Dr.T.V.Gopalakrishnan , Mumbai , says: The budget is not attractive for investors in general and FIIS in particular. It has not helped to boost the business confidence as there are lot of irritants and scope for corruption.Nothing substantial in the budget to revive the economy through administartive,legal or financial reforms. Doing business is more complicated with the provision to reopen the cases relating to IT with retrospective effect.Overall the budget is not very imaginative to improve the economy by any measures.
This is in response to an opinion poll relating to FII's investments in ET dated 26/03/12.
Monday, March 26, 2012
Sunday, March 25, 2012
Budget has placed RBI in a SPOT
Chances of a further increase in inflation in the background of the Budget proposals cannot be ruled out. Expecting the Reserve Bank to cut policy rates will amount to sacrificing price stability for economic growth.
March 25, 2012:
The Budget for 2012-13, after assessing the results of the elections in five States, has a slew of measures intended more for the Government's survival than reviving the sagging economy.
As against 6.9 per cent GDP growth finally estimated for the current financial year (2011-12), it has projected growth for the coming fiscal at a moderate 7.6 per cent with scope for 0.25 percentage points deviation either way.
Pursuing safe policies
The undertone of the Budget is good, revealing the Government's awareness about the urgent need to give a boost to the economy through bold reform policies.
But for certain obvious political compulsions, it seems to have decided to pursue safe policies leaving the economy to take its own course.
That the Budget is not the only exercise to remedy the ills plaguing the economy is the message being conveyed by the Government.
Nevertheless, it has attempted to please all key segments of the economy — agriculture, industry, infrastructure, particularly power, the capital market, small and medium enterprises, and the salaried class.
Perhaps, the services sector is the only exception, with more services being brought into the tax net and enhancing the tax rate from 10 per cent to 12 per cent.
The approach of the Government, no doubt, is positive but needs to be closely monitored for successful implementation, especially the measures intended to bring down subsidies to 2 per cent of GDP and contain the fiscal deficit at 5.1 per cent of GDP.
The fiscal and current account deficits continue to remain high and this could worsen and add to the inflationary pressure.
The current prices of crude oil, at around $125 a barrel, and the exchange rates are not very favourable.
The $115/barrel taken by the Government for its assessment of fiscal deficit and the oil subsidies not actually provided for can lead to the deficits slipping further.
In case oil prices come down, as has happened in the past, it can only be a bonus.
Rate cut expectations
The Reserve Bank's recent monetary policy measures, which include cutting the CRR (cash reserve ratio) by 1.25 percentage points in two instalments, keeping the repo and reverse repo rates unchanged at 8.5 per cent and 7.5 per cent, respectively, and the marginal standing facility at 9.5 per cent, have had a softening effect in the money market and generated further expectations of policy rate cuts.
However, with higher excise duty on a wide range of items, increased charges on a large number of services hitherto not covered, exchange rate fluctuations, with the rupee hovering around Rs 50 to a dollar, coupled with uncertainties in the international markets, the expectation that inflation can be brought under control seems like wishful thinking.
The increase in rail passenger and freight charges will also have an adverse impact on commodity prices.
The realities are, therefore, far from expectations. The Wholesale Price Index-based inflation, which was 6.6 per cent in January 2012, increased to 7 per cent in February. Retail inflation, based on Consumer Price Index, has risen from 7.7 per cent to 8.8 per cent.
The retail inflation for rural and urban areas worked out to 8.4 per cent and 9.5 per cent in February as against 7.3 per cent and 8.3 per cent, respectively, in January.
Chances of a further increase in inflation in the background of the recent the Budget proposals cannot be ruled out.
Expecting the Reserve Bank to cut policy rates will only amount to sacrificing price stability for economic growth, which is elusive due to several other factors other than interest rates and are beyond the control of the apex bank.
‘Fiscal consolidation'
The RBI has been repeatedly cautioning the Government that “credible fiscal consolidation will be an important factor in shaping the inflation outlook.”
As the situation has not changed much, it will be too early for the Reserve Bank to take a realistic view on the policy rates in its April review.
In fact, the Budget has put the Reserve Bank in a tight spot. The achievement of the twin objectives of monetary policy — economic growth and price stability, which includes financial stability — has been rendered an uphill task.
Dr.T.V.Gopalakrishnan
(The author is a Mumbai-based consultant. The views are personal.)
