The Hindu : Jaswant Singh's skilful exercise

Online edition of India's National Newspaper
Monday, Feb 09, 2004

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Business

Jaswant Singh's skilful exercise

With an improved budgetary position and ample availability of forex and rupee resources, a determined bid will be made to cheapen credit to the agricultural sector, particularly the farmers.

THE INTERIM budget for 2004-05 presented to Parliament by Jaswant Singh, Union Finance Minister, for seeking a vote on account is somewhat different from those formulated on earlier occasions. Indeed, Mr. Jaswant Singh has attempted to grant concessions in excise and import duties on two occasions prior to the presentation of the interim budget, which will involve a loss in revenue to the extent of Rs.10,000-12,000 crores in a full year.

Even in the current financial year, gross tax revenues may be affected adversely to the extent of Rs.2,500-3,000 crores. These significant reductions in indirect taxes, though somewhat unusual, have been effected for complying with the provisions of the World Trade Organisation.

It was also indicated that assessees having incomes less than Rs.1.50 lakhs annually would not have to submit their returns for 2004-05. This concession, of course, will be beneficial only to those having deduction of tax at source on their incomes and no other taxable income. Senior citizens will be getting the advantage of higher interest bearing Dadha Bonds which may be issued later.

In the interim budget also, some more reliefs in direct and indirect taxes have been granted. The exemption from capital gains tax on fresh equity investments will be available for three more years while import duties in select directions have been lowered again along with halving of stamp duty payable on instruments that are now to adhere to the provisions prescribed by the Union Finance Ministry. In the Finance Bill for 2004-05 too, existing direct taxes will be continued as also the exemption of dividends for tax purposes. With the elections to the Lok Sabha in the offing, the NDA Government has utilised the opportunity for granting reliefs to various classes of taxpayers. Central Government employees also will be getting more indirectly, as dearness allowance to the extent of 50 per cent of the basic pay is to be merged with the basic pay. This will cost the exchequer Rs.3,500 crores in a year.

Improvement in budgetary position

The above changes should have been well received in stock market circles, especially as the changes in direct taxes cannot be effected until the new Finance Minister presents a full budget to Parliament. Despite the loss of Rs.2,500-3,000 crores in gross tax revenues in 2003-04 and Rs.10,000-12,000 crores in 2004-05, the budgetary position of the Centre presents a healthy look.

While it is not clear whether there was an exaggeration under tax revenues in the revised estimates for 2003-04 as well as the budget estimates for 2004-05, what is noteworthy is the realisation of the budgeted gross tax revenues for 2003-04 as such in the revised estimates, notwithstanding tax concessions for Rs.2,500-3,000 crores. Gross tax revenues have increased by 14.87 per cent in the revised estimates against 13.34 per cent (Budget).

In absolute terms, gross tax revenues have risen to Rs. 2,54,923 crores in the revised estimates of 2003-04 from Rs.2,51,527 crores (Budget) and net tax revenues to Rs. 1,87,539 crores from Rs.1,84,169 crores mainly on account of larger receipts through corporate and service taxes. As non-tax revenues also have risen to Rs.75,488 crores from Rs.69,766 crores and total revenue expenditure has declined to Rs.3,62,887 crores from Rs.3,66,227 crores, in the face of an increase in plan outlays, the revenue deficit has dropped for the first time in recent years to Rs.99,860 crores (revised) from Rs.1,12,292 crores (Budget).

Capital receipts too have risen over the budget estimates of 2003-04 to Rs. 2,11,228 crores (Revised) from Rs.1,84,860 crores (Budget), as there is a significant rise in recoveries of loans to Rs.64,625 crores from Rs.18,023 crores. Also the proceeds under the disinvestment programme will be higher at Rs.14,500 crores against the budget estimates of Rs.13,200 crores, mainly due to the Centre's decision to dilute its ownership in the Oil and Natural Gas Corporation (ONGC) and Gas Authority of India (GAIL) by 10 per cent before March this year.

Contraction in fiscal deficit

As other non-debt receipts are higher than visualised, net borrowing through market loans is lower at Rs.82,982 crores (Revised) against Rs.1,07,194 crores. The fiscal deficit has, thus, contracted to Rs.1,32,103 crores from Rs.1,53,637 crores (Budget) and it has been possible for the Finance Minister to claim that the fiscal deficit will be only 4.8 per cent of GDP against 5.6 per cent estimated earlier. This decline has, of course, been facilitated by a rise in GDP by 7.5-8 per cent over the low base of 4 per cent in 2002-03.

With an improved budgetary position and ample availability of forex and rupee resources, a determined bid will be made to cheapen credit to the agricultural sector, particularly the farmers, and increase in a big way the investment in projects in the infrastructure sector. The objective is to improve credit availability for the farm sector by Rs.50,000 crores and funds for the infrastructure sector by a similar amount. Those engaged in small and tiny industries also will be in a position to take advantage of the higher eligible limits and lower interest rates. It will be known only later in the year how the efforts to increase bank credit for short and long-term purposes and the pool of resources will get considerably augmented with a spate of new issues.

Optimistic estimates

The budget estimates for 2004-05 would appear to have been formulated on an optimistic basis. Even with the shedding of revenues for Rs.10,000-12,000 crores through reliefs in indirect taxes, gross tax revenues at existing rates have been placed higher by 17.81 per cent at Rs.3,00,323 crores and net tax revenues by 17.38 per cent at Rs.2,20,132 crores. In spite of an increase in total revenue expenditure to Rs.3,80,742 crores and no noticeable rise in net market borrowing, the fiscal deficit will be only marginally higher at Rs.1,36,452 crores against Rs.1,32,103 crores in 2003-04 (Revised) and it will be only 4.4 per cent of GDP. It is probably anticipated that the growth in GDP in 2004-05 will be even higher than in 2003-04. Since the pronounced rise in GDP in 2003-04 is, to a great extent, due to the rebound in agricultural production, a further smart rise in GDP in 2004-05 can be ensured only if the agricultural sector performs again creditably and there is a more pronounced growth in industrial output and the contribution of the services sector.

The reaction in industry circles to the budget proposals has been favourable. But the behaviour of the bourses has not been encouraging. With the decision of the Securities and Exchange Board of India (SEBI) to discontinue further use of participatory notes by FIIs on behalf of other foreign institutions not registered in India, and the uncertainties over the elections, a sharp drop in equity values has been recorded latterly. But the fundamentals of the economy are sound and the performance of the corporate as well as the services sectors has been quite impressive. If the new Government can give the impression that it will remain stable, there will be scope for sustainable growth in 2004-05 and subsequent years.

P. A. Seshan

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