Jaswant Singh has come out with an excellent budget. In principle, by lowering taxes and duties for the middle class he has created room for greater consumption driven economic growth. Detractors may call it a give-away, but lets face it, the tariff structure was an artificial construct based on the license-raj paradigm of ‘conservation of foreign exchange’ and ‘protection of our industries’. The fact that Indian industry in the last few years was able to stave off competition from a low cost competitor like China is testament to the fact that these protectionist measures are unnecessary.
In contrast to what Jivha and the Business Standard editor thinks, I think lowering duties on PC hardware and cellular phones is one of the best things in the budget – yes, the duty-free laptop inclusive. As I’d pointed out a few days ago, in the telecom and internet sector, India has already built great infrastructure but the environment was not conducive to demand growth. In my mind, there should be absolutely no barriers to entry for cellular phones and computers. Massive proliferation of phones and computers is absolutely necessary for sustained economic growth.
Yes, Jaswant’s budget may enlarge fiscal deficit. But the right way to trim fiscal deficit is to make the government lean and mean, curb non-developmental spending, enhance its productivity. Those who complain about ‘give-aways’ are effectively arguing that the tax-paying citizens have to bear the double burden of depressed economic growth and subsidise inefficient government. The right thing for the government to do now is to pay attention to the fiscal deficit by reforming government.
Rationalising the tax base has been long necessary but has been put off once too often; a step which has the potential to tackle corruption too. Too many businesses pay off corrupt tax inspectors to avoid paying irrational taxes. This is where bulk of the government’s revenue should be coming from, and this is the area that needs to be tackled in right earnest.
I’m also celebrating the lifting of the $100m limit on Indian companies investing abroad. This will allow Indian industry to take the fight to the shores of their competitors.
Related Link: Indian Express editorial of 12 Jan 2004