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4 reasons why FM deserves full marks

February 28, 2005

Yes, Finance Minister P Chidambaram deserves full marks for presenting what is probably the most forward-looking budget in many years. If implemented as proposed, this could be a major step towards taking India into the next phase of economic growth, supported by higher rates of savings and investment.

Why does PC deserve full marks?

Here are four reasons:

  1. The FM has taken the first step towards restructuring the income tax structure for individuals. This is an area, which usually evokes high emotion when tinkered with. Prima facie, the FM has been able to restructure it to everybody's benefit. Try and beat that!

  2. Efforts are finally on to bring two thirds of the population, which is currently dependent on agriculture and related activities into the mainstream of economic development. As benefits of these new initiatives trickle in, overall economic activity will get a significant push.

  3. Amartya Sen has often mentioned that long-term growth in India will require progress on three issues � health, education and land reforms. The FM has made significant progress, at least in terms of allocations, to the first two. Again, if implemented well, the benefits of these initiatives will have a significant impact on the long-term growth of the country.

  4. Finally, by lowering import barriers and rationalising domestic duty structures the FM has set the stage for a more competitive domestic economy. Such productivity/efficiency benefits will have a significant impact on individual incomes in the future.

This budget is not without controversial proposals though. One such proposal is to tax cash withdrawals of over Rs 10,000 per day at the rate of 0.1%.

While the FM is at pains to explain that the aim of the proposal is to curb the flow of unaccounted for (or 'black') money, it will do little more than increase the paperwork of the income tax department.

If we were to bet on which budget proposal will be rolled back or modified, this would be it.

In totality, however, the FM has done a brilliant job in walking the tight rope of managing expectations, giving sops and raising expenditure while at the same time keeping the fiscal deficit in check.

The stage has been set for 'Bharat Nirman'. Now its over to the ministers and bureaucrats to implement these proposals. One only hopes that the past does not repeat itself with respect to the 'execution' of these plans.

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