(This appeared in The Hindu BusinessLine dated 26/03/12).
March 25, 2012:
The Budget for 2012-13, after assessing the results of the elections in five States, has a slew of measures intended more for the Government's survival than reviving the sagging economy.
As against 6.9 per cent GDP growth finally estimated for the current financial year (2011-12), it has projected growth for the coming fiscal at a moderate 7.6 per cent with scope for 0.25 percentage points deviation either way.
Pursuing safe policies
The undertone of the Budget is good, revealing the Government's awareness about the urgent need to give a boost to the economy through bold reform policies.
But for certain obvious political compulsions, it seems to have decided to pursue safe policies leaving the economy to take its own course.
That the Budget is not the only exercise to remedy the ills plaguing the economy is the message being conveyed by the Government.
Nevertheless, it has attempted to please all key segments of the economy — agriculture, industry, infrastructure, particularly power, the capital market, small and medium enterprises, and the salaried class.
Perhaps, the services sector is the only exception, with more services being brought into the tax net and enhancing the tax rate from 10 per cent to 12 per cent.
The approach of the Government, no doubt, is positive but needs to be closely monitored for successful implementation, especially the measures intended to bring down subsidies to 2 per cent of GDP and contain the fiscal deficit at 5.1 per cent of GDP.
The fiscal and current account deficits continue to remain high and this could worsen and add to the inflationary pressure.
The current prices of crude oil, at around $125 a barrel, and the exchange rates are not very favourable.
The $115/barrel taken by the Government for its assessment of fiscal deficit and the oil subsidies not actually provided for can lead to the deficits slipping further.
In case oil prices come down, as has happened in the past, it can only be a bonus.
Rate cut expectations
The Reserve Bank's recent monetary policy measures, which include cutting the CRR (cash reserve ratio) by 1.25 percentage points in two instalments, keeping the repo and reverse repo rates unchanged at 8.5 per cent and 7.5 per cent, respectively, and the marginal standing facility at 9.5 per cent, have had a softening effect in the money market and generated further expectations of policy rate cuts.
However, with higher excise duty on a wide range of items, increased charges on a large number of services hitherto not covered, exchange rate fluctuations, with the rupee hovering around Rs 50 to a dollar, coupled with uncertainties in the international markets, the expectation that inflation can be brought under control seems like wishful thinking.
The increase in rail passenger and freight charges will also have an adverse impact on commodity prices.
The realities are, therefore, far from expectations. The Wholesale Price Index-based inflation, which was 6.6 per cent in January 2012, increased to 7 per cent in February. Retail inflation, based on Consumer Price Index, has risen from 7.7 per cent to 8.8 per cent.
The retail inflation for rural and urban areas worked out to 8.4 per cent and 9.5 per cent in February as against 7.3 per cent and 8.3 per cent, respectively, in January.
Chances of a further increase in inflation in the background of the recent the Budget proposals cannot be ruled out.
Expecting the Reserve Bank to cut policy rates will only amount to sacrificing price stability for economic growth, which is elusive due to several other factors other than interest rates and are beyond the control of the apex bank.
‘Fiscal consolidation'
The RBI has been repeatedly cautioning the Government that “credible fiscal consolidation will be an important factor in shaping the inflation outlook.”
As the situation has not changed much, it will be too early for the Reserve Bank to take a realistic view on the policy rates in its April review.
In fact, the Budget has put the Reserve Bank in a tight spot. The achievement of the twin objectives of monetary policy — economic growth and price stability, which includes financial stability — has been rendered an uphill task.
Dr.T.V.Gopalakrishnan
(The author is a Mumbai-based consultant. The views are personal.)
(This appeared in The Hindu BusinessLine dated 26/03/12).
NPAs in PSU banks increase by 51%
The increase in NPAs of PSU banks by 51% is something of very high order and there is no justification of whatsoever to make the tax payers to bear the loss of banks on account of NPAs. The basic cause of NPAs is the undisciplined behaviour of the borrowers and they need to be made to behave responsibly when they use deposits of banks which belong to public. It is something not digestible to bear the loss of Kingfisher like borrowers by public as the loss of PSU banks is ultimately borne by the GOVT using tax payers money. The only way to tackle NPAs of banks is to make the borrowers to compulsorily contribute towards a fund in banks books based on borrowers performance assessed on a continuous basis and build up this fund over a period to absorb the losses on account of NPAs. It is more sensible to make the borrowers particularly the bad ones to bear the cost of NPAs rather than by other stakeholders.Loss on account of NPAs has to be borne only by the bad borrowers.
