IIF in News: Press Release

IIF, 4th March, 2002; 3:00 p.m. ;Prof. J.D.Agarwal, Chairman, Indian Institute of Finance, while delivering a public Lecture today at India International Centre said that the budget would revive demand, promote investment and accelerate growth in the economy.

Dr. Agarwal feels that with effective expenditure management and improving the administrative efficiency of the tax collections he could bring down the fiscal deficit to a level of 4 to 4.5% of GDP.

According to Prof. agarwal, there has been repeatedly a demand for reforms in agriculture, private and public investment in Infrastructure, reducing subsidies and rationalization of taxes both direct and indirect, Industry, Academia, economists intellectuals and the media has been vociferously wanting all this . The FM in the budget has listened to them all, valued their opinion, and done what everyone desired and shown interest to increase the international competitiveness of India economy. To carry further this second generation of economic reforms, as announced in the last budget speech he has done all that what everyone has been demanding namely, agricultural reforms, investment in Infrastructure, reducing subsidies, rationalisation in taxation. He has even given a market driven look by dismantling APM in Petrol - breaking the total Government monopoly in the sector and the capital account convertibility through liberalisation process.

Prof. Agarwal strongly feels that the Finance Minister in his budget speech rightly focussed on reviving Indian economy by suggesting wide ranging measures including some bold initiatives. The budget can rightly be considered to be focussing on much neglected sectors of the economy in the past i.e. agriculture, rural development and the poor, enhancing public and private investment in infrastructure reducing subsidies and rationalisation of taxes.

The Finance Minister in this difficult time of global recession and a low industry growth rate, poor recovery of tax collections has been able to strike a good balance offering largees to Agriculture and the social sector of the economy showed desired concern for much desired infrastructure needs of the economy and cut down on subsidies reiterated Dr. Agarwal.

According to him, the budget will bring the necessary revolution in agriculture and provide an infrastructure which will be able to sustain Indian economy and increase its competitiveness and provide relief to citizens of India or raise their quality of life.

His policy prescriptions on agriculture were much needed and would go a long way to improve both the agriculture sector and farmers feels Dr. Agarwal.

Highlighting the Finance Minister's proposal's, Dr. Agarwal said that the Finance Minister has proposed several measures to decontrol and deregulate agriculture. Agricultural Produce Marketing Acts will be amended to enable farmers to sell their products directly to potential processor to enable them better prices. The Finance Minister announced a Credit Linked Subsidy Scheme for construction of cold storages. The total credit flow to the agriculture sector through institutional channels is expected increase to Rs.75,000 crore in 2002-03.

His announcement for export of agriculture commodities and futures and forward trading on agriculture activities decontrol & degeneration of agriculture and suggesting to bring legislative changes are a step in the right direction. Similarly additional provisions for irrigation programs, accelerated rural electrification and allocation of Rs. 2500 Crore to Pradhan Mantri Gram Sadaka Yojna and announcing Jai Prakash Narayan Rojgar Yojna would help improve otherwise ignored rural sector of economy said Dr. Agarwal.

According to Dr. Agarwal, his announcement to develop infrastructure and reforms in power, ports, airports, urban area are welcome and intended to promote faster private investments in infrastructure.

Most of the proposals made are sound and may help bring positive changes in this sector. His introduction of a capital liberalisation scheme is welcome and may boost inflow of foreign investment and motivate NRIs to keep money in India feels Prof. Agarwal.

The honorable Finance Minister proudly announced in his budget speech that the banks have collected Rs.12,000 crores from NPAs. It is a great achievement but it is half truth. How much have banks had to forego and loose to collect this 12,000 crores? The figure is mind boggling.
It is more than Rs.40,000/- crores. Total NPAs have gone up from 58,000 crores in 1999 to 1,25,000 crores today. When Mr. Devilal set off loans of small farmers upto Rs.10,000/- there was an outcry. It costed the nation just a few hundred crores certainly much less than this figure said Prof. Agarwal.

Prof. Agarwal said the proposals of Finance Minister on structural reforms are path breaking particularly relating to dismantling of administered price mechanism in the petroleum sector interest rates and subsidies.

He has rightly shown his concern for human development by increasing allocation of Rs. 900 crores to education, proposing a Janaraksha Scheme as a measure of social security and increasing the plan allocation for the department of Women and child welfare said Dr. Agarwal.

Prof. Agarwal said "Rationalisation of excise and customs duties in my opinion should be carried out in such a way simultaneously to allow appropriate level playing field to domestic industries and should act as anti dumping measure in an automatic way".

He has tried to keep fiscal deficit at 5.3 % through certain measures targeting on expenditure management, interest rates on small savings and disinvestment. Yet his recipe regarding expenditure management particularly through staff strength is far from realistic. There are large areas of wasteful expenditure incurred by both centre & the states which are required to be targeted using technique of Zero Base Budgeting and expenditure control. In case thorough exercise is done the governmental wasteful expenditure can be reduced tremendously. He could have done it better by targetting gross wasteful expenditure in the government by adopting Zero Base Budgeting or expenditure control mechanism. Although, he has tried to raise both the tax revenue by widening the scope of service tax which to some extent might affect, the fast growing service sector adversely yet this was one of the soft option available to him. He could have increased revenue realisation by increasing the administrative efficiency of tax collections by targeting the prevailing corruption, harassment and demotivating tax evaders and tax avoiders from resorting to practices detrimental to the interest of the nation feels Prof. Agarwal.

Prof. Agarwal welcomed Finance Minister's proposals on indirect taxations, as they are an extension of simplification & rationalisation process, which he initiated, in his previous budgets. The rationalisation & simplification process of indirect taxes would conform to the WTO standards & help force increase the global competitiveness of Indian economy. The proposals clearly send a message to the Industry in a very sophisticated manner that either you shape up or ship out.

Prof. Agarwal said the proposals on direct taxes would provide stimulus for industrial growth & relief particularly to lower salaried employees. The abolition of dividend tax of 10% is a very right step as it was counter productive for the companies and mutual funds. Last year’s data indicates that more than 80% profit making firms are not declaring dividend. Similarly his proposals not to withdraw exemptions granted to incomes of approved & notified bodies including medical and educational institutes is a step in the right direction. He has also tried through his direct tax proposals to control evasion and avoidance of tax by making it compulsory to quote the PAN for certain high value transactions. However, the forced honest salaried class taxpayers deserved some concessions in terms of raising the minimum exemption limit. Instead Finance Minister has imposed moderate surcharge of 5 % across the border except some for a good cause of national security and also reduce the rebate from 20 % to 10 % under sec. 88.

Prof. Agarwal said budget proposals deserved applause louder than last year, which had several inherent weaknesses - Sufficiently reflected through the economic survey released this year. It was applauded with 10/10 points. After all rationality have its own boundaries. Our ratina / lens of eyes with our own self interests and sectoral analysis determine the boundaries of rationality.

Prof. Agarwal said "Who cares what is good in totality. What is good for me is good for the rest of the world even if, it may cost the nation, and everybody else dearly".