Dissection of a Bold Budget

Arindam Das-Gupta Dilip Mookherjee Barring adverse harvests or oil price movements, the 1993-94 budget is likely to increase the industrial growth rate, without significantly increasing inflation. The balance of payments situation may, however, deteriorate, resulting in downward pressure on the rupee, necessitating intervention by the RBI to stabilise the exchange rate The resource mobilisation assumptions underlying the budget projections for 1993-94 appear to be slightly optimistic. Never- the less, the likely increases in customs and excise revenues and direct tax receipts should cover the effects of the duty concessions. There is some uncertainty, however, about the ability of public enterprises to raise enough resources through market borrowings to implement plan outlays. In terms of the aim of longer term structural adjustment, the fiscal policy of the government appears to be successful in reducing government borrowing, but unsuccessful in stepping up investments, particularly in infrastructure. Detailed aspects of tax policy are appraised and some suggestions for administrative initiatives and for insurance market reform are offered.