History repeats itself and life comes back a full circle. It was an airplane earlier and it is now the Indian economy. The villains then were misguided terrorists, the perpetrators now are our irrepressible politicians. The victim then was and now too, is the Indian citizen. The Union Budget, a powerful economic tool, has been wielded as a political weapon for irrational gains. The FM has deemed it fit to play to the gallery of politicians and vested interests, overlooking the urgent and crying needs of correcting and balancing the Indian economy. The millenium budget has turned out to be like the millenium celebrations, more style and less substance. Despite a loud recognition of the ominous signs on the horizon, in the Economic Survey, the pressures of managing a motley coalition, have probably withheld the FM from taking tough decisions. While the bourses may continue to display `irrational exuberance', the saner elements are likely to sulk and the economists are bound to predict doomsday.

The prebudget signals emanating from the government, as a run up to the budget were a bundle of contradictions. The bold privatisation of Modern Foods by outright sale to Hindustan Lever and the proposed privatisation of Indian Airlines, gave the impression of a macho FM, flexing his muscles. The much delayed increase in the prices of petro products too was announced in an insouciant manner, almost derisive of the communist backlash. Then came the classic damp squib from Mamta Banerjee. The lady with the potential to derail the octegenarian Mr. Jyoti Basu, dished out a rail budget, strong enough to derail the finances of the Indian Railways. The earlier signals which hinted at the emergence of fiscal prudence, quickly faded out. The Economic Survey that followed was indeed candid on various fronts, like fiscal deficit, burgeoning government borrowings, falling public savings and capital investment and suggested self explanatory remedial measures. The repeated pronouncements of the FM in the interim, indicating a tough budget was a bit reassuring and reposed confidence in economic sanity. But then came a directionless budget, which largely bypasses the critical issues and adds to the confusion.

The overall backdrop of the budget, both global and local was benign and potent with opportunities. The USA has witnessed the largest and longest ever running economic boom and has recorded a stunning economic growth of 5%, largely fuelled by consumer spending and business growth. International markets and currencies have stabilised and knowledge has become the primary engine of growth and profits. The Pokharan sanctions have been all but lifted and India is being accorded its rightful preeminence in emerging markets. The final seal of approval of India's economic potential viz. Bill Clinton's visit with an entourage of business top honchos too is on the threshold.

The overall economic parameters of the Indian economy too have been favourable. A smart industrial recovery is in the pipeline after 2 years of cyclical downturn and inflation has been at an all time low of below 4%, matching international standards. Export performance, at a growth of 13% has improved considerably and the GDP is expected to grow by 5.9% during the FY 2000. Exchange rate has been relatively stable, the foreign exchange reserves comfortable and the stock markets are booming. These conditions provided an ideal cushion for the FM, to take hard hitting decisions for fiscal correction and to provide an impetus for sustainable long term growth. And to make things happen, we now have a stable government, with the likelihood of completing a five year tenure in saddle.

Despite such favourable conditions, there remain several ugly spots, which have been consistently nurtured and fostered by the politicians over the years, because it suits their nefarious convenience. These spots have now becoming festering wounds and have the potential of upsetting the apple cart, being presently fantasised by our bourses. The Economic Survey states in no uncertain terms that overspending by the government continues unabated. Combined fiscal deficit of the centre and state, which was at 9.1% in the crisis year of 1991, has again touched 8.5% in 1998-99 and is likely to be even higher in FY 2000. A high fiscal deficit, as a mother of all evils means high debt, high debt servicing costs, pressure on balance of payments and currency stability and the crowding out of both government and private sector investments. First generation reforms have yet to completely take off and fructify and the second generation ones are badly delayed. Our formidable savings rate has fallen from a peak of 25.5% in FY 1996 to 22.3% in FY 99 and so has the gross investments rate from 27.2% to 23.4%. Inflation threatens to raise its ugly head and industrial recovery still has a long way to go.

Such a scenario of mixed situations, required the FM to take decisions and stringent measures in respect of :-

• Control of fiscal deficit, by pruning subsidies and curbing non productive expenditure.
• Reduction of government borrowings.
• Increase in tax collection through be simpler tax laws and better administration thereof.
• Rationalisation and simplification of tax laws.
• Initiating measures for sustainable long term growth.
• Giving a further boost to household savings and channelising them into productive investments.

The devil normally lies in the details, but here it probably lies in the lack of them. There have been no measures initiated nor a road map charted out, to rectify such fiscal imbalances and to restore balance for long term growth.

Viewed from this factual matrix, the following steps/measures taken by the FM are woefully inadequate. The woods have been missed for the trees and the areas which needed tough decisions have been conveniently sidelined.

