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Let us sustain growth, not votes - Views on News from Equitymaster
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  • Feb 3, 2004

    Let us sustain growth, not votes

    'India shining' is the theme the government is using to project the feel good factor across the country. And in this light, the 5-year old NDA government is set to present its interim budget today. Some measures that have been announced by the government in the mini-budget on the 13th January have been quiet populist in nature and understandably so, with the elections round the corner. The government has made major concession in the indirect taxation regime as well as made life simpler for the common man by easing the procedure for filing returns. So what can the common man expect from the interim budget?

    Without speculating on the announcement, reports suggest that one of the proposals that the finance minister is looking into is to raise the standard deduction slab. Currently the standard deduction slab is Rs 50,000. The proposal is to raise it to Rs 75,000 or even Rs 100,000. The rationale seems to be to encourage the domestic consumer to keep up the tempo of spending more. We can also expect a continuance of the tax benefits on housing loans as well as dividends paid out by companies. But the question here is whether in the quest to woo the electorate, the government may neglect key policies that are required to maintain the GDP growth that is being observed in FY04. Generating adequate number of jobs should be the primary objective of any government at the central or state levels.

    Taking this issue into consideration, the government's efforts to increase the quantum of investments in the country, mainly through the FDI route have fallen well short of expectations. FDI plays an important role for developing countries like India, as they generate employment for a larger section of the society. While the government has initiated moves to hike FDI limits in various sectors, the measures have been rather half hearted. For example in the telecom sector, FDI norms are still to be eased. In the banking sector, on the other hand, while the FDI limit has been raised, the issue of voting rights has been still left unresolved. The power sector, albeit liberalized to a large extent, is still not attractive enough to attract large FDI capital. Power, being the most basic infrastructure requirement, is still lacking enough investments. To put things in perspective, the Chinese power sector saw an output of 1.6 tr (1999) units of electricity compared to 448 bn units (FY00) produced by the Indian power sector. One can clearly see what drives the Chinese economy.

    The government has done well to ease the burden of the common man as well as the industry by restructuring the tax and duty slabs. However, the need of the day is not to protect one's vote bank but to make sure that the growth that India has seen in FY04 is sustained over a period of time. Lets hope that the government concentrates more on infrastructure projects as well as higher quantum of FDI (in infrastructure as well as other areas) in order to sustain the growth momentum as well as create adequate amount of jobs. While measures over the last five years have been promising, one only hopes that the momentum is accelerated.



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