Expert Zone

Straight from the Specialists

Higher tax revenue from higher growth

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The 2013-14 budget got completely out of hand because of a whopping shortfall in tax revenue. Development outlays had to be drastically cut to manage the fiscal deficit.

The key to the budget is revenue. The ratio of gross tax revenue to GDP reached a high of 11.9 percent when GDP growth was at its peak of more than 9 percent in 2007-08. Since then, both declined and the ratio has been in the narrow range of 10-10.7 percent. GDP growth is a painless way of raising revenue.

Not all sectors, however, contribute to tax revenue to the same extent as they do to GDP. Agriculture, for instance, generates 18 percent of India’s GDP but is out of the tax net. More than 60 percent of tax revenue is derived from industry in the form of corporation tax, excise and customs although it generates less than 20 percent of GDP. Industrial growth is an effective vehicle for tax revenue.

The 2013-14 budget was unbalanced because there was no real industrial growth, but only an increase in prices. As a result, tax revenue was 6.3 percent short of the target. The fall was mainly in respect of corporation tax, which is about a third of the gross tax revenue.

Steps the next government should take

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

India’s economy is tottering, inflation is too high and growth too low. The Congress-led UPA government allowed the economy to drift during its second term. Why? Because it did not focus on real issues, failed to govern effectively and did not carry out any significant reforms.

New legislation became almost impossible, with coalition partners such as the TMC and DMK threatening to pull out (and they eventually did). On top of that, successive scams made it impossible for the government to function normally.

No quick fixes to India’s growth problems

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

Over the past year, the government has silenced its critics with several pro-reform policy initiatives including the relaxation of FDI norms, freeing FII debt investment limits and a calibrated deregulation of petroleum prices. These reforms were cheered by the markets by way of increased FII inflows.

India’s widening twin deficits – fiscal and trade – appeared to have been reined in. But in the first few months of the fiscal year 2013-14, everything seems to have come undone for India – be it the potential end of the U.S. Federal Reserve’s quantitative easing policy or the dollar’s appreciation against emerging market currencies.

Why the RBI should cut rates again

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

In May, the Reserve Bank of India (RBI) had hesitatingly cut the repo rate by 0.25 percent, which made no impression on the stock market or commercial banks. That was because both expected the cut to be more substantial. But the RBI had not obliged.

Perhaps the monsoon, which arrived on the dot and is progressing satisfactorily, may make some difference to the RBI’s expectations of food inflation – which had been its principal reason for hesitancy. While it’s too early to predict monsoon behaviour for the rest of the season and the likely improvement in agricultural production, it does appear the improvement should be significant and inflation dampened perceptibly. Reduction in inflation, however, is not the only reason why the interest rate should have been cut.

Critical steps for a faster recovery

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The economy seems to be heading for a hard landing. The problem is not entirely of our making; partly it is the spillover of the crisis in Europe. Other Asian countries have also been affected but we were hit the hardest.

Gold prices: Bubble or fundamental

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

Suddenly all eyes have turned to the yellow metal. Some say that it’s a bubble while others give a lot of demand-supply reasons. Fall of the dollar and other economic reasons suggest that it has miles to go.

Signs of cooling in Indian economy

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

This was not unexpected. The RBI has taken every care to cool down the economy with successive increases in interest rates. The results are now beginning to show.

Will higher interest rates lower growth?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The Reserve Bank of India (RBI) increased the repo rate by 50 bps on May 3 and there was an outburst of opinions that the rate of GDP growth will drop. The consensus seemed to be that it would drop to 8 pct, a 100 bps less than what we had been used to.

Of course, May 3 was the first time in two years that the RBI raised the repo rate by a hefty 50 bps. In the earlier eight installments, the increase was only 25 bps.

Lower profits, uneasy market

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

On April 11, the CSO announced a further dip in industrial growth to 3.6 percent, bringing the Sensex down 189 points. That index was for February, the expectation about March is no better — which leaves the market a little cold.

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