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The Rediff Interview/Prof J D Agarwal
'Budget will improve the rupee's value'Rediff Budget Chat
March 03, 2003
'Real income would go up because of the wide ranging excise and customs duty concessions. It would also facilitate employment generation because of investment of Rs 63,000 crores to be made in infrastructure,' says Professor J D Agarwal, chairman, Indian Institute of Finance.
On how the Budget will affect the middle class
It is a good budget for the middle class. Real income would go up because of the wide ranging excise and customs duty concessions. Moreoever, it would also facilitate generating employment because of investment of Rs 63000 crores to be made in infrastructure.
On the increase in basic limit for income tax exemption
The effective exemption for senior citizens will work out to be Rs 1,83,000, which is a big relief to the senior citizens. Social security measures through the pension schemes and insurance have also been provided to help the middle class families and those who belong to lower middle class families.
On how he rates the Budget
The budget presented by Jaswant Singh is excellent and full of vision. The budget would raise the quality of life, is non-inflationary, generate employment and be growth oriented. I specially appreciate the concern shown by the finance minister for the health of the people. The Budget would result in deepening the process of economic reforms and globalization through private public sector partnership and rationalization of taxation. It would increase the global competitiveness of Indian industry and revive capital market marginally. The Budget is geared to motivate expenditure to boost demand for goods and services through reduction and rationalization of central sales tax, excise and customs duties. It would also help India in technological upgradation.
On the need for additional private airports
This is to give boost to private-public sector initiative and involving private sector in the investment of infrastructure in the country. Although economic reforms, privatization and globalization began in 1991, yet it could not attract sufficient investment from the private sector in the infrastructure development. And this is one better way of getting out of some of the areas for the government to concentrate in social sector, by involving private sector in mega projects such as building of airports.
On the reason for the decrease in price of liquor
India needs to be a part of globalized world. And in order to meet the challenges which are likely to come across under the agreement of WTO it is necessary to adjust excise and customs duties on all such items including alcohol. Moreoever, it is also necessary that while custom duties are reduced an appropriate level playing field is provided to the domestic industrial units.
On the hike in petrol prices
Petrol prices are now market determined and therefore the question of increasing or decreasing largely depends on the market forces. A cess of 50 paise per liter on diesel is to primarily raise Rs 2600 crores to built up rural roads that will also help to exploit the resources that are available in rural areas besides providing them the necessary infrastructure facility and also generating employment in the rural sector of India.
On the reduction in interest on savings by 1 percent
A reduction of 1 per cent may not much affect to each individual who has subscribed to PPF but it would provide much needed relief to the central government, industry and the economy. And therefore it is to be viewed in this perspective.
On the fiscal responsibility shown by the Government
The finance minister has time and again in his speech talked of fiscal consolidation through the process of tax reforms, resource mobilization and expenditure control. When the finance ministry is seized with this issue that itself means he is careful about fiscal responsibility.
On the Budget's impact on the Indian economy relative to the international market
I think the Indian economy would get globalized and march ahead at a faster pace with the proposals presented today. The repayment of $3 billion loan bearing high interest rates and introducing debt swaps and proposing to help weaker and poorer nations with loans and aids clearly indicates finance minister's concern of India in the international arena. It is clearly visible that in the last one quarter, Rupee has largely stabilized, rather gained by two per cent against the dollar in value, in comparison to a depreciation of four per cent last year. The stability of the rupee and rather gaining strength indicates the financial strength of India and therefore it may not be appropriate to say that rupee is going to perform worse in the coming days. Moreoever, even in the two quarters of this year and last year the rupee depreciated because of excessive intervention of RBI and other banks to keep the value of rupee low.
The Budget would improve the rupee's value.
On whether the dividend distribution tax will keep companies from paying dividends and therby result in mismanaged investments due to excess funds on hand
This was a popular demand by the industry and a few others. As a matter of fact restoring the distribution dividend tax this year after abolishing it last year and exempting the individuals from paying taxes, in my opinion is not a correct policy. It tantamounts to double taxation. Once we are taxing corporates when they earn and then again when they are distributing. This anomoly was introduced by P Chidambaram while presenting budget and continued till last year when it was resolved. This is again be restored.
On benefits given to in service and ex-servicemen of the army
Some concessions are being considered for the corporations being set up by the central and state governments for the ex-service men. And which would be tax exempt. And there is some provisions for pensions which were meant for goernment officers to be available to Amry men as well as self-employed people. LTC has been restored from the current year.
On whether the Budget is customer friendly
Yes. The budget is people friendly, as well as customer friendly. The wide ranging deductinos in excise, customs, reduction in Central Sales Tax and removing the harrassment caused at the tax department makes the budget customer friendly. I think this budget is growth oriented and may give us a growth rate of over six per cent next year provided there are no natural calamities like the drought of this year.
On whether the Budget is inflationary
The budget will not be inflationary because of heavy reductions in excise and customs duties. The government is going to raise funds through innovative ways, moreover when the excise duties and customs duties are raised and praises go down the turnover goes up, yielding more revenue to the government.
On whether there are any changes in raising of External Commercial Borrowings by corporates
No changes. Rather there is a partial capital account convertibility introduced in the current budget allowing Indian corporates to invest abroad thorugh an automatic route.
On how the budget will affect small industries, especially in the unorganised sector
The government has de-reserved 75 areas which were earlier reserved for small scale sector. The government is contemplating introducing measures for workers of unorganized sectors. Larger investment by private as well as by government will give a boost to the unorganized sector to provide necessary ancillory facilities.
On the increase in fertilizer prices, despite the drought
The economic survey has outlined that the burden of food, fertilizer adn LPG subsidy has been very high on the government finances. Accordingly, the government has tried to reduce its subsidy burden by raising the price of urea.
On how the Budget will affect the stock market
The finance minister has shown his concern to provide some relief to the stock market. The capital gains tax on investment in equity from April 1 has been exempted from tax. Similarly, the Capital gains on corporatization of stock exchanges has also been exempted from tax. In order to motivate people invest in mutual funds some concerns have been announced. Moreoever, reduction in the interest rates of PPF may divert some of the funds to the capital market.
On the mesuares taken to encourage foreign participation in Indian IT sector
The government has increased the equity participation from 49 per cent to 74 per cent in case of private banks so as to improve the quality of banking in the country. The customs duty has been cut on telecom and IT to 15 per cent from 25 per cent so as to attract foreign investment and also motivate domestic industry to invest in IT sector.
On the decision that high interest government bonds would be bought back from banks
In order to reduce interest burden of the government this is the usual practice adopted internationally to buy back the high interest bearing debts and or to replace them with low interest rate bearing debts. There has been a drastic change with increased liquidity with the banks that the banks were investing in government securities/bonds to increase their own yields. It is actually very thoughtful of the finance minister to adopt this measure.
On the steps being taken in the budget to uplift agriculture production rate which could boost GDP
It is correct that the GDP slipped to 4.4 per cent because of the agriculture. Industry and service sector have shown buoyancy. But the agricultural growht rate has been affected because of unprecedented drought conditions which prevailed in more than 3/4th of the states in the country. If these conditions had not occured the GDP growth rate would have been quite high. Fortunately, as the stocks of the food grains is sufficiently high, the drought conditions and production would not adversely affect the economy in terms of provision of food grains.
On if VAT (value added tax) will now completely replace ST (sales tax)
This has already been agreed that VAT is to be introduced from April 1, 2003. It will replace sales tax in all those states who would be able to implement VAT from April 1.