Stop looking for goodies from the government

Steps to reduce interest rate on government debt, specially ot the state debt, would increase financial viability of the Centre and the states, says Mohandas Pai

In a societal analysis of Budget 2003, Mohandas Pai of Infosys applauds the thrust on the social sector, but warns that higher allocation for primary education and greater tech penetration is still elusive and emphasises that citizens need to look at the long term future of our nation when it comes to Budget expectations

We were in a great stage to bring in radical reforms in the economy. I had hoped that the tax reforms would be deep and far-reaching, investment in the social and infrastructure sector enhanced and costs lowered for goods of mass consumption. The Finance Minister has taken many steps in this direction and has made his intention clear that his focus would be on social sector, infrastructure, agriculture, fiscal consolidation and enhancing productivity in the economy. As he has also stated, there is palpable impatience in the country for reforms and the time has come for action and not for a prolonged period of reflection. He did rise to the challenge though the youth of the country would have said “Yeh Dil Mange More.”

The stress on the social sector would make liberalisation and globalisation more palatable. Increased allocation for the BPL (below the poverty line) sector, housing, tax breaks for education, sports and the establishment of national health insurance is welcome. I, however, had hoped that there would be increased allocation for primary education and creation of a national mid-day meal programme. We cannot let 45 million children continue to be deprived of education, food and health and still call ourselves a progressive society.

The emphasis on infrastructure would make us more productive and efficient. The stress on private-public partnership for construction of new roads, enhancement of the railway network, modernisation of two major airports and seaports and construction of two world-class convention centres is a great step indeed. I specially liked the increasing pattern of the government using its resources as a bridging mechanism to leverage greater investment in infrastructure. This can change the face of India. But I’m disappointed about the lack of increased investment in the justice system. This is holding back India much more than what people believe.

I am proud that the Finance Minister has given up India’s romance with aid. We need to stand tall and proud and stop asking for aid, specially tied aid. Prepayment of external debt of $3 billion and initiatives to reduce external liabilities are great steps. Steps to reduce interest rate on government debt, specially the debt of the state governments, would increase financial viability of the Centre and the states.

Investment in agriculture has been inadequate for long. This year, too, more lip service has been paid than investment. We need to invest in farmers’ education, enhancing yields and bringing in efficiency in this sector. We need a radically new approach, which is lacking. I wish the reduction in fertiliser subsidy was matched by an increased investment in irrigation so the farmers could get back more than what they pay.

Industry has a lot of reasons to smile. Indirect taxes have been reduced, both customs and excise. There is a special focus on textiles, tourism, pharmaceuticals and information technology (IT). Reservation for the small-scale industry has been reduced. Interest rates have been brought down, tax reforms initiated to reduce transaction costs. Value added tax (VAT) would come into force from April 2003. Rightly, service tax has been enhanced and widened. What India needs today is a low tax regime to encourage mass consumption and promote manufacturing. Steps have been taken in this direction, though reducing the basic rate of excise duty to 14 percent would have been more apt.

Changes in the direct tax regime have been patchy. While cost on equity has been reduced through lower taxes on dividend and capital gains, the problem of Surjith Bhalla’s missing middle remains. The tax rate should have been rationalised with the removal of exemptions to create a better system.

The knowledge-based industry has been given a special focus. The IT industry’s fears about the withdrawal of Sections 10A/10B have been banished. Withdrawal of benefit in case of acquisitions and mergers has been abolished. This will allow the industry to consolidate. Cost of computers may come down due to lower Customs duty on electronic components and also abolition of excise duty on pre-loaded software.

Incentives to the biotechnology and pharmaceutical industry have been announced. The finance minister has met most of the requests of the knowledge industry as regards taxes. The IT industry has come of age and will not grow on crutches.

However, the larger issue of inadequate investment in our primary education system, and in our children and a rigid higher education system still remains. What is needed for the continued growth of the knowledge industry is more investment in education, greater technology penetration, and better infrastructure and not mere tax breaks. Tax breaks should be restricted to a finite amount so that smaller companies can benefit.

The fiscal deficit continues to be worrisome at 5.6 percent. The states are strapped for cash. Though this Budget will revive the growth impetus, we need to remember that we have to make available to our citizens a greater quantum of goods and services for the same amount of income by reducing costs, reducing taxes and improving efficiency. The markets have to expand as has been done by China and that can only happen by mass consumption and lower costs. There are many more steps to take but I am confident that this Budget will start the journey.

India has a high debt-to-GDP ratio of 85 percent. Sometimes, I wonder about the kind of country we are leaving for our children. A country with high debt, inadequate infrastructure, 350 million illiterate people and a divided polity. The issues we face are many and these are not going to be solved by tinkering at the margins. We need radical reforms—a cut in unproductive spending, lower indirect taxes, higher collection of direct taxes, withdrawal of government from business and better governance. The Finance Minister has said all these and has taken steps but India’s youth need more. For they have to pay the national debt. And the future belongs to them. I would submit to all my fellow citizens to keep our future generations in view when we take decisions about our economy and not look for more goodies from the government.

Mohandas Pai is chief financial officer, Infosys Technologies
In arrangement with The Financial Express