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M P ChitaleSubscribe to M P Chitale

Unhappy Financial Position

M P Chitale The economic activities of production and distribution are increasingly set in motion by bank credit or finance secured from the capital market. Credit is made available in anticipation that activities so set in motion will be validated by acceptance in the market and realisation of price which has to include the element of interest on funds employed. Against this background, the tendency to raise rates of interest runs counter to the objective of maintaining or lowering the level of prices. Unless conscious steps are taken to reverse this tendency, this factor of rise in interest rates will perpetuate inflationary forces. Expenditure on interest has already weakened the financial structure of government. It will do likewise in respect of economic agents other than the government. The role of monetary and credit policies will therefore remain important in the task of maintaining price stability TAKING over the portfolio of finance ministry seems to have lent a touch of caution and balance to the prime minister. He was faced with the mounting expenditure on defence reaching Rs 12,500 crore compared to last year's already high level of Rs 10,000 crore and was left with a budgetary deficit of Rs 6,010 crore. The prime minister has resisted taking the course of increasing generally the rates of income-tax, excise duties, etc. Rather, realising that a large order of unproductive expenditure on defence and inflationary potential of the budgetary deficit would lead to increase in money supply and prices, he has sought to dampen inflationary tendencies. Generally, rise in prices takes place immediately after increases in excise and import duties as they cause increases in production cost of manufactured articles. A careful exercise in restructuring excise duties and import duties has therefore been undertaken so as to lower the incidence of excise duties and import duties on production cost of non-luxury articles.

Union Budget Proposals 1986-87

M P Chitale The Budget for 1986-87 recognises the reality of the Indian situation and, without going back to a regime of high tax rates and multiplicity of controls, makes a few pragmatic changes. The facility of faster depreciation, funding of profits and lowering of the burden of capital gains taxation will help mobility of investible funds. Changes in customs duties have been made with a view to widening the market for indigenous production and removing hurdles created by the liberalised import policy A structural change is being effected in the levy of excise duties by offering a more general facility of deducting excise duty payable on inputs used in the production of excisable goods.

Fiscal Strategy Left Incomplete

M P Chitale Government, it is clear from the 1985-86 Budget, has declared its inability to reduce normal recurring expenditure and a regime of high revenue deficits has, therefore, come to stay. As there is no likelihood of growth of revenue from direct taxes, the only possibilities left are improvement in working of public sector undertakings and growth of indirect tax revenues. But unless the structure of indirect taxes is reformed, the cascading effect leading to increases in costs and prices is unavoidable.

Financing Industry and Business-Union Budget Proposals, 1984-85

Union Budget Proposals, 1984-85 M P Chitale It is necessary to recognise the importance of adequate risk capital right from the setting up of new ventures. The policy of financial inftitutions and banks providing resources by way of loans even when the risk capital at stake is meagre is wrong. If the provision of risk capital is adequate to start with, it automatically enables an industrial unit to obtain loans or additional funds when the business gets exposed to hazards associated with the running of industrial ventures. Under the present fiscal dispensation difficulties in securing risk capital are, however, acute. Even for established small and medium companies it is not at all easy to attract risk capital. The government, therefore, needs to pay serious attention to the problems of gathering risk capital for industry and from that standpoint review the whole structure of corporate taxation.

Finance for Private Corporate Sector

Finance for Private Corporate Sector M P Chitale Report of the Study Group on Financing of the Private Corporate Plan, Planning Commission, Government of India, November 1982.

Taxation of Income-Some Suggestions for Reform

Some Suggestions for Reform M P Chitale Enhancement of the limit of tax-free income from safe and non-risk bearing investments does not result in accretion to savings hut only in diversion of existing investment in industry and business. Income-tax payers who, since they enjoy relatively large incomes, are capable of taking some risk are offered rwards for taking no risk and keeping away from any venturesome activities. Thus this type of tax relief is actually prejudicial to economic growth and social justice.

Finance for Industry Reply

December 27, 1980 Finance for Industry Reply M P Chitale TWO comments have appeared on my article 'Finance for Industry' (EPW, April 17). Patil's rejoinder (June 21) and Bhole's comment (July 19) covering Patil's suggestion as well, proceed from different perspectives, Patil suggested disallowance of interest on borrowings in the belief that, by making borrowed funds almost as expensive as risk capital, supplies of good equities in the market would increase rapidly. In his view, this was a sound way of dissuading companies from relying on borrowed funds, especially from financial institutions and indirectly influencing them, to offer greater amount of equity issues. Bhole looks askance at the very concern for development of the equity market Examining the state of the capital market in respect of debentures, preference shares, and equity, and looking at the behaviour of investors, I commented that Patil's suggestion does not provide a general and adequate solu- tion for the poor response to risk capital. I stated that this suggestion can exercise influence on company management in favour of issuing risk capital (supply of equities). But this is not sufficient, because it does not tend to improve the demand from takers of equities, and therefore, the capital market will continue to remain narrow and sluggish.

Finance for Industry

M P Chitale Financial institutions are apparently anxious about the increasing reliance of private sector indu- stry on borrowings from institutions rather them on equity or risk capital and borrowing from the market. 1 This excessive reliance on borrowed funds is said to result from the concessional rate of interest charged on loans by financial institutions. That the interest payments are allowed under the Income-Toy Act to be deducted in computing taxable profit while payment of dividend on risk capital is not so deductable no doubt influences industry.

Rationalisation of Personal Income Taxation

M P Chitale If the tax structure helps to draw out from the higher levels of income an increasing amount of savings which could be deployed for investment, the pressure to create additional money supply, and therefore inflationary tendencies in the economy, will be correspondingly less. An attempt is made here to suggest a reshaping of personal income taxation with the objective of encouraging savings. While the suggested scheme of taxation may not reduce inequality of post-tax incomes, it will certainly help reduce inequality of consumption.

Tax Incentives for Saving and Investment

In a situation where a large variety of inessential consumption articles are purveyed to the people with the help of high pressure selling and where possessors of black money every day set new styles in high living, the pressure to consume is almost irresistible. To counter this pressure, effective measures have to be devised to induce people to save and invest However, under the existing system of tax incentives, the amount of tax benefit depends not so much on the volume of saving as on the level of the individual's taxable income. The result is that higher tax bounties are offered where the sacrifice involved in saving is almost nil or negligible.
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