Finance Minister Jaitley’s Challenges: The Forthcoming Indian Budget By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

According to the daily newspaper, the Indian budget will be presented to the parliament by our finance minister during the second week of July. This will supersede ”the vote on account budget” presented by Mr. P. Chidambaram in February 2014. Before the budget is prepared, Mr. Jaitley would need to take a serious look at the last UPA budget. He will easily make the following observations.

Observation 1: Of the 100 Rs. planned to be spent in the budget, 29 Rs will be the borrowed money and hence the deficit. The accumulated debt (sum of all deficits over the years) is above 70 percent of GDP. Any further increase will make our country a basket case or a banana republic.

Observation 2:The total income tax collected hardly amounts to 11 Rs out of 100 rupees to be spent. This is a shocker. Only 2.5 to 3 crore out of the population of 125 crores file tax return. Where have all the others gone. Are they not earning or exempted because their income is derived from agriculture?

Observation 3: The steady decline in the economic growth rate is during the last two years is affecting the tax money collected from the corporates. We are an emerging economy and count on the corporates to fill the coiffeur. Instead they want more tax deductions and subsidies.

Observation 4: The country has to honor the bonds it had issued previously and other debts. 18 Rs out of 100 Rs to be spent is the interest charges for the previously borrowed money.

Observation 5: The non-planned expenditure which includes salaries paid to the civil servants and the pension for the retirees will eat away 11 Rs out of every 100 Rs spent. The pensions payments are inflation indexed and will keep the deficit go higher and higher.

Observation 6: This will shake the finance minister. This was a strategy UPA used to win the elections namely subsidy which is government will bear the expenses of many so called essential items beyond a certain price level. We have this scheme for fertilizer, kerosene, diesel, food price etc and this takes away around 10 Rs out of every 100 Rs spent.

Observation 7: This is an off budget one. The domestic savings rate which used to be above 38 percent of GDP has been declining steadily over the last few years to drop below 30 percent. People are squeezed because of the high inflation rate prevailing in the economy. The purchasing power of the rupee has depreciated tremendously over the last decade while the income for people is edging up marginally. The domestic savings rate in future will have only limited contributions towards the economic growth rate.

Observation 8: The most important input to industrial growth is the gross domestic capital formation. This also seems to be declining steadily. Hence the number of new companies formed may be restricted by this limitation and it will have a major impact on the new job creation.

Observation 9: The non-performing assets of Indian banks, especially the public sector ones is increasing rapidly. The money lent is basically struck in non-worthwhile investment. The finance minister must find a way to recapitalize the banks and introduce conservatism in lending.

Observation 10: The El nino effect is expected to decrease the amount of rainfall this summer. Agriculture sector which is around 15 percent of the GDP is not going to do well due to scanty precipitation. The farm sector will need a big support.

Observation 11: The number of postponed infrastructure project, which stayed piled up during the UPA government, for want of money is very high. Many of these projects should be today’s reality. And hence must be completed at all costs.

Sir, please don’t get carried away by the falling growth rate. What is important is to restructure the economy and if necessary pay the price for it through higher taxes, reduced budget. When properly explained, the Indian tax payers will accept additional burden by way of increased taxes. But if you decide to continue with the Chidambaram’s budget, you will be only dragging the economy into a hell hole with no recovery. Instead, bite the bullet and engage in serious budget cuts and reallocate the funds to ensure greater productivity. Please don’t underestimate the average Indian’s commitment to the country. This is your choice. Best regards.

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1 Response to Finance Minister Jaitley’s Challenges: The Forthcoming Indian Budget By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

  1. Tarun Sehgal says:

    Speak only for yourself. If you want to give away your money to government, do yourself. Don’t speak for all Indians. I, like many others don’t want to get taxed for bailing out farmers, bailing out SEBs, recapitalizing inefficient public sector banks etc. If you are in mood for charity, do it in your own private capacity.

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