ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Fiscal Adjustment: Rhetoric and Reality

article examines the fiscal adjustment that the Union Budget 2007-08 aims at. It also looks at how the growth momentum of the economy can be maintained by, among other things, easing infrastructure bottlenecks and reviving a sagging agricultural sector. After examining the tax revenue trends in the economy, the article comments on the tax measures proposed in the budget.

Deft Draughtsmanship sans Broader Vision

By not paying attention to the wish lists of business and industry groups, P Chidambaram has done the right thing. The measures related to tax reform in Budget 2007 are the correct ones, but fiscal consolidation is being achieved by compression of capital expenditure. The recent tragedies of Nandigram and Dantewada are symptoms of a developmental process that has gone horribly wrong and there is a need for a new vision of development. Time, however, is running out.

Budgetary Policy in the Context of Inflation

The Union Budget 2007-08 utterly fails to appropriately respond to the social needs of a situation of profit inflation. The situation demanded an increase in government expenditure relative to gross domestic product aimed at putting transfers in the hands of workers and a financing of this through taxes on private profits. It also required taking appropriate steps to remove the basic cause of profit inflation through a revival of agriculture.

Dividend Taxation Revisited

This article first argues why independent taxation of corporate profits and dividend incomes has ill-effects on equity and efficiency and then considers the merits and drawbacks of tax alternatives. In the light of studies conducted in the US after the enactment of the 2003 legislation on dividends, it puts forward suggestions to address the problems with the Indian approach to dividend taxation.

Education, Agriculture and Subsidies: Long on Words

The opportunity provided by high growth and a comfortable revenue situation to make a serious attempt to boost allocations for education and agriculture has been allowed to slip away. The high priority status accorded to these sectors in the budget speech is not backed by numbers. Instead the numbers have been played around with - such gimmickry only serves to make budgets lose their credibility. Further, the track record of the government fails to inspire confidence that the fiscal targets will be attained. One cannot help but conclude that Budget 2007-08 appears to be long on words alone.

Implications for Education

cess has been increased from 2 to 3 per Implications for Education cent this year, the implications of which Budget 2007 has increased allocation for basic education and initiated some fresh measures to deal with the dropout rate. However, issues related to technical education, alternative streams of education, increased allocation for secondary education and state governments

No 'New Deal' for Farm Revival

Finance minister P Chidambaram claims that Budget 2007 addresses the challenges confronting Indian agriculture. How true is this claim?

How Useful Is New Tax Expenditure Statement?

The tax expenditure statement or the statement of revenue foregone presented for the first time in the 2006-07 union budget deserves to be welcomed for its efforts to impart greater transparency to the budget. There are, however, some methodological deficiencies and gaps in the coverage which need special attention of the tax policy planners in the future. Unless a more rational definition is found for benchmark tax rates, the credibility and usefulness of TES would remain in doubt.

Which Way for Indirect Taxes?

Reforms of indirect taxes in the budget amount to almost nothing. Customs tariffs have remained about the same while the number of exemptions have increased. In the case of CENVAT, rules remain complicated and the claim that rates have gravitated towards 16 per cent is not true. Service tax needs to be aligned with CENVAT to create a goods and services tax at the central level. Two parallel GSTs at the state and central levels, rather than a national GST, must be introduced.

Half-hearted Attention to Agriculture

Many more incentives, programmes and policy corrections than have been announced in the budget are required if yearly agricultural growth is to accelerate from 1.5 per cent to 4 per cent.

Are the Railways Reforming?

The emphasis on better utilisation of existing capacity in the Indian railways has obviously come to stay, though the railway budget of 2006-07 also outlines investment possibilities that are to be tapped. What will be crucial is the ability of the railways to increase their share of freight traffic over a period of time, even as areas in the passenger segment require review and consolidation. The budget gives the impression that the organisation might soon emerge from the chaotic situation in which it has been for a long time.

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