The Modi government at the Center is gearing up to table its third budget and this would be one of the best opportunities for them to play and plan. However, the fourth budget (next year) will become that much more difficult and then, the fifth budget, will be even more difficult because of the proximity loser to the general elections in 2019. With the Goods and Services Tax (GST) still in limbo and political muscle-flexing, the government is likely to face a stiff challenge to control its revenue deficit.
Yashwant Sinha, former Union Finance Minister, who tabled at least seven budgets before the Parliament, talking exclusively to Herald, said, “I would suggest that looking at the economic context in which the budget is being prepared, the government should concentrate on reviving the investment cycle. That was the challenge which the Indian economy faced when the UPA government was in power. Investment, which included the FDI and domestic, had collapsed. Also, Government of India has very little capital to invest, banks are reluctant to lend because of their huge NPAs. It is only one tax aspect of the budget and by all means let’s have GST, but that is not a panecea for all our ills.”
Reacting on why the GST Bill is pending before the Parliament, Mr Sinha who was also the chairman of the Parliamentary Committee of Finance added, “I was the chairman of the Parliamentary Finance Committee of which Rahul Gandhi was also a member. Since, he never attended a single meeting of this committee, we had sent him files for his comments on GST in those days but he never took notice and today he is adamant to get the 18 per cent capping to be mentioned in the Constitution of India. Have you ever heard that capping of Income tax rates, excise rates, etc included in the Constitution? This is ridiculous. And if the Congress continues with it, then it is an unreasonable and obdurate Opposition. I hope the present government will not accept it and let the stalemate continue.”
The Committee had also recommended that Government of India which is already levying tax on services along with Central VAT, should let services and excise come together, have the same rate, have the same collecting machinary and start giving set out for services which go into production and manufacturing of goods. Even though it is not the perfect solution, the effort was made to bring it in to the track for the benefit of the common people. “We built on that experience so that the States could see that value added taxation was a better taxation system than what the States had. So let’s do that and wait for the majority when the BJP has a majority in the Rajya Sabha and then we can pass the GST,” said the former Union minister for finance.
The issue of the stalled projects did raise eyebrows of the former Union finance minister and he was of the opinion that, “the stalled projects must be revisited and each project will have to be looked at separately. The forward movement of that project will have to be determined with the special reference to the problems there. For instance, a road project will need a different kind of treatment than a stalled power project. So, this is something which is very essential and we will have to discuss this with the banks so that their NPAs are cleared as soon as possible and the burden does not increase.”
The Union Finance Minister, Arun Jaitely has too many issues to handle during the upcoming budget. However, it would be a challenge before him to make efforts and revive the sinking real estate sector. “People of India are moving from villages to the bigger cities. Cities are becoming slums. No new cities are coming up so we need an approach where we create new cities like it is being done in China. A whole new city will create new satellite towns and then we improve the existing cities. This will take care of housing which is a major trigger for the growth of the economy. So real estate and housing will automatically be taken care of,” he said.
When asked about what recommendations he had for the present Union Finance Ministee, Mr Sinha was of the view that even where there is a public sector participation, it should be through a special purpose vehicle and not through the existing structure of the public sector. This should be completely delinked and a new beginning should be made as times are changing very rapidly. There are critical sectors in the economy which are not doing well. Power, steel, mining for instance and these have a multiplier effect. Mining is down because steel production is down globally and steel demand is down. So these stressed sectors of the economy need immediate attention and boost.
Efforts to work and improve upon the quality of life of the people in the rural sector is equally important. Agriculture in rural sector needs to be attended to and it needs great effort to improve the quality of life for the rural people.
With the present Union government under the pressure to show ‘performance’, it will have to juggle into the economics to satisfy the aspirants, pensioners and implementation of Seventh Pay Commission. It will difficult to sustain the demands of non-productive expenditure.
“Now people are talking about taking a holiday from fiscal deficit. I would like to make a distinction here. It is not fiscal deficit which we should be worried about, but the revenue deficit. Revenue deficit represents the gap between your current expenditure and your current income. The worst thing is, for any government to borrow money for your current expenditure. So eliminate the revenue deficit if you have even a four per cent fiscal deficit without any revenue deficit the country can live with it because all this will be a borrowing for productive expenditure. So, if three per cent is the target for fiscal deficit in the Fiscal Responsibility and Budget Management Act, go to Parliament, have it breached, make it 3.5 or 4 per cent, but make a promise to Parliament that I will not allow revenue deficit to grow and that I will still have the road map for the reduction of revenue deficit to zero,” said Mr Sinha.