DIRECT TAXES -

While stating that stability, economic growth, rationalisation and simplification are the basic tenets for direct taxation, the FM has initiated specious measures, the highlights of which are stated below :-

• No changes in Income Tax rates and exemption limits.
• Tax Rebate to senior citizens increased from Rs. 10,000 to Rs. 15,000.
• Surcharge on income tax to continue at 10%.
• Surcharge on non corporate assessees with taxable income exceeding Rs. 1,50,000, increased to 15% from 10%.
• Even investment in second house made eligible for capital gains exemption.
• Section 54EA and 54EB replaced by tax exemptions on capital gains investments in NABARD and NHAI bonds.
• Tax can be paid through any nationalised bank where the tax payer has an account.
• Tax refunds to be directly credited to the bank account of the assessee.
• Tax deduction for higher education loans increased to Rs. 40,000 from Rs. 25,000.
• Tax rebate on repayment of housing loan, increased to Rs. 20,000 from Rs. 10,000.
• 1/6 scheme extended to 79 more cities.
• PAN cards to be issued within 30 days of application.
• Income from farm houses not used for agricultural purposes to be taxed.
• No tax exemption for trusts running schools and hospitals and those investing in PSUs.
• Tax exemption on export profits to be phased out equally in 5 years. 20% to be withdrawn w.e.f. FY 2001.
• Interest tax payable by banks and FIs abolished.
• Dividend tax increased to 20% from 10%.
• Exemption for entertainment exports, extended to non corporate assessees also.
• MAT to be levied at 7.5% on the book profits and no MAT credit carry forward available.
• Major rationalisation of exemptions in the direct tax system proposed.
• Condition of continuity of business for carry forward and set off of unabsorbed depreciation dispensed with.
• Tax holiday on new units in backward areas, extended for two more years.
• Tax simplification and exemption measures announced for Venture Capital Funds.

INDIRECT TAXES -

Customs Duty -

• Peak customs duty rate reduced from 40% to 35%.
• Surcharge of 10% to apply to peak custom duty rate.
• Total number of customs duty slabs reduced from 5 to 4.
• SAD extended to all imports except petroleum products.
• Items placed on free list of imports to attract peak customs duty from 1.4.2000.
• Customs duty on microprocessors, memory devices, CD ROMs, ICs reduced.
• Basic customs duty on platinum and non industrial diamonds, reduced from 40% to 25%.
• Basic customs duty on crude oil reduced to 15% from 20%.
• Customs duty on petroleum products reduced from 30% to 25%.
• 5% basic duty on telecom equipment extended to ISPs.

Excise Duty -

• Three non modvatable rates of excise duty at 8%, 16% and 24% introduced.
• Medical items and items of common use exempt from excise duty.
• List of 16% excise duty remains unchanged.
• Excise duty on items attracting 30% raised to 32%.
• Excise duty on cars for physically handicapped reduced from 24% to 16%.
• MODVAT renamed as CENVAT and rules simplified.
• 40% excise duty now composed of 16% CENVAT and 24% special excise duty.
• High speed diesel oil and petrol exempt from MODVAT.
• MODVAT credit on capital goods to be availed over a period of 2 years.
• Excise duty on cigarettes increased by 5%.
• Excise duty on steel to be assessed at factory gate price.
• All statutory excise records to be dispensed with from 1.7.2000.
• Fortnightly payments of excise duty now by assessees.
• Normal price replaced by transaction value for the purpose of valuation, in Section 4 of the Central Excise Act.
• MRP based method of assessment extended to more items.

Others -

• Defence and interest expenditure shoot up.
• Subsidy on food and fertilizer reduced.
• Fiscal deficit likely to be 5.6% of GDP from the budget target of 4%.
• Shortfall in revenue due to low excise and customs collection.
• No PDS and sugar for income tax assessees.
• Retention price for fertilizers to be phased out.
• Government equity is non strategic PSUs to be reduced to 26% or less.
• Assets of non viable PSUs to be used for voluntary separation scheme payments.
• Telecom, Port and Airport service provides to be corporatised.
• New bill proposed to safeguard interests of depositors of NBFCs.
• Five more Debt Recovery Tribunals to be set up.
• Government to consider recapitalisation of weakbanks.
• Acquisition of foreign knowledge based industries eased.

The above measures are merely specious and ephemeral. India is today at its best ever crossroads and with a clear direction, can leap frog into economic prosperity, riding the crest of the Information Technology revolution. What we thus need is timely decisions for structural fiscal correction and a check on the imbalances therein, to provide a strong impetus to growth. The present economic goodies are the result of government inaction and inertia and not action, which the government itself acknowledges. But the ills of inaction, by far outweigh the benefits thereof. The FM as a driver of the economy has failed to give it a coherent direction on the growth path and we are likely to move in circles. Inflation is likely to raise its ugly head and industrial recovery may not be as quick as possible. The government must thus take its role of an economic statesman and regulator seriously and stop nitpicking at micro levels. Set the rules and let the market forces play, growth will abound. It calls for tough and focussed decisions and no soft and vague measures. Kandahar labelled India as a soft polity, the FM has carried it to the economic front also.