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What the FM may say

P Vaidyanathan Iyer | February 03, 2004

Finance Minister Jaswant Singh can always spring a surprise. And when the economy is on a roll, particularly in an election year, he can rightfully elaborate on his initiatives to spread the feel-good factor across all segments of the electorate.

In doing so, he may well exceed the 10 to 15 minute time-frame which Parliamentary Affairs Minister Sushma Swaraj said Singh would take to speak on the vote-on-account day.

But what does one expect from a finance minister at this moment? A populist hour-long speech doling out sops to woo voters or a more pragmatic approach in the form of a terse address to Parliament seeking its approval for government expenditure in the first four months of fiscal 2004-05?

The interim budget cannot propose any changes in direct tax rates. But Singh will have the liberty to extend sunset clauses for exemptions that lapse with the end of the current fiscal, and raise income-tax exemption limits for salaried individuals.

Further, senior leaders like Jagmohan and LK Advani are also pitching for a merger of the dearness allowance of Central government employees with their basic salary.

Singh may well yield to the temptation. With upward revisions in gross domestic product (GDP) forecast by major research outfits, the growth target for the next fiscal too may be about 7.5 to 8 per cent.

While the ministry usually avoids involving itself in the growth forecasting business (which is largely the domain of the Central Statistical Organisation and the Reserve Bank of India), it does assume an implicit nominal growth rate in estimating the deficit figures for the year ahead.

The finance minister may also continue with his indirect tax giveaways. While his mini-Budget earlier in January meant foregoing revenues of about Rs 10,000 crore, it definitely brought cheer to trade and industry.

Chambers of commerce and industry welcomed his decision to reduce the peak customs duty to 20 per cent and the abolition of the special additional duty besides cutting excises on several items.

Singh could have waited for the vote-on-account to announce those cuts, but perhaps he has armed himself in the interregnum with more ammunition to fire on D-day.

Let's first look at the major moves he will skip today. Singh will not cut the administered interest rate on small savings despite the sharp fall in the average cost of government borrowings.

In the current fiscal, it has fallen over 100 basis points from 7.34 per cent during the last fiscal. The government has been able to borrow at less than 5 per cent this year. But, a cut in small savings rate, will have to wait for the regular budget.

A change in corporate and income tax rates is also ruled out. The much-debated alignment of the corporate tax rate (35 per cent now) with the personal income tax rate (30 per cent in the highest income slab) will also wait. All the exemptions, including those on small savings and the minimum alternate tax, will remain.

If good economic sense prevails, he will also not opt for the merger of the dearness allowance (DA) with the basic pay of government servants.

This will not only result in an additional expenditure of about Rs 2,500 crore for the Centre, it will also prompt states to do the same, raising the total cash outgo by over Rs 12,000 crore, according to finance ministry estimates.

Now, what will he or he may do. In his maiden Budget, he had halved the special excise duty on cars, tyres, soft drinks, air conditioners and polyester filament yarn to 8 per cent from 16 per cent.

He may continue with the move to gradually phase it out by cutting it to 4 per cent in the interim Budget. It will result in immediate benefits to urban consumers in the form of cheaper cars and ACs, adding to the feel-good factor.

Singh may also pick up specific sectors like steel to direct certain excise relaxations. To give a fillip to exporters, he may concede to the demands of his commerce and industry counterpart Arun Jaitley, by facilitating easier access for export credit and extending the sunset clause of Section 80 HHC which expires on March 31, 2004 to exempt export profits from any tax.

As said earlier, Singh is capable of springing a surprise. Economics, by his own admission, can never be delinked from politics.

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Number of User Comments: 3

Sub: about media talk of budget

i never understand why media always opposes any benefit to govt employees. they support the reduction of duty on Ac, cars, and mobiles but not ...

Posted by rajesh

Sub: DA for Govt Employees

Already the Govt employees are the most pampered lot enjoying higher salaries than their work culture and work efficiency. In comparision the employees in the ...

Posted by r.p.khanna

Sub: Finance

The finance minister should not increase the price on Computer goods and Automobiles

Posted by Pinakin A. Chaubal


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