income tax. a good mix is a moderate income tax and a moderate transaction tax.


sai asked, Dear Sir, Is this budget has anything for the Deence and Aerospace Industries.
Dr. Ajit Ranade answers, defence has a total outlay of about Rs2 trillion. don't know separate allocation for air force. the MRO sector of aerospace has got some incentives.


Meenal asked, In the last fiscal year MANEREGA scheme utilized around 80% of the allocated budget and thus not much has been revised/allocated by PC in this year’s budget. If you see the trends of inflation graph in basic commodities, it has sustained the bad figures and it has been hovering around 10-12% from last 3-4 years. This is exactly the same time period when govt. introduced these Doles. Isnt' it adding to only inflation?
Dr. Ajit Ranade answers, i don't think MNREGA is contributing to the 10 to 12% food inflation. it's true that rural wages have gone up, but inflation also resulted from MSP hike, stagnating productivity and other things like diesel. if MNREGA funds are underutilized then it could be a sign of its "success" meaning rural people are finding other jobs


Aarthi asked, Why does the FM hike the duty on cigarettes but leaves liquor?
Dr. Ajit Ranade answers, liquor excise is taxed mainly state govts. the FM chose to tax cigarettes but left out bidis and tobacco. 85% consumption in india is in non-cigarette form


padmanabhan asked, Dear Sir, Why the interest rates are not coming down in india thus resulting in less capital investment from entrepreneurs which contributes increase in unemployment? why budget is not focus about this issue?
Dr. Ajit Ranade answers, interest rates are directly linked with inflation. so an expansionary budget with high fiscal deficit puts pressure on the borrowing system and is inflationary. the budget could have shown more expenditure compression to give an anti-inflation message


Meenal asked, The FM had promised that he will encourage foreign direct investment in this budget in order to fight the fiscal deficit which is already close to red. We already have opened the doors to Aviation and retail and still the reposnse is lukewarm. Again keeping mum for a couple of years on retrospective tax regime seems just another worry for the foreign investers. How the foreign investment can be ensured after this budget, I dint see any major step in this direction after yesterdays budget
Dr. Ajit Ranade answers, the FM recently visited foreign investors in London, Hong Kong and Singapore. As promised he has kept the fiscal deficit to 5.2% further going down to 4.8%. he has also promised more stability and predictability in tax law. that should surely comfort foreign investors. FII inflows during Dec, Jan and Feb were almost 5bn each month


Meenal asked, The FM had promised that he will encourage foreign direct investment in this budget in order to fight the fiscal deficit which is already close to red. We already have opened the doors to Aviation and retail and still the reposnse is lukewarm. Again keeping mum for a couple of years on retrospective tax regime seems just another worry for the foreign investers. How the foreign investment can be ensured after this budget, I dint see any major step in this direction after yesterdays budget
Dr. Ajit Ranade answers, the FM recently visited foreign investors in London, Hong Kong and Singapore. As promised he has kept the fiscal deficit to 5.2% further going down to 4.8%. he has also promised more stability and predictability in tax law. that should surely comfort foreign investors. FII inflows during Dec, Jan and Feb were almost 5bn each month


rythm asked, Most of the Developed Nations are in the regime of lower interest rate which I understand promotes more spending, more investment, more afforadable houses at the cost of less saving. As a Economist what would you say is the ker factor which prevents India from moving towards lower interest regime?
Dr. Ajit Ranade answers, our democratic polity has an inherent deficit bias. that causes inflationary conditions. to add to this, our capital account is closed. so money cannot freely flow from low interest rate countries into ours and vice versa. that's why we have higher interest rates


Manshur asked, As you said that underutilized MNREGA funds translates to "SUCCESS", could you please tell me what ASSETS MNREGA has produced after consuming close to 1LAKH CRORE rupees in last few years? Because a scheme like this can be measured for its success or failure only on the basis of ASSETS /failure to create the same. Any asnwers Sir?
Dr. Ajit Ranade answers, please consult the MNREGA website which has lots of details. even if no assets are created, at least employment is provided. the program has restrictions on the use of capital equipment. most asset creation need mechanization. if you think humans by getting some wages are able to eat better, then we are creating an asset called "human capital"


Kabeer asked, FM said India can become $ 5 Trln economy by 2025 i.e. another 13 years. We are $1 Trln economy today. Even if you grow at 10% you would be $3.4 Trln by 2025. How come FM's math is so bad?
Dr. Ajit Ranade answers, we are already close to 2 trn $ economy. for us to double in dollar terms in next 12 years, we just need to grow at 6% per annum. compounded growth.


Mahalingam asked, Sir, My question is not related to the Budget per se but about the burgeoning fiscal deficit. Will not the slowing economy worldwide have ripple effect on our fiscal deficit & inflation ?
Dr. Ajit Ranade answers, indian economy is quite closely linked to the global economy. total flows of funds across the border, both in and out are more than 100% of our gdp. so if the world is in a slowdown, we cannot expect to grow at 9 or 10%. achieving 7 or 7.5 itself is a healthy sign


gaurav asked, if you cant answer atlest acknowledge
Dr. Ajit Ranade answers, Hi Gaurav!


Rahul108 asked, Dear Sir, you are answering selectively, not sequentially. Why so?
Dr. Ajit Ranade answers, i have only one hour and so many questions, streaming into the screen. sorry if i have note been able to answer all qs


Dr. Ajit Ranade says, It's been a pleasure chatting with you all. Look forward to interacting again.

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