(This appeared in BusinessLine dated 21/03/12)
from: Dr.T.V.Gopalakrishnan
Posted on: Mar 21, 2012 at 08:30 IST
(This appeared in BusinessLine dated 21/03/12)
from: Dr.T.V.Gopalakrishnan
Posted on: Mar 21, 2012 at 08:30 IST
Monday, March 19, 2012
Fiscal deficit at 5.1% is unrealistic
Dr.T.V.Gopalakrishnan , Mumbai , says: The budget 2012-13 is for the survival of the Govt and not for the revival of the economy which is sagging for the past few years for want of proper direction and crucial policy decisions. The fiscal target fixed is not only unrealistic and cannot also be sustained if one were to go by the past records.The expenditures are not under control and the subsidies for food,fertilisers and fuel are absolutely unmanageable.Economic growth alone is the solution for many of the problems including fiscal deficit and unfortunately the budget proposals and domestic and external environment do not favor an excellent growth prospects. The economy has to put up with all these problems till political stability is established first which is a stupendous task as of now.
19 Mar 2012, 1919 hrs IST
(This is in response to the opinion poll in Et dated19/03/12).
19 Mar 2012, 1919 hrs IST
(This is in response to the opinion poll in Et dated19/03/12).
Friday, March 16, 2012
RBI and Policy Rates
Dr.T.V.Gopalakrishnan , Mumbai , says: RBI has no option but to keep the policy rates unchanged taking into account the pressures on inflation,Govt's reluctance to act on fiscal front effectively and other uncertainities from external sector.RBI alone cannot find measures to the ills of the economy is a fact which needs to be recognised by the Govt.
(This appeared in ET dated 16/03/12
(This appeared in ET dated 16/03/12
Thursday, March 15, 2012
Railway Budget and Politics
Dr.T.V.Gopalakrishnan , Mumbai , says: TMC's reaction to the Railway budget smacks of bad politics over good economics.This is not pro-poor in the long run.The economy has to grow fast to remove poverty and Railways play a key role in facilitating this growth. This is a vital infrastucture and it needs to be developed to ensure equitable distribution of nation's wealth and inclusive growth. At this rate,the growth of the economy and upliftment of the masses will remain a distant dream and this sort of shortsightedness on the part of Powerful,influential and popular politicians has an adverse and damaging imapct on the economy.
15 Mar 2012, 1818 hrs IST
This in response to the opinion poll in ET.
(This appeared in ET dated 15/03/12)
Dr.T.V.Gopalakrishnan
15 Mar 2012, 1818 hrs IST
This in response to the opinion poll in ET.
(This appeared in ET dated 15/03/12)
Dr.T.V.Gopalakrishnan
RBI's Policy Review on 15/03/12
The Reserve Bank kept all the rates unchanged and this move was on expected lines.Normaally,the Reserve bank's review follows the annual budget of the Govt and the Bank gets to know the move of the Govt and and a full feel of the economy based on Economic survey and buget indications.The sharp cut effected by the Bank in CRR a week ahead of the review was quite unexpected and surprising as it gave the message to the market that the Reserve Bank fully recognises the liquidity constraints in the system and action is called for.However,the inflation pressures suppressed under the uncertainities of the oil price increases and containment of fiscal deficit cannot be overlooked by the Reserve Bank for effecting policy rate cuts although, the industrial growth demands a steep cut.The present position is that the Reserve Bank and the GOVT are in opposite directions and there is an inevitable need for them to come together to frame monetary and fiscal policies.Perhaps,the budget to be announced on 16th would pave way for that.
Wednesday, March 14, 2012
Misery of Air Travel
The article reads well and is humurous. But the experience of customers of Airlines is nothing but misery.The cost in a way has come down,but the time taken to reach airports particularly in Bangalore and Hyderabad takes away the very charm of flying.Here they have consulted only politicians and not economists to have air ports far far away from cities. Taxi owners have a good time in these air ports is a fact which cannot be ignored although it adds misery to air travellers.King Fisher a brand got suppport from growing upper middleclass of the society who took it as a pride and prestige to be a frequent flier in that airlines and perhaps enjoyed a bit of nice hospitality and VIP treatment in its initial days.It is a fact King Fisher brought misery and suffering not only for all classes of travellers,but also for the Govt and Public Sector Undertakings which include banks and oil Companies.Flying has become a nightmare for average citizen and even for high class citizens thanks to KF
This is in response to a write-up appeared in Business Line Dt14/03/12.The articleis written by TCA Srinivasa raghavan.
