NEWSLINKS
BUDGET ON REDIFF
D&B BUDGET SPL
ECONOMIC SURVEY
RLY BUDGET
BUDGET: RUN-UP
BUDGET PROCESS
BUDGET HOTLINKS
Y2K BIZ FEATURES
INDIA & THE WTO
GOVT&ECONOMY
SPECIALS
INTERVIEWS
COMMENTARY
CREDIT POLICY
BUDGET 1999-2000
USEFUL INFO
ARCHIVES
SEARCH REDIFF

The Rediff Budget Jury/Dr Shankar Acharya

'This Budget cannot be fairly described as a whimper'

BUDGET 2000

Some people dismiss this Budget because the finance minister had said it would be "tough". I don't believe this Budget can be fairly described as a whimper.

To deal with an increasingly difficult fiscal situation, this Budget does incorporate a difficult situtation in regard to both raising taxes and cutting expenditures such as on subsidies.

However, there has been a deliberate effort to spread the burden of fiscal adjustments equitably across all segments of the society and to do it in a way which does not hurt the underlying dynamism of the economy.

While the economic indicators in regard to industrial growth, exports, inflation, forex reserves, food stocks, etc, are indeed quite healthy, the fiscal situation of both the Central government and the states is under severe strain.

It is this problem that the FM has highlighted. If the fiscal situation is not corrected in a phased but sure way, then all these healthy fiscal indicators could easily turn adverse.

Interest rates should have some relationship with the expected rate of inflation. Most interest rates in India are determined in the marketplace for loanable funds; there are almost no controls on bank deposit and lending rates.

In the case of a few government administered interest rates on postal small savings and provident funds, government has been moving actively, including in this Budget, to reduce these rates and bring them in to better alignment with market-determined interest rates structure.

I don't accept the assessment that the tax structure has not been simplified. In my view, it has. Special excises are not new in this Budget. Nor are they unique to India. Most countries with Value Added Tax systems also separately have special excises at rates different from VAT rate.

This Budget has gone for a big step forward in moving to a single CENVAT rate for all commodities in the production chain. The products in the old 24 per cent rate which are in the nature of intermediate products have been brought down to the 16 per cent CENVAT rate. It is only a few final products which remain at the 24 per cent rate (16 per cent CENVAT plus 8 per cent special excise.)

The defence allocation has been deliberately raised by a very sizable amount in the light of the ground realities of our security situation.

After all, barely six months ago, we were engaged in a substantial border conflict. As regards the fiscal deficit, we have made a serious effort to make some reduction next year.

We (the government) have deliberately not tried for a larger reduction as it would have hurt the growth dynamism in the economy which has been there in last eight or nine months, especially in the industrial sector.

The basic demand on the employee stock option taxation was to tax capital gains from ESOPs at the time of sale or exit.

There are basically two problems in meeting the demand. One, you may be interested to know that the majority of international practice follows the exisiting Indian method of taxing ESOPs as perks. Two, the problem with moving to an exit point system of taxing the ESOPs, is that in the absence of gift taxation, it is practically impossible to keep track of the ESOPs received by employees in a manner such that they can be effectively taxed at the time of sale.

Dr Shankar Acharya is chief economic advisor, Ministry of Finance, Government of India

Earlier interview with Dr Shankar Acharya on rediff.com

Budget on Rediff | Dun & Bradstreet Budget Special | The Run-up
Budget Process | Budget Hotlinks | NDA Government & Economy
Ministry of Finance: Economic Survey 1999-2000 | Budget 2000 document

Tell us what you think of this Budget 2000 coverage