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Budget 2007-08: What India wants... - Views on News from Equitymaster
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  • Feb 19, 2007

    Budget 2007-08: What India wants...

    This article was originally written in February 2006 and has been reproduced with necessary updates.

    Each year, from about the middle of January, the people, regardless of their stature or knowledge, get caught in the whirlpool of anxiety about the 'possible' announcements of the Finance Minister in the impending budget, which is generally released only at the end of February.

    During this period, a flurry of guesses, both educated and uneducated, are made and even a small remark of the FM is dissected and analysed threadbare by the pundits and finally blown out of all proportions. Then follows a stream of advises as to what should be included and what not. All this while, the stock markets, the barometer of the economy and policy making (in some ways), add a measure of nervousness to the already 'feared' atmosphere.

    In these times, thus, when one would find a flurry of 'wish lists' from industry association, here is what Equitymaster proposes to the FM for him to dispose in the budget for 2007-08. The wish list is only indicative and not exhaustive.

    Government should live within its means: As seen in the past budgets, the government estimates its expenditure first and then decides upon the means of raising resources to meet the same. Ironically, this was done with the faith that 'something will come'! For a developing economy like ours that is starved for infrastructure, it is agreeable if the government spends money to ease bottlenecks for the economy. That said, we now wish for the FM to create an environment where the government lives within its means. This will be done, first and foremost, by reducing the size of the bloated bureaucracy. Not only will this improve the efficiency of the government departments, it will also free resources that can be used for relatively higher productivity work.

    The robustness of the Indian economy has helped the government rake in a strong 'revenue' growth in the past year through higher tax collections (corporate, excise, customs, etc.), which is seen in 'lower' deficits. However, sustainability of the same (reducing deficits) will be a factor of the government living within its means and, thus, controlling 'wasteful' expenditure

    Create an environment that fosters entrepreneurship: Through the Employment Guarantee Scheme (EGS) announced in the budget of 2005-06, the FM opened another area that can breed corruption. We already have high levels of this malice in schemes like the public distribution system (PDS) and provision of power and fertiliser subsidies. The EGS, if not implemented for the true sense of benefit that is envisaged, can turn out be a breeding ground of corruption. In this light, we wish for the FM to create an environment that fosters entrepreneurship by further opening up the economy. This could be done through an easy availability of credit for young 'to-be-entrepreneurs' and removing regulatory hurdles. We have seen the benefits of the same in various sectors i.e. telecom, aviation and select financial services. Employment opportunities, in the long term, is a function of the government playing the 'governing' while the corporates play the 'business' role. Like it is quoted, 'the business of the government is government' and 'the business of business is business'.

    Invest in human development: While factors like acquaintance with the English language and high levels of technology skills will play a very vital role in the growth of the Indian economy, sustenance in this growth can only be brought about by addressing basic needs of the populace. India has been a laggard on some of these human development factors. Also, due to a huge workforce and inability in proper distribution of wealth, a large proportion (around 35%) of India's population is poor. These factors, if not taken proper care of, are likely to ruin India's chances of building up a solid and sustainable growth model for the future. We, thus, wish for the FM to balance decisions between rural and urban development and invest more towards human development initiatives.

    Fix the tax regime: We wish from the FM to fix the tax regime for all its complexities (and unending schedules). Also, we wish for the FM to fix the tax rates for the next three years so that the budget does not keep around 1/6th of the human race on tenterhooks every January and February. Tax rules need to be simplified so that the common man is not at the mercy of the tax department for clarity on how much is he liable to pay 'this year'. More importantly, tax administration, which has been poor over the years, require a serious consideration in this budget.

    As the noted constitutional lawyer, (Late) Mr. Nani Palkhivala once said, "It is my firm conviction that no nation living today or which has flourished in the past would remain honest under the giddy rules and rates of direct taxes which prevail today in India. Our people, like any other, fall under three segments:

    1. those who would be honest however heavy the burden,

    2. those who would be dishonest however light the burden, and

    3. those (and they constitute the overwhelming majority) who are basically not dishonest but the nature of whose response to the law is conditioned by the quality of the law"

    We believe that our tax legislation ignores the first class, is preoccupied with the second, and alienates the third. This is all we wish from the FM, as he is about to rise and present the union budget. Over to him!



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