FM gets real, a bit PDF Print E-mail
Thursday, 20 October 2011 00:00
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Accepts fiscal deficit off, dismisses policy paralysis


Given the sharp slowdown in investment levels, a result of RBI action/policy paralysis/global crisis, it’s not surprising that the finance minister has finally admitted that sticking to the fiscal deficit target will be very difficult. Pranab Mukherjee hasn’t come up with a new number, although many analysts point to a 1 percentage point slippage, partly based on the increased borrowing target and the fact that disinvestment and the proposed spectrum auction is going nowhere—and we’re not even talking of the sharply increased expenditures resulting from populist policies. What’s important, however, is that some more clarity be shed on this, perhaps while presenting the supplementary budget in the winter session. Bond markets are driven by the government borrowings—and that affects bank profits since bond values go up and down—so a revised set of targets in the supplementary budget will help. Markets, and corporates, also need more clarity on tax targets—the tax department has agreed to a higher tax target, but there’s no way this can be achieved in a slowing economy. The only way out, as FE’s lead story suggests, is to force India Inc to pay extra tax, only to refund it next year! That may help square the circle, but only by a bit.

The finance minister has done well to focus on what he called the “so-called ‘popular’ perception about policy paralysis”. Except, the instances he gave weren’t very convincing. The draft telecom policy is hardly a policy initiative since it is many months from becoming reality; it’s nice that the new manufacturing policy is before a GoM, but when does it get passed and what does it do about the burning labour problem?; the Mining Bill being ready to introduce in Parliament is a good thing, but Parliament hasn’t passed a meaningful legislation in a while—in any case, nothing has been done to encourage private miners into areas like coal; the Land Acquisition Bill that has been introduced in Parliament doesn’t really help, indeed the sharing of capital gains with the original owner is going to be impossible to implement; the fact that the SBI Amendment Bill has been passed is irrelevant since it was just a procedural issue, and nothing has been done about the real issue—the reason why Moody’s downgraded it—of giving it capital that has been hanging for more than a year. Putting on hold the proposal to treat FDI-with-options as ECBs is welcome, as is the decision to finally give Qualcomm an Internet licence after turning this down though it paid a billion dollars for this 15 months ago … industry has a lot of concerns and may not be placated by the FM saying he is “addressing” these. Still, perhaps that’s a start.



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