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Rediff.com  » Business » 'Budget is about growth, not anti-inflation'

'Budget is about growth, not anti-inflation'

Last updated on: March 03, 2010 14:49 IST

MoneyThe Budget announcements have been made. The finance minister changed the tax slabs giving more money in the hands of the people. However, he also hiked duty on petroleum leading to a fuel price rise.

The entire Opposition walked out of the Lok Sabha in protest terming the Budget 'inflationary'.

What effect will the Budget have on food prices? And on prices of other things? Has the FM given with one hand and taken away from the other?

During a chat on rediff.com on Wednesday,  Ajit Ranade, chief economist, Aditya Birla Group, replied to many such queries.

Here is the transcript:

Ajit Ranade says, Hello everybody


ndeepn asked, Does this budget measure up as a Growth Budget? or is it simply a Feel-Good budget?
Ajit Ranade answers,  at 2010-03-03 13:11:35yes it is a pro-growth budget because income taxes have been cut and some capital spending has increased. incentives have been given for investements in certain sectors. it is a feel-good budget in the sense that taxes were cut even when they were not expected.
Pran asked, A famous columnist wrote recently that in the FinMin the Gladstonians have returned. Your comment please.
Ajit Ranade answers, Gladstone philosophy (named after a famous British PM) says that you must have balanced budgets and less government. our present union budget did have fiscal consolidation as its theme. but i think we are far away from balanced budgets, and small government
mukul asked, India's exports are sen rising in recent times. So is the worst behind us?
Ajit Ranade answers, Exports depend on the health of the global economy, which is still in recovery mode. So we will have to wait and watch to conclude that exports are on sustainable growth.
nixon asked, Ajit Sir , do you think that this budget will keep inflation in control?
Ajit Ranade answers, this budget did not have any explicit anti-inflation stance. in fact increase of excise taxes, as well as, increase in petrol and diesel prices is going to be inflationary. another anti-inflation measure could have been sharper expenditure cuts. so this budget seems to be much more about growth and not so much about anti-inflation.
rmsondur asked, Hi Ajit, Is DTC really a good measure? Will it not impact the retired folks hard?
Ajit Ranade answers, DTC is the first revamp of income taxes in the last 50 years. its going to cut corporate taxes from 34 per cent to 25 per cent -- a huge reduction. as for retired folks, it will hit adversely since retirement benefits will be taxed. but this will be done in gradual steps so people can plan accordingly.
gpai asked, Whats the logic of increasing excise duty on petro products, Is it in some way good for the economy long term or short term?
Ajit Ranade answers, Repeated deficits are eventually inflationary and growth-reducing. hence to cut the deficit, you either raise taxes or reduce spending or both. increasing excise duty on petro products must've been a tough choice. but since it is modest, especially compared to rise in crude oil prices it must have been one of the least worst options. if it leads to a lower deficit, it will benefit the economy.
mantu asked, How about Housing loan Intrest componenet benifit. Will it be same as 1.50 L. I am afraid they will remove this benifit from next buget is it so
Ajit Ranade answers, given the inflation and large deficit, interest rates on housing loans will most probably increase. i think the 1.5 lakh deduction has been left unchanged (but please check the budget documents)
Angad asked, The FM has been talking of fiscal consolidation, while on the other hand he is also talking about more expenditure in various sectors. How will he balance this? The tax sops he has given as being taken care of thru the petro price hike, but what about the rest of the money? Where will that come from?
Ajit Ranade answers, Any budget is a delicate balancing act between spending compulsions and the need for fiscal restraint. so its not surprising that the FM had targets for reduction in fiscal deficits but also announced increase in expenditure in various sectors. Since Indian economy has strong growth prospects, that will partly mitigate the deficit problem.
GaneshNadar asked, Are you happy with this budget?
Ajit Ranade answers, Hi Ganesh. yes indeed i think this budget gets 8/10. because a) tax cuts b) fiscal consolidation c) some reforms, like new banks and coal sector reforms