(This is published in BL dt14/03/12)
This is in response to a write-up appeared in Business Line Dt14/03/12.The articleis written by TCA Srinivasa raghavan.
(This is published in BL dt14/03/12)
Wiil RBI go for a rate cut on 14th in its policy review?
Dr.T.V.Gopalakrishnan , Mumbai , says: The RBI cannot afford to effect any rate cut in its policy review due on 15th for the simple reason that the review comes just before the budget.Further,RBI would like to have an idea about the Govt's approach to contain fiscal deficit.The inflationary pressures continue to persist in the economy and it is too early for the RBI to take a call on rate cut although manufacturing side needs a boost by reduced interest rate. In all probability, the Reserve Bank would prefer to revise the rate downwards in its annual policy review in April.
14 Mar 2012, 1747 hrs IST
(This appeared in ET in response to their Opinion Poll on RBI Rate cut)
14 Mar 2012, 1747 hrs IST
(This appeared in ET in response to their Opinion Poll on RBI Rate cut)
Tuesday, March 13, 2012
Banks and Liquidity Crisis. It is their own mess
Apropos the edit “RBI waits for FM” (March 12), the central bank’ move to cut the cash reserve ratio by 0.75 percentage point a week ahead of its policy review was quite unexpected. This indicates that the Reserve Bank of India (RBI) recognises the liquidity tightness in the market because of large borrowings by banks. The present liquidity crunch is partly owing to banks’ inefficient management of assets and liabilities. The slowdown has affected banks’ credit portfolio since there is no credit expansion or repayment of loans. With high non-performing assets (NPAs), it is only natural to be more impacted by the liquidity crunch because of lack of recycling of funds. More NPAs mean less profit since there is no repayment of interest. Given the high inflation rate, banks raised interest rates on short-term deposits and deployed resources in long-term government securities and long-term advances. There is a mismatch between banks’ short-term liabilities and short-term assets. Adjustment of interest rates will enhance demand for credit and banks will see more liquidity tightness. The escape route is to drastically bring down NPAs but that, again, is dependent on several other factors. Things can improve only after the government announces the Budget.
T V Gopalakrishnan Mumbai
(This appeared in Business-Standard dt14/03/12)
T V Gopalakrishnan Mumbai
(This appeared in Business-Standard dt14/03/12)
Sunday, March 4, 2012
Budget and Governance Deficit
The Budget should aim at capturing all forms of economic activities, particularly under the unorganised sector, and bring them under the information system formally.
March 4, 2012:
The economy has not been doing well for the past couple of years on account of both domestic and external factors. GDP growth has slowed and is expected to be at 7-7.5 per cent as against the required 9 per cent to make it internationally competitive and justify its position as a fast growing economy among the BRIC nations.
The fiscal deficit, current account deficit and inflation continue to remain high and if the GDP growth does not pick up, the situation will be grim and will erase not only the potential to make up for the loss but also to regain the credibility of investors in particular, which is vital to put the economy back on fast track.
The Finance Minister has a key and a challenging role to perform. He has to make Budget 2012-13 a tool to set right the past mistakes and make the economy perform better.
Plugging the loopholes
There is no disputing the strength of the economy and its potential to make a comeback. Perhaps, the Budget can do the trick provided it is drafted to plug the loopholes in governance and enhance investment, production and consumption, with equal attention to augmenting the revenues without any leakage due to corruption, lack of accountability and proper information system.
The approach should be to ensure accountability for the gaps between expectations and achievements. The industrial, agriculture and services sectors contribute to the GDP and there should be separate targets for investment, production and revenue contributions from these sectors.
To have a clear idea as to which sector performs well and which needs special attention, there should be a separate target for indirect taxes from these three sectors.
The indirect taxes in the form of excise and Customs duties where the scope for corruption is reported to be very high needs to be re examined and thoroughly revamped to ensure that there is absolutely no possibility for manipulation and leakage either in the reporting of transactions or in the revenue collection.
The Government expenditure on these three sectors also needs to be closely monitored to fix responsibility for leakage. The monetary and social benefits from Government spending should be assessed at periodical intervals and accountability for any shortfalls in the achievements needs to be fixed.
