Be a responsible citizen. Come, pledge to always check and share verified and vetted news.
5-min read

Budget can only indirectly influence the road to recovery: Sanjay Banerji

Updated: March 1, 2013, 5:49 PM IST
facebook Twitter google skype whatsapp
Budget can only indirectly influence the road to recovery: Sanjay Banerji
Is the Union Budget 2013-14 the right thing for India?

Is the Union Budget 2013-14 the right thing for India? Professor of Finance at Nottingham University Business School Sanjay Banerji shared his perspective in an interaction with IBNLive readers.

Q. Taxing the super-rich is ok but can this type of budget lead the road to recovery? It's good that garments, handloom products and coir became cheaper and tobacco products, AC hotels became costlier. Asked by: Sathyaki

A. Budget can only indirectly influence the road to recovery. For example, by making better infrastructure in road, ports, increasing connectives etc. Taxing super rich is just a gimmick as there are little more than 40, 000 of them and benefits to a particular sector in the form of tax reduction will make a one shot change in investment. But for growth, we need a permanent rise in investment which is not within Budget's capability. It's main aim for now is to reduce deficits, given political and international ( rating agency) constraints.

Q. No change in tax slab, medical benefits and transportation for the middle class? Inspite of the hype, could the FM had made changes to these to encourage people to spend money in the market? Asked by: EMathew

A. There are some sops for middle class, especially for the first time home buyers and and some deductions upto a limit but the effective demand will partly also depend on the growth of income and employment. It's not clear how the twin objectives of increased employment and output will be achieved.

Q. Is the Union Budget 2013-14 the right thing for India? Asked by: Harry

A. See, there were two objectives. 1, To keep most of the people ( especially in the rural areas) happy and two, to reduce BOP and fiscal deficits. Otherwise, rating agencies would downgrade ratings, lead to larger borrowing costs from the international markets, leading to a decline in foreign investment. So, the budget addresses there two concerns by allocating more in the rural welfare schemes but reducing subsidies in petro- related products ( that depend upon dollar)and reducing planned expenditure. It's ok but FM could have been more imaginative!!

Q. Do you believe that the Direct Benefit Transfer has the potential to boost Indian Banking sector in a big way especially in rural areas? Asked by: Bhumish Khudkhudia

A. Certainly so. If this together with Adhar( unique identity scheme) works, it might bring miracles not just to the Banking sector but the rest of the economy as well by simply stopping leakages. By the way, banking penetration in India is awfully weak (meaning poorer people's use of banking). Mindless RBI regulations are partly responsible. But still, you are right because these are supply side (supply of banking products and activities) but what you are referring to demand side, that would go up and it's certainly beneficial for the banking of all kinds.

Q. What is the bigger implications of Budget 2013 for the Indian economy? Asked by: Sunil

A. See, the Budget unlike a decade ago, can not have direct impact on the growth of the economy, partly because it depends on international economy (with globalisation) and investment of the private sector, that depends on state of infrastructure and ease of raising finance. However, the Budget has an important signalling part like avoiding wrong kind of taxation to multi-nationals ( retro tax on Vodafone) or commitment towards reforms etc. to investors both home and abroad. The FM has already started doing it ( through retail trade etc.) and budget outlined continuity. In that sense, the investors can regain confidence in the political process. Hence, its an indirect impetus and so far, its not a bad one.

Q. Is the Income Tax surcharge on the super-rich the right way? Asked by: RK

A. See that those people are 40,00 in number and increased 5 per cent surcharge implies almost a drop in the whole budget. But what is needed is reform of the tax codes, rationalization of corporate taxes and stopping the loopholes ( like avoiding tax with an headquarter in some vague country), These steps are more essentials. From the fairness point of view its ok, but my suspicion is that the super-rich will pay lawyers more to find escape routes.

Q. Talking about "The National Electronics Policy 2012". Is the Government trying make India an electronic hub like Thailand or Taiwan? Asked by: Agni Tripathi

A. I have heard ( not in budget but in other contexts), India is planning to have a huge penetration in Telecom but sure with ITs. But I guess that we, in India, have a strong potential for making IT hub privately as well and will partly depend on speedier global recovery.

Q. What impact will be on IT sector and computer parts rates? Asked by: mohit lakhmani

A. Not much because mostly it will depend on sector specific( IT) demand and supply shock while the budget covers economy wide plans.

Q. If there is "permanent surcharge" on super rich, on windfall gains, and on companies that enjoyed tax holidays in the past (say one decade), no FM will have to announce surprise surcharges. Comment. Asked by: Shilpa

A. I think that I just have answered this question, just a while ago in this forum.

Q. Will the Direct Cash Transfer boost Indian Banking Sector in a big way? Asked by: Bhumish Khudkhudia

A. I did answer this as well.

Q. If the super rich contribute the 10 per cent surcharge amount in their respective NGOs or for charity, will they be exempted from it? Asked by: RK

A. There are already tax exemptions for social activities by the Corporations. They can take advantage of it. But I think that they will have some other way of showing lesser income. Rich people never pay taxes anywhere in the world!! Its a reality.

Q. How all women bank will boost the economy. Asked by: sarin

A. There are plenty of smart women around our country. All we have to do is to search and recruit them. BTW, the smashing success of Grameen Bank in Bangladesh and other places around the world was due to ( to a large extent) the money by the bank was targeted to the women member of the family. The result was: almost no default and enhanced welfare for the family. One could replicate that.

Q. In the back drop of UK and other European countries economic situations and the measures they have been toying with how you will rank the Indian Budget and FM's efforts? Asked by: Hari

A. See, Europe and UK have their problems and there is not much our FM can do about it. Like euro crisis or Spanish debt etc. But if our FM means what he says about boosting infrastructure, India will go a long way because we have a huge internal market to cater unlike china that primarily depends on export. However, most of such work is outside the budget when the economy moves on it own.

First Published: March 1, 2013, 5:49 PM IST
Read full article
Next Story
facebook Twitter google skype whatsapp