Budget 2013: FM P Chidambaram to shun tax measures that could hurt fragile business sentiment.

NEW DELHI: In his eighth budget, Finance Minister P Chidambaram will put in place policies that he hopes will lift the growth rate to around 6.5% in order to raise revenues, which will help rebuild government finances as well as create new jobs ahead of general elections in 2014.

The upcoming budget is likely to shun controversial tax measures that could hurt fragile business sentiment and weaken consumer demand. Policymakers feel that a revival of investment-led growth could solve India's many problems.


"Getting growth back (on track) is the top priority now. With growth in place, everything else will follow. This budget will precisely aim to do that by focusing on manufacturing and infrastructure sectors," a finance ministry official involved in the budget-making exercise told ET.

He said the budget is likely to target a growth rate of around 6.5% in 2013-14, well above most private estimates that have dropped to less than 6% after the Central Statistical Office forecast 5% growth for the current year earlier this month.

The 5% growth is the lowest since 2002-03. "The idea is that if you can get growth back on track, revenues will see an natural buoyancy. A gain of 1-1.5% in growth will add at least Rs25,000-30,000 crore to your tax kitty," said another government official privy to the deliberations.

Green Shoots Yet to appear

While policymakers within the government have been divided over the accuracy of the 5% forecast, the so-called green shoots that suggest economic recovery are yet to become visible.

Industrial production contracted by 0.6% in December. Given this grim backdrop, ministry officials feel proposals like a higher tax on the rich, increase in indirect taxes or a special income tax slab for high-salary earners could spook sentiment and dampen demand that has already taken a hit from the government's fiscal consolidation drive.

Further, multinationals such as Shell and Nokia have again raised concerns over aggressive tax measures and GE and Vodafone have warned of the negative fallout on India's business environment, which will make finance ministry leery of tax measures that could dampen sentiment without yielding much for the government.

Analysts say the government's attempt to keep the fiscal deficit at 4.8% of GDP next fiscal will cause further compression in demand, shaving off half a percentage point from growth, adding to the need for measures to boost investment.

"While the govt has taken several measures since September 2012, continued action from all policymakers is needed to reverse the decline across all the macro variables," Rohini Malkani of Citi said in a note last week, pegging growth for next fiscal at 5.7%. Revival of growth also tops the political agenda as the ruling UPA needs requisite funds for its social sector programmes.


Source : economictimes.indiatimes.com