There should be adequate checks and balances to ensure that there exists a proper relationship between investment, production, exports, imports and revenue collections and there is no undue misrepresentation of facts by any agency involved.
Usage of subsidies is one area requiring close surveillance and for this the Central Government should have special arrangement, even at a cost, to ensure that subsidy has the desired impact. Information technology should be put to optimum use to strengthen the database and initiate follow-up action.
Corporate governance
The institutions involved should practice corporate governance in letter and spirit and this has to be made verifiable by any agency under social audit. Ethics and code of conduct pursued by institutions and various agencies need to be made transparent and their contribution to national wealth needs to be assessed, rated and recognised. The Budget can definitely find some provision towards this end.
The Budget should aim at capturing all forms of economic activities, particularly under the unorganised sector, and bring them under the information system formally. Many States face labour shortage for agricultural activities even as people are employed in metros and urban areas on contract basis or otherwise and, possibly, without being accounted for employment or income. Though this has helped improve the poverty levels, it does not seem to have captured the attention of the authorities. Financial inclusion, particularly banking, with the support of State governments can be an easy solution for many of the labour-related problems both in the rural and urban areas.
Fiscal deficit which continues to rise unabated has to be closely monitored and reviewed along with the monetary policy review. The agricultural sector, which is identified as one of the major factors influencing inflation, has not been performing well despite having enjoyed favourable monsoon and financial support.
The institutions responsible for poor performance of this sector have to be identified and made accountable. Though agriculture is a State subject, the interference of the Central Government is often blamed for the failure of this sector in not contributing to the GDP to the extent required and reducing inflationary pressures.
The Finance Minister can identify the areas and make necessary changes in the Budgetary provisions to ensure that the Central Government is not blamed. Food subsidy and food security can be made the responsibility of the State Governments with appropriate contribution from the Central Government based on some performance criteria.
Direct taxes
The direct taxes need to be completely re-examined, although the Direct Taxes Code will take care of it as and when it is brought into force. The direct tax for corporates and individuals has to undergo drastic changes.
The uniformity pursued currently for all corporates — irrespective of their capital base, business turnover, exports/imports, corporate governance practices, and social responsibility — has to undergo change to improve competition, transparency, accountability and overall performance and contribution to the economy.
The corporates having more of capital contribution from retail investors and having a turnover of some cut-off limit fixed by the Government should attract lower taxes. This will ensure better distribution of wealth and stability to the capital market.
Similarly, companies having good retail distribution of capital and which are regularly distributing dividends and bonus shares need tax incentives from the angle of capital formation.
Companies that contribute to infrastructure development deserve preferential treatment both for capital formation and distribution of wealth. Companies which are monopolies and closely-held need a different tax treatment from tax angle.
The direct tax for individuals which forms only a insignificant portion of overall tax collections and the exemptions allowed therein have to be made simple and attractive for better compliance.
Savings in the form of financial instruments need to be encouraged and those in the form of gold, silver, real estate, and so on, need to be discouraged. The tax incentives now given for acquisition of house need to continue, but it should be restricted to one house for a family.
The current tax return does not reflect the total assets and liabilities of taxpayers. The return should enable one to report all incomes from various sources without any ambiguity. The return should be made obligatory for all taxpayers above a cut-off point of, say, Rs 10 lakh.
The concept of capital gains/losses should be done away with by suitably changing the Securities Transaction Tax or by introducing some form of transaction tax. Tax should be collected as far as possible at source without expecting individuals, particularly senior citizens, to keep track of transactions, compute taxes and file returns.
TDS
Make the institutions responsible to deduct tax at source and make the individuals, particularly those having income less than Rs 10 lakh, free from grappling with tax matters. It is necessary that all transactions above Rs 5,000 are made through banking channels or through plastic cards, which itself will help improve tax compliance.
The Indian economy has all the resources and talent, but what is missing is the commitment and involvement of all the segments to make it really strong, healthy and vibrant.
As Gandhiji put it, “The difference between what we do and what we are capable of doing would suffice to solve most of the world's problems.”
The Finance Minister through his Budget of 2012-13 should aim to bridge this gap and take the economy forward and fulfil the aspirations of the people.
Dr.T.V.Gopalakrishnan.
