panel discussion on India’s federal budget

Wednesday 28 March, 2012

I attended this panel discussion Budget Talk:  Post Budget Panel discussion, organized by the GITAM Institute of Management & sponsored by Indian Bank & moderated by The Hindu newspaper.   The panelists consisted of  Satya Kumar of the Visakhapatnam Port Trust, Hari Naryan of GITAM, T.K. Chand of the Confederation of Indian Industry, Naresh Kumar of Symbiosis, accountant Chandra Sekhar, & tax specialist Kavita Rao.

The India Bank introduced the budget as the government’s vision for the economy & used the term “cruel to be kind” to describe it.  The Hindu moderator used the terms “bitter pill,” pragmatic, & practical to describe it, while noting growth seems to be slowing from 8.4% to 6.9% & the allocations for infrastructure appear low.

S Kumar commented on the recent proposals to raise the rates for the Indian railroad, a very controversial topic, calling it the backbone of India’s infrastructure, the single largest railroad under 1 management in the world, which moves the equivalent of the population of Australia everyday.  It’s now operating at a loss & has been deteriorating since liberalization in 1991.  It’s been long overdue to raise prices.  Managing the budget is a thankless job & requires a balancing act.

Naryan provided an economic analysis of the budget, calling it the ruling party’s framework for growth, equity, & employment.  Growth is declining due to global factors.  India is not insulated from external shocks & suffers from the structure & direction of trade.  India’s biggest trading partner is the UAE, then China, the US, & Europe.  Tight monetary policy & rising interest rates are limiting domestic consumption.  Agriculture & services are growing while industry is down.  Internal demand must be stimulated to spur growth, which requires investment, probably from private savings.  The trade deficit could lead to another balance of payments crisis.  There are still too many loopholes in the budget.  This budget makes changes only incrementally & thus will have very little impact.

Chand took the local steel plant’s point of view as the barometer of the economy & used China’s dominance of the industry as an example of India’s being left in the dust.  India needs more fiscal consolidation for more growth, which was down 3% last year.  India is protecting its local industry with rising import duties.  Taxing productive activities is resulting in sales declines, while still keeping prices high.

N Kumar likened the minister who proposed the budget to a cricket star who recently retired, indicating he was @ the end of his career too.  He stated the country can’t grow without more power:  the budget is cruel to the country, but kind to his party.  Kumar noted the discrepancy in IT exports in the state of Andhra Pradesh between Hyderabad & everywhere else-there is no planning, just employment of  more people.  Earlier IT companies would earn $5K/employee/month, but that has been driven down to $2K/employee/month as international companies have mirrored the operations of local companies here in India.  Taxes, including service & income taxes, are stifling this industry, & their fairness is in question.

Sekhar admitted the need revenues/taxes, & that the software industry is getting the back end.  The government is seeking FII’s (foreign institutional investors) to invest.  Taxes are much lower than they were in the 1980’s, when gold smuggling ruled.  There have been 113 tax amendments/proposals, but none propose a change in the corporate tax.  An equity saving scheme invests in equity of financial institutions only for those with income of <10 Lakh rupees, who get a 50% tax deduction.  A preventative health check-up gets you a 5K rupee deduction.  The definition of senior citizen was reduced from age 65 to 60, but other provisions were not changed.    There are corporate incentives for the power sector.  Now all services are taxed.

Rao, as a representative from the tax office, implored, “Pay your taxes.  If you breathe, you pay.”  Sales taxes are a subset of commercial taxes, as VAT & GST are in the same group.  On the women’s agenda, look @ the dais (all men, except for 1 woman)-women have not benefited at all.


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