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Home > Business > Budget 2003-2004 > Special

Jaswant to balance reforms and elections

February 27, 2003

In his maiden Budget to be presented on Friday, Finance Minister Jaswant Singh will be seen doing tight rope walking between the conflicting concerns of reforms and elections.

Singh has been on the balancing wheel for some time now, conferring with aides, sounding out ministerial colleagues and ensuring that his boss, Prime Minister Atal Bihari Vajpayee is happy with the poll thrust he imparts to the Budget 2003-04.

Faced with a distressingly low economic growth of 4.4 per cent for the current fiscal, Singh's prime concern will be to rejuvenate growth- a task that often entails harsh and unpleasant decisions. A ''feel good'' Budget after all is about stimulating investment.

The Budget is likely to focus on tax reforms and give a boost to the manufacturing sector. Some of the recommendations of the Kelkar Committee are likely to find a place in the Budget. Even the Economic Survey, presented to Parliament on Thursday, makes a strong endorsement of the Kelkar Committee's recommendations, as they would spur revenue. Nevertheless, indirect tax reforms may not get the same prominence as direct tax reforms.

According to experts, Singh may propose modest changes in personal income tax and readjust some slabs in a way that meets revenue ends.

However, those of Kelkar's proposals that turn off voters may either be toned down or shelved. Agricultural tax is an obvious case in point.

The Survey, which is watched for clues to government policy-making, has identified future areas of reform. It calls for linking small savings rate with the market, cutting subsidies, further liberalisation of capital account, easing of the foreign direct investment regime and stepping up of the divestment process to achieve fiscal consolidation and efficiency gains in the economy.

It stresses the need for bringing down the customs duties to make Indian industry competitive and suggests de-reservation of the SSI sector, simplification of procedures relating to the exit policy and undertaking the long-pending labour reforms.

Experts say duties on finished imported goods will come down, though not by the same degree as the outlined roadmap. This could check cheap imports and give India Inc breathing space.

So much for growth, but the votes too has to come. For this, he will address himself to the unorganised sector, where 80 per cent of the voters reside.

One can expect a host of popular programmes. This could include a scheme for the girl child with an expected corpus of Rs 140 crore (Rs 1.4 billion), Rashtriya Sam Vikas Yojana for accelerated development of less developed areas of the country with a large corpus of about Rs 1,500 crore (Rs 15 billion), Rural Water Supply Programme to rejuvenate about 100,000 traditional sources of water and drinking water to about 100,000 primary schools.

Experts are expecting the launch of the prime minister's Grameen Jal Samvarhan Yojna to improve ground water recharge to help ground water harvesting and also strengthen traditional water harvesting sources. The prime minister's Gramodaya Yojna and emphasis on rural electrification programme are likely to continue.

The other programmes that have a thrust on growth and equity and are likely to find a place in the Budget, include the launch of Urban Infrastructure Fund and completion of irrigation programmes. The programme of modernisation of state highways and Accelerated Power Development Reform Programme will continue, experts say.

What else is in the air? Experts would want the Budget to be more supportive of senior citizens and suggest that Singh announce an interest income protection scheme for the elderly.

There is talk that the government will not fix any divestment target in the Budget as the money from the sell off will no longer go to the Consolidated Fund of India, but rather to the divestment proceeds funds, which will be set up under the ministry of finance.

Last year, the government had set a target of realising Rs 12,000 crore (Rs 120 billion) from the divestment proceeds but managed to get just more than Rs 3,400 crore (Rs 34 billion). This is not the first time that the divestment target has not been realised. The government in the last few years has not been able to meet the target.

Concerns of the loss of face from the lack of realisation may compel the government to be silent on the divestment target.

There are reports that car makers are preparing to roll out a host of new models after the Budget in which they expect to profit from a rash of duty cuts. Ford will launch the multi-utility car Fusion, Maruti will launch sports utility Grand Vitara, while Hyundai will pull the wraps off its promised small car Getz and General Motors is to bring to the market its popular multi utility vehicle, the Isuzu Panther.

Notwithstanding the bold assertion of the Survey that a possible United States-led war against Iraq would not affect the growth prospects in the coming months due to record foreign exchange reserves and strong domestic demand, the fact of the matter is that no other finance minister in the past has had to grapple so much with external factors while framing the Budget.

To some extent, his predecessor Yashwant Sinha had to do that after the East Asian crisis and India's nuclear programme, but this is small change compared with what is happening now.

And yet things have changed on the way we used to think about the Budgets. Thanks to World Cup cricket, the war in Iraq and pre-occuption with issues like Ayodhya temple and cow slaughter in Madhya Pradesh, the concern about Budget proposals is even less. The only discussion is about elements of the Kelkar Committee recommendations on personal income tax.

But the truth of the matter is that Budgets are more than just tax policy and certainly not just direct taxes. Budgets have been used as an instrument of wide-ranging policy reform. Singh is expected to make some policy statements regarding agriculture, tourism, World Trade Organisation issues and infrastructure.


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