I have great respect for Pranabda. But this Budget, especially for the corporate sector, has been a letdown. It is hardly likely to spur growth. Because it penalises the productive sectors of the economy and turns a blind eye to the gross waste of public money through non-merit subsidies and also other subsidies which are inefficiently implemented.
The economic situation is difficult. The fiscal deficit needed to be reined in. But raising indirect taxes (even to earlier levels) while leaving subsidies untouched sends out a wrong signal. It is this signal that is worrying.
The optimism about a higher growth rate appears wishful thinking. Growth in 2012-13 is likely to be at best marginally better than in 2011-12. Our interest rates and oil prices are high and there is a stand-off brewing with Iran. The steep inflation and the high rates of interest have broken the back of demand. Even if going forward inflation is lower, or statistically lower due to a high base effect, purchasing power has been eroded. The global economic situation is fragile. I would back the RBI’s view of the economy rather than the Finance Ministry’s.
Of course there are positive features in the budget. Moving to a negative list of services is one such feature. Continuing to incentivise R&D activity is another. Also, the fillip to the coal and power sector. Reduction of STT is welcome, so are the steps being taken to check transfer of funds abroad. There are a fairly large number of items in fine print that are positive for the financial sector in addition to the hope about capping subsidies at 2 per cent in 2012-13.
But the tendency to tinker in some sectors is in my view unhealthy. Why raise import duty on bicycles when the trend is to hold or reduce import duties? This means there continues to be room for arbitrary discretion.
A disturbing feature of the budget is amendment of Section 9 of the Income Tax Act retrospectively from 1962 even to clarify what may have been the intention of the legislators. Even the Supreme Court took a view which was the same as that of the corporates.
On services, I find that higher education may come under service tax. We in India have an issue with employability of graduates. Addressing those issues may make such services taxable even within colleges. Do we want better students or higher taxes? On the one hand we incentivise skill development. On the other we disincentivise it. This is disturbing. I would urge reconsideration of this issue.
Also, to raise resources, though there would have been some opposition on moral grounds, an amnesty scheme for declaring unaccounted money in India and especially abroad could have been announced, one last time. The laws and circumstances in Switzerland and other safe havens are conducive for this purpose. The entire amount declared should be taxed at the highest rate
of 30 per cent. Simultaneously, a law should be passed that in
future if any such amount is detected, especially abroad, then the entire amount will be confiscated.
The political and economic situation is difficult. Satisfying all constituencies is getting more and more difficult. So, I was not expecting a reformist budget. But this budget leaves me with a sense of disappointment.
Bajaj is Chairman, Bajaj Auto