Expert Zone

Straight from the Specialists

What we want to see in Budget 2013

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

Over 15 years have passed since P. Chidambaram presented what was called the ‘dream budget’. It was a budget that changed the discourse of financial policy and offered a vision of India matching the growth and dynamism of the tiger economies of Southeast Asia.

In the last full budget of his government’s term, the finance minister once again has a chance to alter the discourse of policy away from handouts and towards efficiency. Our advice to him is to be as bold in ideas as his conviction permits and as ruthless in execution as the law allows. A few ideas for him to chew on:

    Control the deficit: The fiscal deficit in FY11-12 was 5.8 percent while the budget estimate for FY12-13 was 5.1 percent. It is likely to end closer to 5.3-5.4 percent. Take this below 5 percent and closer to 4.8 percent for FY13-14. Commit to take it to 3.5 percent (and revenue deficit to zero) in the three years hence. Cut & Reorient spending: Cut spending on populist subsidies that have served little purpose other than fuel inflation. And reorient the spending in favour of durable infrastructure and strengthening the institutions of governance and development — such as courts, local administration, health and education. Don’t increase taxes & simplify the code: The tempting path to reducing deficit is to increase taxes. Don’t go down that path. Instead, take the road less travelled of keeping taxes steady and simplifying the tax code in order to improve compliance. The ‘Direct Tax Code’ has been in the works for several years. It’s about time to implement it. Don’t increase import duties, in fact if possible reduce the peak duty and take the average closer to levels prevalent in the rest of Asia. Chidambaram should remember, tax revenue is not correlated to tax rates. It is correlated to growth. If you achieve growth, revenue will follow. Privatize, not just disinvest: Selling small parts of government holding in state-owned companies does nothing to improve efficiency and growth. It’s only a bad way to fund revenue expenditure. We want to see commitment to full privatization (including the banking sector) not just disinvestment in parts. Take steps to make foreign direct investment attractive: India needs more foreign capital and even more foreign technology. Remove bureaucratic bottlenecks to FDI, abolish the Foreign Investment Promotion Board (FIPB) — or at least drastically reduce its scope — and tear down the last remaining ramparts of the swadeshi (economic and cultural philosophy based on self-reliance) fort. On the whole, make it much easier for lasting foreign risk capital to flow in. Don’t end the speech with clichéd poetry: And finally, be brief (speeches have been getting longer and longer) and a bit more creative; don’t end the speech with a clichéd poem or a quote like every budget speech of the last decade.

It is very likely that in the budget speech on Feb. 28, we will not hear even half of what we desire. If that’s indeed the case, it will be one more lost opportunity for India and we’ll have to keep our optimism alive for a future budget.

Budget 2013: High on expectations again

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

It’s budget time in India once again, the annual month of anxiety and expectations that everyone awaits with bated breath.

Budget 2013 will be especially important on two counts. Coming as it does ahead of crucial state elections, the Feb. 28 budget could be outrageously populist. But with the government not really following through on its policy reforms in recent months, the question is how intent can translate to concrete action. Tough decisions are needed with a greater focus on growth.

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