The BW roundtable on Budget 2010 — the many expectations and the real possibilities. Excerpts:
SHOWING THE WAY: (From left) Laveesh Bhandari, director of Indus Analytics; Omkar Goswami, chairman of CERG Advisory; Bibek Debroy, Centre For Policy Research; Pronab Sen, secretary and chief statistician of India, Ministry of Statistics and Programme Implementation; Abheek Barua, chief economist of HDFC Bank; and Prosenjit Datta, editor of Businessworld, and also the moderator of the discussion (BW pic by Tribhuwan Sharma)
Prosenjit Datta (moderator): What should we expect in Pranab Mukherjee’s sixth budget? Laveesh, why don’t you start?Laveesh Bhandari: It is essentially going to be a go-slow budget with minor steps towards withdrawal of the stimulus; the fiscal deficit will be somewhere about 5.5-6 per cent. There will be expansion of some of the social sector schemes. What it should do is accelerate the withdrawal of the stimulus and get at least the excise rate back to 12 per cent level.Omkar Goswami: I tend to agree. There are three or four things he (Pranab Mukherjee) is going to face. Over the next six months, if not longer, (there will be) serious hardening of crude oil prices. I told him this the last time we met so I am interested to see what call he takes — either before the budget or during the budget — on Kirit Parikh’s report. If he doesn’t take a call, the off-balance sheet items (oil bonds, etc.) are going to throw every thing out of gear.Also, if China continues to grow in double digits, I can’t see how food prices are going to remain under control.There are some things they are probably rethinking. One is the big disinvestment target. It’s not just what happened with NTPC. Going forward this calendar year, we will see very skittish global markets — not exactly a market where you can predict disinvestment revenues.
“In terms of the politics of finance, the fact is that implications of reducing plan expenditure are much more powerful than of the taxes. Also, normally in our public expenditure plan, there is a huge amount of fat deliberately built in. In raising taxes, the political fallout is minimal. I think expenditure would not be curtailed.”PRONAB SEN“It is essentially going to be a go-slow budget with minor steps towards some withdrawal of the stimulus movement; and the fiscal deficit somewhere about 5.5-6 per cent. What it should do is have a more accelerated withdrawal of the stimulus and get at least the excise rate back to 12 per cent level.”LAVEESH BHANDARI“Don’t expect too much hair-raising reformist stuff. I don’t think Pranab babu is going to do it.”OMKAR GOSWAMI“Since 1991, we have equated the budget with spectacular policy announcements, which may or may not be implemented subsequently. But this finance minister’s style is not that. Therefore, this budget will essentially be a budget about numbers, and not spectacular policy announcements.”BIBEK DEBROY“The big problem really is the financing of the budget. The market simply cannot take that amount of bond issuance and we don’t have formats like open market operations.”ABHEEK BARUA
The second is his quest to reduce the deficit. Everybody wants the stimulus to continue. In the corporate sector, the average tax rate paid is about 22 per cent. No one is taking a call on how to bring that up to 30 per cent. He has certainly put off the direct tax code for the next year.Bibek Debroy: Let me begin with the deficit numbers. This year, the deficit was supposed to be 6.8 per cent of GDP. I suspect the numbers will look somewhat more respectable — probably around 6.3 per cent. I think it has largely happened because of disinvestment. The figure will be close to Rs 30,000 crore.But the finance minister is committed to a deficit figure of 5.5 per cent next year. So how is he going to do this? Obviously there will be some sleight of hand in the numbers. We do not yet know