Budget 2002: Expectations belied
YASHWANT SINHA's Central budget proposals for 2002-03 have been received with great disappointment in industry and stock market circles and by the investing public. These proposals have also come in for sharp criticism from political leaders and small investors. The dissatisfaction has been acute as it had been hoped prior to the presentation of the budget that a determined effort would be made to provide incentives for saving and investment and kick start the economy. The expectations in this regard have not been fulfilled as Mr. Sinha has failed to recognise the importance of achieving a higher level of economic growth in the desired directions.
The Finance Minister, however, has been obsessed with the idea of mobilising resources through adjustments in direct and indirect taxes for preventing an undue enlargement of the fiscal deficit and avoiding also a repetition of the happenings of the past three years. The steady deterioration in the budgetary position will be evident from the fact that there was a shortfall of Rs. 4,094 crores in actual net tax receipts over the budget estimates for 1999-2000 and the fiscal deficit got enlarged to Rs. 1,04,717 crores from Rs. 79,955 crores (Budget). Again in 2000-01, there was a more pronounced decline of Rs. 9,293 crores in actual net tax receipts over the budget estimates and the fiscal deficit was further higher at Rs. 1,18,816 crores (actuals) against Rs. 1,11,275 crores (Budget).
In 2001-02, the experience has been uncomfortable for the Union Finance Ministry, as gross tax revenues dipped by as much as Rs. 29,956 crores and net tax revenues by Rs. 20,683 crores in the revised estimates for the year over the budget calculations. The fiscal deficit bloated further to Rs. 1,31,721 crores (revised) from Rs. 1,16,314 crores (budget). The severe setback on the revenue front in 2001-02 has had a jolting effect on the NDA Government. In the absence of a bid to step up investment at the desired rate, the GDP growth was only 5.4 per cent in 2001-02 despite a record agricultural production. Industrial economy continued to be sluggish.
Ignoring reasonable expectations and the severe criticism that might have to be faced, if efforts were made to raise large additional resources, the Finance Minister has sought to secure an amount of Rs. 6,700 crores through adjustments in excise duties in 2002-03. The gross amount raised may be much higher at over Rs. 10,000 crores, if the reliefs in particular directions are taken into account. The adjustments in duties on petroproducts particularly, will be denying the consumers full benefit of lower world crude prices. The intention is obviously to find the required resources for meeting the expenditure on subsidies on sales of liquefied petroleum gas (LPG) and kerosene through fair price shops.
In respect of customs duties, the peak rate has been lowered further to 20 per cent from 25 per cent with reductions in the levies in many directions. Only cosmetic concessions have been granted relating to imports of raw materials and their requirements in terms of components and other items for those using or producing hardware. The loss in revenue will, thus, be Rs.2,200 crores.
Crippling new levies
The changes in direct taxes particularly, have come in for severe opposition from different quarters. There may not, of course, be any objection to the imposition of a surcharge of 5 per cent on income and corporate taxes, as the 2 per cent surcharge levied for raising funds for quake-hit Gujarat has been removed. But the moves to discourage saving and investment with a reduction in tax rebates for incomes above Rs. 1.50 lakhs and the denial of tax rebate for those having income above Rs. 5 lakhs along with a reduction in interest rates on small savings certificates will hit hard the middle income groups, pensioners and others. The salaried classes will have to bear heavier taxation due to the decision to tax perquisites of all types in a specified manner.
Tax on dividend
The bolt from the blue is in respect of the sadistic decision to tax again, after the lapse of five years, dividend incomes derived from joint stock companies and mutual funds at the hands of the recipients. It has also been stated that there will be a deduction of 10 per cent tax plus surcharge at source on all dividends. The hardship endured by small investors, non-assessees and those in the agricultural income groups has been overlooked. The 10 per cent tax on distributed profits has, of course, been abolished. The contention that dividend incomes cannot be taxed twice because of they being distributed out of the taxed profits of companies has been ignored.
Mr. Sinha has his ingenious explanation for nullifying the decision of Mr. P. Chidambaram, the former Finance Minister. The decision of Chidambaram, in his Dream Budget of 1997-98 has, thus, been brushed aside.
Fiscal deficit up again
The receipts from the levy of surcharge, tax on perquisites on a new basis and the revived tax on dividend incomes at the hands of the recipients are slated to fetch Rs.6,000 crores, which is an underestimate. In spite of the attempt to secure over Rs.10,000 crores in net through new levies for the Centre, the revenue deficit will be rising to Rs. 95,377 crores in 2002-03 from Rs. 91,733 crores in 2001-02 (revised) and the fiscal deficit to a new peak of Rs. 1,35,524 crores from Rs. 1,31,721 crores. The revenue and fiscal deficits may turnout to be higher, when the revised estimates are made available in February next year, as the estimates of tax receipts may not be realised because they are optimistically conceived. It is needless to point out that a higher level of fiscal deficit in absolute terms will result in the burden of interest charges becoming heavier in 2003-04.
For avoiding a repetition of the happenings of 2001-02 and improving the prospects for the Tenth Plan period, the Finance Minister has to improve the investment climate and revive activity in the secondary and primary markets.
It is important to encourage the managements of Indian owned companies than their foreign counterparts for reviving confidence and accelerating economic growth.
The reaction in stock markets too, has been highly unfavourable, as political uncertainties also had a confusing effect. It is important that only 50 per cent of the dividend incomes should be taxed at the hands of the recipients, while the benefit under 80 L should be helpful to those who do not have large assessable incomes. The deduction of tax at source too should be only in regard to income amounts exceeding Rs. 5,000, as in the case of interest incomes and non-assessees and senior citizens should not be obliged to submit 15-H forms for avoiding tax deduction and compulsion to submit returns. A new kind of thinking is necessary when formulating budget proposals.
P. A. Seshan
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