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June 3, 1998


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'Budget is growth-oriented'

Dr S P Gupta

The Budget is growth-oriented, focusing as it does on increasing investment in the public and the private sector besides giving a thrust to infrastructure, education and health.

It shows a very balanced approach, and is very pragmatic compared to last year's dream Budget.

It has succesfully solved the problem of resource mobilisation by tapping three potential areas.

a. the growing services sector like travel agents, architects, real estate.

b. NRI investments, by giving many concessions. This was very effective in the case of China after economic sanctions were slapped on the country.

c. bold public sector disinvestment programme aiming to raise Rs 50 billion.

The Budget has raised taxes, especially the customs and excise duties. Although selectively. This might give a level playing field to the Indian businessmen, boosting their morale. But one should be careful about its inflationary affect.

The loss of competiveness of the Indian goods and services warranted some positive policy direction in the Budget, in terms of the exchange rate policy or export-boosting measures.

The business community must take the challenge and should reduce their production costs.

Though the Budget is silent on the issue of export growth, it has done well to improve the foreign direct investment inflows.

As for swadeshi it has very clearly defined the term which is by no means anti-foreign investment.

The additional expenditure on education and the special emphasis on the information technology is a move in the right direction.

The opening of the insurance sector may be the first stepping stone for the complete deregulation of the field. At the moment, as the most other sectors, this sector is not well prepared to meet foreign competition.

As for foreign investment, a lot depends on the country's international image and on the conditions of security and profitability in the host country.

However, the recent nuclear tests may not deter foreign investors. So long as the country is not identified as an aggressor, I don't think the tests will dampen the mood of the investors. China is a good example.

Though power is the most binding sector in the growth process, most of the budgets in the past never realised this. As a result, it continues to languish because of the shackles of the Central and state regulation and tariff regimes. No wonder subsidies are the order of the day.

With subsidies taking up more than 20 per cent of the GDP, the Indian economy is a riddle. And a large part of these subsidies go to the power sector.

Despite some positive steps, the Budget has ignored crucial aspects like revenue deficit which is very high. And more than 70 per cent of the revenue goes in interest payments.

The present Budget, however, has taken a bold step to tackle the problem. It proposes a public sector disinvestment programme. However, care should be taken to ensure that the money thus generated is not frittered away on non-development work.

Dr S P Gupta, chairman, Society for Economic and Social Transition, spoke on the Rediff Budget Chat.

Budget '98

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