( This article appeared in Business Line dt5/3/12
March 4, 2012:
The economy has not been doing well for the past couple of years on account of both domestic and external factors. GDP growth has slowed and is expected to be at 7-7.5 per cent as against the required 9 per cent to make it internationally competitive and justify its position as a fast growing economy among the BRIC nations.
The fiscal deficit, current account deficit and inflation continue to remain high and if the GDP growth does not pick up, the situation will be grim and will erase not only the potential to make up for the loss but also to regain the credibility of investors in particular, which is vital to put the economy back on fast track.
The Finance Minister has a key and a challenging role to perform. He has to make Budget 2012-13 a tool to set right the past mistakes and make the economy perform better.
Plugging the loopholes
There is no disputing the strength of the economy and its potential to make a comeback. Perhaps, the Budget can do the trick provided it is drafted to plug the loopholes in governance and enhance investment, production and consumption, with equal attention to augmenting the revenues without any leakage due to corruption, lack of accountability and proper information system.
The approach should be to ensure accountability for the gaps between expectations and achievements. The industrial, agriculture and services sectors contribute to the GDP and there should be separate targets for investment, production and revenue contributions from these sectors.
To have a clear idea as to which sector performs well and which needs special attention, there should be a separate target for indirect taxes from these three sectors.
The indirect taxes in the form of excise and Customs duties where the scope for corruption is reported to be very high needs to be re examined and thoroughly revamped to ensure that there is absolutely no possibility for manipulation and leakage either in the reporting of transactions or in the revenue collection.
The Government expenditure on these three sectors also needs to be closely monitored to fix responsibility for leakage. The monetary and social benefits from Government spending should be assessed at periodical intervals and accountability for any shortfalls in the achievements needs to be fixed.
There should be adequate checks and balances to ensure that there exists a proper relationship between investment, production, exports, imports and revenue collections and there is no undue misrepresentation of facts by any agency involved.
Usage of subsidies is one area requiring close surveillance and for this the Central Government should have special arrangement, even at a cost, to ensure that subsidy has the desired impact. Information technology should be put to optimum use to strengthen the database and initiate follow-up action.
Corporate governance
The institutions involved should practice corporate governance in letter and spirit and this has to be made verifiable by any agency under social audit. Ethics and code of conduct pursued by institutions and various agencies need to be made transparent and their contribution to national wealth needs to be assessed, rated and recognised. The Budget can definitely find some provision towards this end.
The Budget should aim at capturing all forms of economic activities, particularly under the unorganised sector, and bring them under the information system formally. Many States face labour shortage for agricultural activities even as people are employed in metros and urban areas on contract basis or otherwise and, possibly, without being accounted for employment or income. Though this has helped improve the poverty levels, it does not seem to have captured the attention of the authorities. Financial inclusion, particularly banking, with the support of State governments can be an easy solution for many of the labour-related problems both in the rural and urban areas.
Fiscal deficit which continues to rise unabated has to be closely monitored and reviewed along with the monetary policy review. The agricultural sector, which is identified as one of the major factors influencing inflation, has not been performing well despite having enjoyed favourable monsoon and financial support.
The institutions responsible for poor performance of this sector have to be identified and made accountable. Though agriculture is a State subject, the interference of the Central Government is often blamed for the failure of this sector in not contributing to the GDP to the extent required and reducing inflationary pressures.
The Finance Minister can identify the areas and make necessary changes in the Budgetary provisions to ensure that the Central Government is not blamed. Food subsidy and food security can be made the responsibility of the State Governments with appropriate contribution from the Central Government based on some performance criteria.
Direct taxes
The direct taxes need to be completely re-examined, although the Direct Taxes Code will take care of it as and when it is brought into force. The direct tax for corporates and individuals has to undergo drastic changes.
The uniformity pursued currently for all corporates — irrespective of their capital base, business turnover, exports/imports, corporate governance practices, and social responsibility — has to undergo change to improve competition, transparency, accountability and overall performance and contribution to the economy.
The corporates having more of capital contribution from retail investors and having a turnover of some cut-off limit fixed by the Government should attract lower taxes. This will ensure better distribution of wealth and stability to the capital market.
Similarly, companies having good retail distribution of capital and which are regularly distributing dividends and bonus shares need tax incentives from the angle of capital formation.
Companies that contribute to infrastructure development deserve preferential treatment both for capital formation and distribution of wealth. Companies which are monopolies and closely-held need a different tax treatment from tax angle.
