The title surely sounds both presumptuous and pretentious. Presumptuous because in the title, one is perceived to be comprehending all the complexities of the socio-political system of the country and steering clear of the conflicting interest groups and pretentious because one is seen to be making a justifiable claim of knowing every solution to the knotty problems of fiscal management.
Despite the derisive grin that one is likely to attract, let us make an attempt at an ideal budgetary formulation.
Resolving conflicting interests
Having reconciled to this position, the next important issue is to determine the context and content of an ideal budget. Yes, it has to be ideal, but from whose point of view? For, there are literally hundreds of interest groups in our pluralist society.
Take only the industrial sector with which we are so much concerned. Here, the fragmentation of interests is as acute as in any other sector of the economy. We, thus, have the public versus private sector and large versus the medium and small sectors. Even within the small-scale sector, there is another tiny sector. Further, it can be classified into the final product manufacturing sector versus the raw or intermediate goods manufaturing sector and the domestic sector (swadeshi) versus MNCs operating in India, etc.
How is it possible to reconcile the interests of such divergent and conflicting groups?
Perhaps, the only way to satisfy all of them is to meet each one of their demands, irrespective of what happens to the government's fiscal responsibility.
By implication, the finance minister has to:
- reduce income and corporate taxes substantially
- rationalise and reduce excises
- expand plan and capital expenditure
Simultaneously, the FM has to provide incentives to save, invest and advise the Reserve Bank to initiate steps for reduction of lending rates. While there will be virtual unanimity on these policy initiatives from all sectors, there will be a conflict of interest on matters relating to rationalisation and reduction of customs tariff.
The conflict will remain because user industries, at present, find imports of a host of raw materials and intermediate products beneficial in view of the prevailing low global prices. So also the users of capital goods planning to set up new capacities in a variety of industries.
In contrast, manufacturers of such products have been complaining of intense competition and price disadvantage. Even manufacturers of many consumer products are complaining of dumping on an extensive scale. It is difficult to dismiss such contentions too easily. There is substantial truth in what is currently being experienced by divergent sections of Indian industry. This makes the task of any finance minister extremely envious. More so for the present incumbent. Why?
If one surveys the present economic scenario, one is delighted to see so many positive features -- peak levels of food stocks, healthy forex reserves, moderate core inflation, large surplus of industrial capacities waiting to be exploited fully, remarkable growth of exports, etc. At the same time, the performance indices of a large part of the industrial sector are disappointing.
For a fairly long time, the investment stimulus, in particular, has proved to be elusive due to which there is a sense of dismay and despondency in all the sectors. How will the FM strategise all the positives and engineer an industrial resurgence?
To begin with, it must be stressed that during the past few years, India has been wavering from its ordained path of growth. Therefore, the budget must reflect the noble intentions of the prime minister, who recently articulated the urgency of achieving nine per cent real gross domestic product (GDP) growth. Obviously, this is an enormous task for which a definitive road map must be formulated.
However, the immediate realistic objective would be to take the real GDP growth path, currently stuck at about 6 per cent, to the next higher stage of at least 7-7.5 per cent. Even for making this happen, Indian industry has to forge ahead at a 8 to 9 per cent rate on a sustained basis, granting that the services sector has now emerged as a principal engine of economic growth in India.
Priorities on corporate agenda
The corporate sector, engaged in manufacturing or any other business area, has the following three major issues on its immediate agenda of survival and growth:
- First, to prevent further erosion in shareholder values and strive towards enhancing it as quickly as possible. The economic performance of a predominant section of the corporate sector, measured in terms of the now widely accepted technique of economic value added, has been a matter of serious concern.
It has been perceived that on an average, three out of every five major corporations are value destroyers, yielding poor returns to their shareholders. None of the good corporate managements would like to be perceived so by their shareholders.
- Second, in the battle for survival in an intensely competitive and globalising environment, the concerned corporate sector has realised the imperatives of initiating and accelerating the process of business consolidation and restructuring. But the process is considerably hampered by the inadequacies of enabling legislative, judicial and administrative framework.
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- Third, there is an urgency to secure external orientation to the business profile of their operations. This not only means export promotion as an integral part of the marketing strategies, but also new ways of looking at the external opportunities in the post-World Trade Organsiation (WTO) regime.
This process needs to manifest increasingly in exploring global opportunities (both exports and imports), strategic alliances, technology transfers, out-sourcing and relocating operations abroad, etc.
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(* Mr. S. S. Bhandare is a consultant with the department of economics and statistics of Tata Services Limited. This article has been reproduced with permission from www.tata.com, the official website of the Tata Group.)
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