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BUDGET 2011-12: SOME INKLING
Vinod Anand | 09 Feb 2012

The Budget will be announced on 16th March 2011 due to elections. It has been estimated that government estimates have pegged India's GDP growth for '2011-12 at a three-year low of 6.9%.

THE BUDGET will be announced on 16th March 2011 due to elections. It has been estimated that government estimates have pegged India's GDP growth for '2011-12' at a three-year low of 6.9%. Down from a robust 8.4% the previous fiscal, the figure reflects slowdown in manufacturing, farming and mining. It?s clearly time policymakers stopped taking growth for granted. Nor should they glibly blame southbound growth numbers on troubles overseas. Too many homegrown warts ? labyrinthine regulations, discretion-based and tardy project clearance, poor infrastructure ? stymie business. Policy inertia and corruption scandals have also been horrendous PR. Leave aside wary foreign investors, even domestic firms say their capital is better carted overseas. The government can use the forthcoming budget to swing the mood of consumers and investors. Preparatory work can begin now. For starters, the budget must recommit to fiscal consolidation. - The fiscal deficit in 2011-12 is slated to outstrip the budgeted 4.6% of GDP. One reason is that the subsidy bill is likely to exceed budget estimates by around Rs 1 lakh crore. As the RBI says, excessive public borrowing militates against growth. By cornering credit that should go to private players, it hits private investment. Clearly, wasteful subsidies must be trimmed including via diesel and kerosene price decontrol. The status quo on subsidies, be it fuel or fertilizers, is untenable. Also, given our leaky delivery systems, clear policy announcements on linking social spending to targets and results will be in order. Preparatory changes can be made for a transition to GST, which will surely reduce the deficit by raising more revenue. Reportedly, the government is thinking of widening the service tax net and introducing a negative list of sectors. It must stick to this plan, to increase the share in central taxes of services, which account for nearly 63% of GDP For direct taxes the aim should be to expand the base while keeping taxes low. Overall, a model tax structure would rationalize levies, reduce liability and simplify rules so that compliance itself does not generate more revenue, cheering taxpayer and collector nor can big-ticket reforms brook delay. Improved business and investor confidence can do more to buoy resources than tinkering with tax rates. Let?s, therefore, focus on modernizing agriculture, pushing labour intensive manufacturing and boosting health, education and infrastructure all key areas requiring capital infusion. Liberalization in banking, insurance, retail and aviation will help the investors. As will fast-tracking disinvestment, revamping land acquisition rules and ending harmful government monopolies as in coal, which hobbles a critical economic sector like power Next month, our budget-makers have the chance to fuel feel good and revive animal spirits. Let?s hope for the best.