The direct tax for individuals which forms only a insignificant portion of overall tax collections and the exemptions allowed therein have to be made simple and attractive for better compliance.
Savings in the form of financial instruments need to be encouraged and those in the form of gold, silver, real estate, and so on, need to be discouraged. The tax incentives now given for acquisition of house need to continue, but it should be restricted to one house for a family.
The current tax return does not reflect the total assets and liabilities of taxpayers. The return should enable one to report all incomes from various sources without any ambiguity. The return should be made obligatory for all taxpayers above a cut-off point of, say, Rs 10 lakh.
The concept of capital gains/losses should be done away with by suitably changing the Securities Transaction Tax or by introducing some form of transaction tax. Tax should be collected as far as possible at source without expecting individuals, particularly senior citizens, to keep track of transactions, compute taxes and file returns.
TDS
Make the institutions responsible to deduct tax at source and make the individuals, particularly those having income less than Rs 10 lakh, free from grappling with tax matters. It is necessary that all transactions above Rs 5,000 are made through banking channels or through plastic cards, which itself will help improve tax compliance.
The Indian economy has all the resources and talent, but what is missing is the commitment and involvement of all the segments to make it really strong, healthy and vibrant.
As Gandhiji put it, “The difference between what we do and what we are capable of doing would suffice to solve most of the world's problems.”
The Finance Minister through his Budget of 2012-13 should aim to bridge this gap and take the economy forward and fulfil the aspirations of the people.
Dr.T.V.Gopalakrishnan.
( This article appeared in Business Line dt5/3/12
Response to Mr Gopinath's Article on King Fisher
Dr.T.V.Gopalakrishnan (Mumbai)
The article is to the point and very candid. Mr Vijay Mallya should be sent out from KingFisher Airlines and of course protecting the banks' interest and other stakeholders'interest. The airlines should be handed over to professionals to run the show. Public Money cannot be wasted for a particular individuals' life style and flamboyancy. People are watching and any support with the public funds to the Airlines will incur the wrath of the public and support of the customers. Vijay Mallya can divert the resources from United Breweries and keep himself away from KingFisher. There are professionals who can manage the Airlines better.The potential for Airlines Business is very high in India and needs to be fully exploited. Pricing is an area where more attention is needed and wastage of resources needs to be totally avoided. Instead of extending financial aid to KingFisher, the Govt can think of giving some relief to Airlines in the form of lesser tax and duties on oil, airport charges etc. There is ample scope for rationalisation of costs and make the Airlines business attractive.Market is strong in India and it needs to be supported..
(This appeared in ET dated 4th March 2012).
The article is to the point and very candid. Mr Vijay Mallya should be sent out from KingFisher Airlines and of course protecting the banks' interest and other stakeholders'interest. The airlines should be handed over to professionals to run the show. Public Money cannot be wasted for a particular individuals' life style and flamboyancy. People are watching and any support with the public funds to the Airlines will incur the wrath of the public and support of the customers. Vijay Mallya can divert the resources from United Breweries and keep himself away from KingFisher. There are professionals who can manage the Airlines better.The potential for Airlines Business is very high in India and needs to be fully exploited. Pricing is an area where more attention is needed and wastage of resources needs to be totally avoided. Instead of extending financial aid to KingFisher, the Govt can think of giving some relief to Airlines in the form of lesser tax and duties on oil, airport charges etc. There is ample scope for rationalisation of costs and make the Airlines business attractive.Market is strong in India and it needs to be supported..
(This appeared in ET dated 4th March 2012).
Saturday, March 3, 2012
Centre, States and Rural development
The topic is very apt and presentation is thought provoking. The ills of the economy and poor GDP growth can be due to lack of understanding, coordination and cooperation between the cehtre and states. The country has all resources and why around 80% of the population still live with Rs 20 a day when even a bottle of water costs more than Rs 10 is something unimaginable and non digestible.It is time Centre and states cooperate and give a boost to agricultural growth and rural development. Rural infrastructure which inckudes roads, stoartge facilities, transporattion,marketing and quick and easy distribution of agricultural products will improve rural employment,bring down food inflation and decongest urban and metroploitan centres. The restlessness seen among the preople because of acute poverty, corruption, inequality of income distribution, waste of naional resources in the name of subsidy for aam admi etc can be brought down only with genuine efforts on rural development and development alone.
