Tuesday, February 16, 2010

Beware the 26th of feb

Indian Union Budget 2010-2011: Pro-People or Pro-Fiscal?

The finance minister Pranab Mukherjee will have to tread a tightrope in the course of framing his second consecutive budget on behalf of the UPA government. The queue of expectations is already superfluous and delivering all the things on the list seems quite out-of-question for Mr. Pranab.

It’d be worthwhile to mention that the recovery from recession around the world (India being no exception) was primarily based upon the government spending, stimulus packages, tax holidays/exemptions and sacking of many fund raising mechanisms. When the budget 2009-2010 was out, the FM had to face austere flak about not being transparent enough to mention how the funds would be arranged to meet the faces promised by the budget. Economists had foreseen a rising fiscal deficit and unfortunately that’s exactly what has come about. Worse, it’s morphing into a second version of the crisis, “The Fiscal Crisis”.

The fiscal deficit has bloated to an ever-high position and the government is anything but certain on how to bring it down. The obvious answer then comes out quite perilously: taxes.
While the corporate world stands asking for extension of tax holidays, abolition of surcharges, and abolition of wealth tax, there are individuals (us) asking for increase in limits of tax deduction, reduction in prices and increase in housing loan interest deductions.
Where should the government go?
Continue issuing stimulus packages and get exhausted of its funds?
Continue borrowing and crowd out the corporate?
Continue accruing debts and feature a great uncertainty?

Or should it rather go the other way around? Increase taxes, sack stimulus packages, unroll exemptions and build up revenue?
The government should, indeed, return to the path of fiscal consolidation. Greece is on the verge of an irreparable fiscal breakdown and other Eurozone members have still not decided whether or not to bail it out. Ensuring India doesn’t meet the same fate calls for immediate measures to rebuild the revenues.

It’s a difficult but pressing decision to unroll some of the government spending programmes right-away. The best the government can do is to initiate in a moderate fashion, i.e., neither too-much-too-soon nor too-less-too-late.

And the best you and I can do is to wait and watch “Which Way The ‘Budget’ Jumps.”

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