Home > Money > Budget > Budget News & Analysis MARCH 1, 2002 | 14:25 IST    Feedback 


     
Interviews
Business Headlines
Corporate Headlines
Columns


 Portfolio Tracker
 

  My Portfolio

The Union Budget 2001-02
Economic Survey 2000-01
Exim Policy 2001-02
Credit Policy 2001-02
Railway Budget 2001-02
Budget Tutorial
Budget Process
Budget 2000-01
Budget 1999-2000
 



'Budget reiterates govt's commitment to move forward on reforms'

Pradipto Ghosh

The Budget has been prepared under difficult and domestic circumstances of slowdown in growth. Nevertheless, it strongly reiterates the government's commitment to move forward on economic reforms.

The Budget includes several measures to increase employment, reduce poverty and reduce fiscal deficit. In particular, it includes several reform measures in agriculture to enable this key sector to accomplish its third revolution- after the green and white revolutions, a revolution in food processing and crop diversification. It also seeks to increase investment in key infrastructure areas and corrects distortions in several sectors including textiles, steel, etc.

We have to understand that the earlier subsidy regime for LPG and kerosene was simply not fiscally sustainable. A basic point is that subsidies are not a 'free lunch'. The more we spend on subsidies, the less is there for schools, hospitals, roads, power, housing, agriculture, and the like.

However, even with the Rs 40 increase in LPG price, there is still a 20 per cent subsidy. The continuing subsidy on LPG and kerosene will have to be met by surcharges on petrol and diesel. The price drop in their case after APM dismantling could have been higher if resources did not have to be raised for the kerosene and LPG subsidies.

The Prime Minister's Office provides technical support to the prime minister. All key Budget proposals are cleared with the prime minister and his own priorities and directions are reflected in the Budget. The PMO also consolidates Budget suggestions received from the industry and stakeholders.

The provisions of Chapter XXC of the Income Tax Act which require a clearance to be obtained from the Appropriate Authority before registering a transfer of an immovable property is to be abolished.

A number of factors determine the growth of the Indian economy in a given year. First, are the structural factors, which determine the trend rate. The main object of economic reforms is to accelerate the trend rate. Second, are cyclical factors, which in India's case are complicated by the idiosyncratic nature of the monsoon. Third, is the external environment, which currently presents a mixed picture.

While there is slowdown in our main trading partners, oil prices are relatively low. I believe that barring major shocks, internal or external, in the coming year we should start seeing serious payoffs on the reforms already accomplished. I predict a GDP growth rate of 6 per cent plus in the coming year.

There is no change in excise rates on motorcycles. However, price changes may occur through indirect effects. For example, because of lower petrol prices, demand for motorcycles may rise, and this may translate to a price increase. On the other hand, due to several concessions for inputs to the steel and non-ferrous metals sectors, the cost of production may fall. In the net I would expect to see a small, but perceptible drop in motorcycle prices, but perhaps only after a few months, as the indirect effects begin to kick in.

Currently, dividends from companies or mutual funds are taxed at source at 10 per cent and the dividend income is exempt in the hands of the recipient. The change in the Budget is that taxation of dividend will be done away with and it will be taxed as any other income of the recipient.

About the investment climate, there are several explanations for the depressed investor sentiment, but perhaps the most plausible is that after the termination of the industrial licensing regime in the early 1990s, there was a surge in investor sentiment which led to sharp increase in investment, which in turn, led to overcapacity in many sectors.

Currently we seem to have emerged from the trough, as evidenced by the pick up in the GDP growth rate in 2002-03. The Budget contains several measures to improve investor sentiment as well as increase aggregate demand. I believe that in the coming year, we should see a turn around in the investment climate.

Pradipto Ghosh is additional secretary (economic advisor) in the Prime Minister's Office.

YOU MAY ALSO WANT TO READ:
The Rediff Budget Special
The Rail Budget 2002-03
The Economic Survey 2001-02
More Budget Stories
Money


 
  © 1996 - 2002 rediff.com India Limited. All Rights Reserved.