ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

BudgetSubscribe to Budget

On Fiscal Deficits and Real Interest Rates

The proposition that the size of the fiscal deficit affects the level of interest rates is theoretically completely erroneous, which in turn makes the budgetary strategy fundamentally flawed.

The Budget and Customs Duties

Given that in the last five years there has been little reduction in the general level of tariff rates and that a very low level of tariff is being set as the goal for the near future, a good beginning could have been made in the budget for 2001-2002 by reducing both the peak rates of duty and the average rate. But, despite all the talk of 'second generation reforms', the finance minister has failed to seize the opportunity to take a bold step forward.

The Budget in the Context of Long-Term Development

The finance minister wanted to provide a growth-promoting budget. But budgets cannot promote growth or even arrest the process of slowing down if the fundamentals are not addressed squarely and carefully. These fundamentals belong to the sphere of political economy and are not just economic or financial. They are the long-term factors which determine the outcomes of policies. The budget of a particular year must be seen against these longterm factors to assess its impact or its likelihood of success.

Globalisation and the Budget

Indian institutions such as the law courts, ports, customs, taxation, stock exchanges, banks and others relating to infrastructure creation and maintenance do not function efficiently. Unless India urgently undertakes vital reforms to set its institutions right, higher levels of growth and development may not be possible.

A Well-Intentioned Budget

The Budget for 2001-2002 is certainly not wanting in terms of good intentions and a thrust in the right directions. The main question is whether these intentions are likely to be translated into reality.

Heavy Agenda

The quite exceptional reception that the budget has got must be attributed as much, if not more, to the finance minister’s declarations of economic policy intentions not quite germane to the budgetary exercise as to what he has to offer by way of fiscal measures. Of course, the halving of the tax on dividends, the withdrawal of surcharges on corporate and non-corporate taxpayers, except the 2 per cent surcharge imposed in the wake of the Gujarat earthquake, and the unexpectedly steep cut of 1.5 percentage points in interest rates on provident funds and small savings schemes (which together with the two one-half percentage point cuts in the Bank rate by the Reserve Bank is expected to lower interest rates all round) have all been predictably greeted with applause. For all that, not a few of the finance minister’s claims for the budget, viewed as a fiscal exercise strictly, fail to quite stand up to scrutiny.

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