(this appeared in BusinessLine dt29/2/12).
from: Dr.T.V.Gopalakrishnan
(this appeared in BusinessLine dt29/2/12).
from: Dr.T.V.Gopalakrishnan
Friday, March 2, 2012
NGOs and investigation
DrT.V.Gopalakrishnan , Mumbai , says: The timing of probing does not indicate good intentions of the govt.Scrutiny of accounts should be a routine and regular affair.Now it is for victimisation and the Govt is not now comfortable with the agitatition againt nuclear project at Kudankulam. Public expect the government to be fair,unbiased and prudent in all their activities and should be above suspicion.
2 Mar 2012, 1734 hrs IST
(This appeared in ET dt2/03/12)
2 Mar 2012, 1734 hrs IST
(This appeared in ET dt2/03/12)
Thursday, March 1, 2012
Taxation policy needs accurate data
Taxation policy and our Data System
This refers to the debate "should there be a super rich Tax?" ( Business standard Feb 29,2012).The concept of super rich tax has been engaging the attention of advanced countries for quite some time and even some of the highly rich individuals in these countries have volunteered to contribue to rescue the economies from financial crisis.The taxation policy should be very fair and those who earn and accummulate wealth have to naturally come to the rescue of the poor who are not only below the poverty line but are also virtually starving without even a single meala day. The equitable distribution of nation's wealth is the responsibility of the Govt and it is unfortunate to observe that only 3 percent of our population is paying tax which is absurd and not tolerable when nearly 80 percent of the population lives on less than Rs 20 a day and 77 percent of our Ministers and 300 MPS who frame the policies for the people are millionaires.
This sort of situation naturally gives room for doubt whether the economic policies so far pursued in the name of AAM ADMI have been on the right track?The major problem faced in the economy is the absence of accurate data/ information and the economy which supports the whole world with its Information Technology power has not been able to put into optimum use of its IT power to generate proper data system. Mr Kamath Chairman ICICI BANK and Infosys is right for his observation under Chinese Whispers colum next to the debate column BS dated Feb29 that there is a lot of growth that gets lost due to inefficiencies in our data collection mechanism ,largely omissions and there is growth that is not recorded in the system. This is more or less true in our data relating to tax, people below poverty line, inflation, employment etc. It is time for the Govt to aim to capture exact data so that the policies that are pursued towards eradication of the ills of the economies achieve the desired result. Even the Governor of the Reserve Bank once sounded on the need for accurate data to frame policies. Taxation policy needs all the more accurate data to assess and decide equitable distribution of wealth of the nation.
Dr.T.V.Gopalakrishnan
( Anedited version of this appeared in Business Standard dt1/03/12
This refers to the debate "should there be a super rich Tax?" ( Business standard Feb 29,2012).The concept of super rich tax has been engaging the attention of advanced countries for quite some time and even some of the highly rich individuals in these countries have volunteered to contribue to rescue the economies from financial crisis.The taxation policy should be very fair and those who earn and accummulate wealth have to naturally come to the rescue of the poor who are not only below the poverty line but are also virtually starving without even a single meala day. The equitable distribution of nation's wealth is the responsibility of the Govt and it is unfortunate to observe that only 3 percent of our population is paying tax which is absurd and not tolerable when nearly 80 percent of the population lives on less than Rs 20 a day and 77 percent of our Ministers and 300 MPS who frame the policies for the people are millionaires.
This sort of situation naturally gives room for doubt whether the economic policies so far pursued in the name of AAM ADMI have been on the right track?The major problem faced in the economy is the absence of accurate data/ information and the economy which supports the whole world with its Information Technology power has not been able to put into optimum use of its IT power to generate proper data system. Mr Kamath Chairman ICICI BANK and Infosys is right for his observation under Chinese Whispers colum next to the debate column BS dated Feb29 that there is a lot of growth that gets lost due to inefficiencies in our data collection mechanism ,largely omissions and there is growth that is not recorded in the system. This is more or less true in our data relating to tax, people below poverty line, inflation, employment etc. It is time for the Govt to aim to capture exact data so that the policies that are pursued towards eradication of the ills of the economies achieve the desired result. Even the Governor of the Reserve Bank once sounded on the need for accurate data to frame policies. Taxation policy needs all the more accurate data to assess and decide equitable distribution of wealth of the nation.
Dr.T.V.Gopalakrishnan
( Anedited version of this appeared in Business Standard dt1/03/12
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