An announcement of foreign direct investment [FDI] in India is normally welcome in recognition of its contribution to capital formation, accelerating growth and adding to our foreign exchange kitty. Deviating from this normal practice, last month, the union minister for commerce and industries, Piyush Goyal was dismissive about the decision of Amazon boss to bring a few billion dollars to India. Goyal meant that Jeff Bezos was bringing money to make up for the huge loss the company was incurring on its operations in India. Losses or gains are intrinsic to any business. So, what was so special about the terse observation by the minister? Amazon essentially operates the ‘market-place’ model of e-commerce – a special dispensation carved out by...
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Category: Economic outlook
Fiscal slippage – the denial syndrome
In the Union Budget for 2020-21, Finance Minister, Nirmala Sitharaman revised the fiscal deficit [FD] for 2019-20 to 3.8% of GDP – up from the budget estimate [BE] 3.3%. In absolute term, the RE is Rs 766,500 crore against BE Rs 700,000 crore. Sitharaman has explained away the slippage in terms of recommendation of the NK Singh committee on review of the Fiscal Responsibility and Budget Management [FRBM] Act which permits breach of the target in case of “far reaching structural reforms with unanticipated fiscal implications”. The justification is untenable as during the year, there was no reform measure that can be put in the category of ‘far reaching structural reforms’. The government could slip further even from the revised...
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Reduce the income gap
The solution doesn’t lie in more sops, fiscal incentives and so on. There is need for change in the way our industrialists do business and netas and babus conduct themselves Successive Governments have remained obsessed with accelerating economic growth without caring about how it impacts income distribution, forget any attempt to internalise this crucial aspect in development strategies. They believe that the fruits of growth will automatically percolate to the lowest strata of society. Nothing could be farther from the truth. This is evident from a piece of research, Time to Care, released by rights group Oxfam ahead of the 50th Annual Meeting of the World Economic Forum (WEF) held in Davos (Switzerland) from January 21-24. According to the study, India’s richest one...
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Freebies: Why it is a road to fiscal disaster
Freebies provided by state governments need to consider the fiscal burden they will lead to, and must not be used to woo voters. AK has literally mesmerised Delhi voters by promising free/heavily subsidised electricity—24×7—and free water. —————————————————- In the just concluded elections in Delhi, the electorate has returned Arvind Kejriwal (AK) to the coveted position of chief minister with a thumping majority with Aam Aadmi Party (AAP), winning 62 out of a total of 70 assembly seats. AK has literally mesmerised Delhi voters by promising free/heavily subsidised electricity—24×7—and free water, besides several add-ons such as free bus ride for women, free Wi-Fi, full reimbursement of hospitalisation expenses in case of accident on an actuals basis, free testing and diagnostic services—if the facility is...
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Telecom industry on the brink
Bringing to a climax more than a decade old court battle between department of telecommunication [DoT] and telecom service providers, in an unprecedented judgment, on October 24, 2019, the Supreme Court [SC] ordered the latter to pay ‘unpaid’ dues towards license fee and spectrum usage charges [SUC]. The unpaid dues [call these additional liabilities] arose consequent to the SC accepting the DoT interpretation that adjusted gross revenue [AGR] [license fee and SUC is charged as percentage of AGR] includes – apart from telecom services revenue – revenue from non-telecom services viz. rent, profit on sale of fixed assets, dividend, interest etc. The additional liability on private telecom service providers is a whopping about Rs 147,000 crore for the period 2006-07 to 2016-17...
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Amnesty schemes cannot help fill the void in tax collection
While presenting the Budget for 2019-20, Finance Minister Nirmala Sitharaman had set gross tax receipts (GTR) target of about Rs 24.6 lakh crore. In the Budget for 2020-21, the revised estimate [RE] for 2019-20 at Rs 21.6 lakh crore is short by a whopping Rs 3 lakh crore. In direct taxes alone, the shortfall is Rs 1.6 lakh crore, the RE being Rs 11.7 lakh crore against the budget estimate [BE] of Rs 13.3 lakh crore. For 2020-21, the FM has set the GTR target of Rs 24.23 lakh crore – an increase of Rs 2.63 lakh crore over the RE for 2019-20. The direct tax target is Rs 13.19 lakh crore, an increase of Rs 1.49 lakh crore over the...
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Freebies – road to fiscal disaster
In the just concluded elections in Delhi, the electorate has returned Arvind Kejriwal [AK] to the coveted position of Chief Minister with a thumping majority [Aam Aadmi Party (AAP) won 62 out of a total of 70 assembly seats even as its dominant rival BJP secured a mere 8; the third main contestant in the fray Congress got none]. Kejriwal claims that this is a vindication of the ‘development model’ pursued by him during the last 5 years since February 2015. He vows to pursue this in Delhi during the next 5 years and has crafted plans to leverage it for establishing the footprint of AAP in other states. What precisely is the model? Will the states be able to...
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Make your choice
If demand doesn’t improve, firms might retain the tax cut bonanza instead of investing. It would’ve been better to put more cash in the pockets of individuals by giving more IT relief Amid an atmosphere of gloom and doom (triggered by growth plunging to a low of less than five per cent during the current year and muted projections for next year), it is necessary to closely scrutinise tax proposals in the Union Budget for 2020-21 to assess whether or not these will generate the much-needed growth impulses. The four major factors impinging on a surge are private consumption, investment, export and spending by the State. The Modi Government has kept up the tempo of expenditure by way of building infrastructure and...
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Budget 2020-21 – will FM’s tax proposals spur growth
Amidst an atmosphere of gloom and doom [triggered by growth plunging to a low of less than 5% during the current year and muted projections in regard to growth during the next year], it is necessary to closely scrutinize tax proposals in the Union Budget for 2020-21 [presented by the Finance Minister, Nirmala Sitharaman on February 1, 2020] to assess whether or not these will generate the much needed growth impulses. The 4 major factors impinging on growth are (i) private consumption; (ii) investment; (iii) export; (iv) spending by the state. Modi – government has kept up the tempo of expenditure by way of building infrastructure on an unprecedented scale and massive spending on welfare schemes. As regards export, given...
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Not so strategic disinvestment
Unless there is an economic turnaround and the bureaucratic machinery moves with alacrity to make preparations for conducting PSU sales, the Govt will not reach the Rs 2,10,000 crore target Buoyed by the success of disinvestment in Public Sector Undertakings (PSU) during 2017-18 and 2018-19 (when the Centre garnered over Rs 100,000 crore and Rs 85,000 crore respectively), for the current year, the Modi Government had set an ambitious target of getting Rs 1,05,000 crore. A major slice of these proceeds was to come from “strategic disinvestment” or transfer of a sizeable portion of ownership (this could go up to 51 per cent, implying privatisation) and management control to a private entity. The crucial “strategic disinvestment” proposals included divestment of all of...
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