G. S. Roongta

Budget 2010-11 will of course be very challenging for the Finance Minister (FM), Mr. Pranab Mukherjee, to prove his skill and foresightedness.
He has to kill two birds sitting in opposite directions by one arrow, which is indeed very difficult like Arjun in Mahabharat, who had to aim both the eyes of a bird by one arrow.
Mr. Mukherjee has to keep the fiscal deficit in manageable positive without affecting the growth trajectory.
To roll back the stimulus package partially or fully is the serious worry for the stock market, industries and common men equally because its impact will be felt by them all.
If the FM rolls back the stimulus package, it will hit the common man as he will have to spend more on the necessities as otherwise manufacturers will pass on the new burden on the consumers.
A partial roll back of excise duties looking at the health of industry will be the best choice for the FM to partially meet the deficit of revenue collection from sectors such as cement, automobiles, sugar, tea, coffee, breweries, alcohol based spirits, cigarettes, entertainment, TV, mining, capital goods, rubber & tyre and engineering, which can bear the brunt of such partial or full roll backs.
Besides, 16% plus volume increase in the manufacturing sector will help the FM to collect substantially higher revenues by way of excise, customs and service tax. The higher volume of production may result in higher revenue growth than what can be achieved by a roll back.
It may be remembered that the government had collected higher income tax after it reduced taxation rates both on individuals and corporates having realised that by reducing the tax rates, it could widen the tax net.
In the current circumstances also the government hopes to collect Rs.40,000 cr. through divestment of PSU holdings and Rs.30,000 cr. by auction of 3G spectrum, which with higher collections of taxes and duties should be able to meet the deficit sustainability and it may not be prudent to disturb the growth momentum that has set in.
The inflation rate, which has started galloping beyond RBI’s comfort level, might shoot up if the FM rolls back the economic stimulus hurriedly.
I think that the FM should not roll back the economic stimulus and risk derailing the economy at this juncture, when it has just started to take off.

G. S. Roongta
groongta@yahoo.com