Monday, January 12, 2015

Budget 2015- 16 Some thoughts



Budget 2015-16

“Indian economy is suffering from policy paralysis and lack of optimism. I am confident that with right kind of decisions, we can once again generate hope and confidence and turnaround our economy.”
                                                                                                  Prime Minister Narendra Modi
Budget 2015 -16 should  Make the Taxation Policy attractive, fully compliant by a vast majority of  people having taxable income with an eye on revenue and more people oriented.  It should also make Ache din within the reach of the Government through Budget 2015-16..

Modi Government’s full scale budget is expected to be presented in February by Mr Jaitley the Finance Minister. Lot of expectations are there from all segments of the society without exception. Both the common Man and the elite group have their own aspirations and hopes from the Budget. FM’s job is a real challenge as the whole world will be watching him and hearing him with inquisitiveness to know what is in store for the emerging economy to offer and make itself a vibrant economy in the midst of not so impressive outlook for the advanced economies particularly the European economy.

The hype created all around the world about the real capabilities of the economy a reality under Modi’s leadership will be put to test and evaluated based on the ensuing budget which has to necessarily build the foundation for making the economy physically financially, socially, ethically and psychologically strong by encashing the political stability the Government has at present. The physical social and financial infrastructure of the country have been very weak and have eroded the much needed confidence to attract sustainable investments is a fact which needs to be thoroughly addressed through this crucial budget.

The country’s GDP growth has been stagnant for the past few years straining thereby  the fiscal deficit, current account deficit, inflation, employment, infrastructure growth and resulting in  the loss of confidence on the whole Governance System. To bring back the confidence and health of the economy which continues to be a daunting task in spite of   best of efforts being attempted by the new Government since its inception in May 2014   the budget  has  to be  used as a golden opportunity and an important tool to put back the economy on a very strong growth track.

The balancing of budget with an eye on possible surplus of income over the expenditures is always the approach but it is always missed is the ground reality. The reasons are not far to seek.  The subsidy on account of food, fuel and fertilizers is the major culprit in keeping the budget astray. While the food subsidy is essential and inevitable to take care of the poorest of the poor, the wastage of funds in the name of food subsidy needs to be plugged with improved data collection on the really subsidy deserving poor people, elimination of better off people and fraudulent manipulation of data of poor through various means, Herein comes the effective Governance, utilization of Aadhar cards and  Jan Dhan Yojana  for  direct transfer  of funds to beneficiaries account with active involvement of state level agencies and banks. Social audit with the help of prominent social workers can be used as a tool to prevent misuse and abuse of subsidies. Information Technology can be put into optimum use. Fuel subsidies is already on the way out with gradual deregulation of  oil prices and steep fall observed in the international prices of oil but here again a lot remains to be done  to administratively plug  the loopholes in the wastage of oil, fixing of prices of petrol, diesel, adulteration of oil and LPG distribution. The subsidized gas again is an area the government can have a review to take out really better off people from the subsidy but making the gas prices practically affordable. Irregularities in the distribution of LPG at retail level and corrupt practices need close monitoring and remedial action to save loss of revenue and wastage of gas. Effective administration can play the trick. Once the people have the confidence that the government is sincere in its approach and the way the politicians, bureaucrats, industrialists and businessmen conduct themselves in the society, many will opt out of the gas subsidy is not an exaggeration.

If the Banking system is made strong and run on professional lines, the loss of revenue to the Government through non accrual of income from the real sector growth, leakage of revenue to the government through umpteen ways of malpractices resorted to involving banks etc can be plugged easily. Window dressing of balance sheets of banks, window dressing of companies’ balance sheets, and various commercial establishments’ accounts if stopped effectively through proper disciplining of accounting and auditing firms i.e. the brain behind all these accounts,  banks’ boards, fixation of accountability for lapses on the part of regulators of various establishments can go a long way in fixing the problems of non performing of banks, their loans and their non contribution to GDP growth and consequential revenue losses. The major problem that the banks face is the asset liability mismatch  in the absence of adequate availability of infrastructure financing in the economy for want of development financial institutions, corporate bond markets to enable to raise long term funds and liquidation of these funds at proper intervals, failure of the take off of  the take out finance as envisaged and lack of professional discipline expected of the borrowers in conducting the loan accounts of banks with an understanding that the borrowed funds belong to depositors and the banks are acting only as trustees. The mindset of banks, government and the borrowers has to necessarily change and the approach should be to ensure that banks health is essential to ensure the health of the real economy and vice versa.       

With the introduction of GST, the rationalization of many an indirect taxes presently in vogue is expected to improve considerably and augment the resources substantially of both the State Governments and the Central Government. Once the GST gets stabilized, the Government can definitely concentrate on Direct taxes and see that more people are brought under its fold with incentives of lower rates of tax, simplified returns and without any scope to evade or avoid tax through inbuilt mechanism in the flow of transaction trails with Permanent Account Number, tax remittance, movement and accumulation of wealth etc. The major sources of black money are through real estate deals, transactions in commodities like gold, silver and other items of value, imports, exports, foreign travels and remittances of funds both inwards and outwards under different names and purposes. This can be easily fixed if there is a will. This budget can lay the foundation for a very strong tax administration to capture and prevent formation of black money. its’ sources of generation and its movements in and out of the country through improved data flow, usage of Information Technology and effective regulation through proper tie up of information with tax scrutiny, education, reward and punishment. Ache Din is within the reach of the Government and its policies on taxation and Governance will pave the way to that destination.

     

T.V.Gopalakrishnan

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