Mani asked, Hi, I came to know the budget proposed a new Service tax on purchase of flats. I did purchase a flat in Feb 2010, but the construction is going to complete only on June 2010. Do i have to pay the service tax? If yes what is the percentage that i have to pay? Is it on construction cost?
Ajit Ranade answers, purchase of new flats will attract roughly three per cent of the value of the flat as additional service tax. if you have made part-payment already that may not be subject to this service tax. but please consult a tax expert.
amit asked, we saw in the budget that govt is just increasinig the amount of NREGA AND SARBA SIKSHA ABHIYAN but they are not looking the loopfalse of the scheme i think the schemes are good but the implementation of the scheme are not good GOVT must take some strict steps to make the scheme good for the poor people
Ajit Ranade answers, the deficiencies of NREGA and SSA are reducing, thanks to more vigilance and application of RTI. Secondly a good idea with bad implementation should not be rejected outright. you must find a way to make the implementation better. amaratya sen had said 'the best should not be an enemy of the good.' which means what is good enough should not be rejected because we do not have the best yet.
surajj asked, do you think farming sctor got its dues in this budget? The % alocation has not improved as anticipated
Ajit Ranade answers, farm credit has more than doubled in the last three years. this FM increased allocation even further. but farming needs many other things beyond credit such as water, electricity, R&D etc. the farm sector continues to be the most challenging in terms of not having met its growth potential. our farm yeilds are much below even our asian peers, including sri lanka and pakistan.
vikas asked, Don't you think that by reducing the income tax rates, simplyfying the process we can control generation of black money and at the same time get more tax and boost up the economy?
Ajit Ranade answers, black money exists because either a)people want to evade taxes or b) people want to do illegal things (like selling RDX). when tax rates go down the incentive for (a) goes down. i think the black economy in india is roughly 20 per cent.
kgk asked, Is there any impact on BPO and IT service industries in this budget and considering the fact that US is against outsourcing
Ajit Ranade answers, the tax holiday on BPO/IT (Section 10 A and 10 B) is over. further, MAT (Minimum Alternate Tax) has been increased. So those are negatives. But BPO/IT can still move to SEZs (Special Economic Zones). Besides, the domestic business for IT industry is increasing so they dont need to depend on exports alone.
ganpatitrading asked, According to you what should be the subsidy machinsim for Urea and what are the difficulity for Govt to implement it?
Ajit Ranade answers, Fertilizer subsidy works best if it is given directly to the farmer. but the main challenge is to accurately identify the needy and the poor farmers. hopefully introduction of UID will help us meet that challenge.
anon asked, Has the clean tech sector (apart from solar, which saw a lot of promise) got due focus in this year's budget?
Ajit Ranade answers, yes of course. apart from the incentives for solar and wind energy, the Rs 50 per tonne cess on coal as well as the increase in taxes on petrol and diesel can be seen as a carbon tax against fossil fuels.
PARAG asked, Hi ,Ajit there have been reports of rift between RBI and FIN Min on issuing banking licences to industrial houses and NBFC's ..whats your take on this
Ajit Ranade answers, Read the Business Line of Sunday for the RBI position on the issue of new banking licences. since india is still substantially under-banked economy, we do need to expand and deepen the banking sector. we also need a lot of fresh capital to flow into this sector.
puneetshukul asked, Hi,is this budget manufaturing friendly?
Ajit Ranade answers, India's share of manufacturing is barely 17 per cent of GDP and needs to go up substantially. given that we are moving to GST and eliminating the double cascading taxation of excise this can only benefit manufacturing. but mere budget policies will not be enough. many more things have to fall in place eg. infrastructure, power, blue-collar skills, labour laws, lowering cost of capital etc.
Ajit Ranade says, Thank you all for your questions. Wish you a happy and prosperous New Fiscal Year!