'It is likely to be a big time aam aadmi Budget'

Union Finance Minister P Chidambaram, preparing a Budget for the fast-expanding economy, faces a number of challenges — from providing the much-needed support to the stagnant farm sector to countering inflation and pushing the growth rate towards a double-digit goal.

So how is the FM expected to address these issues? With the general elections expected sometime later this year, will politics weigh over economics in PC's Budget?

The Editor of the Network 18 Group, Raghav Bahl, dealt with some of these questions in a pre-Budget online chat with readers on Web18's business website www.moneycontrol,com.

Here we reproduce the full text of the chat:-

Samir Deshmukh: What will be the impact for corporate sector?

Raghav Bahl: Largely on account of an expected cut in the surcharge on corporate income taxes, and perhaps some cuts in excise and customs duties

Swaminathan: Being an election year can individuals expect a lot of tax sops?

Raghav Bahl: I am not sure if you can enjoy a "lot" of tax sops, since the fiscal position of the government is not "that" sound - if you add in the oil and fertiliser sector deficits, the fiscal could be in the red by nearly five per cent. So yes, he will give some tax sops to individuals, but I don't think we should pitch our expectations too high

Raja: Your expectation that benefits TV 18.

Raghav Bahl: TV18 shall benefit, or suffer, just as any other corporate in the country - there is unlikely to be anything "specific" that will be aimed at TV broadcast companies or at Internet operations

Sandy: Hi Raghav. What’s your Budget expectations for auto companies?

Raghav Bahl: Since there has been a perceptive slowdown in the auto sector, there is a sense that there will be excise cuts there to lower prices and stimulate demand

Amar: Can we expect some major reforms in retail sectors?

Raghav Bahl: Retail sector may remain one of those "silent" sectors - ie, he is unlikely to do much there, since anything "positive" that he does there, especially with regard to FDI, is likely to stir a political hornets nest.

Mohit Sohal: I plan to buy a car. Will we see car prices going down post Budget or will it increase. Please if you can suggest. Thanks

Raghav Bahl: My gut tells me that car prices could come down marginally after the Budget, since excise tax cuts are expected.

RNP: Is this is again a aam adami Budget or something else you are expecting from this last Budget?

Raghav Bahl: It is likely to be a "big time" aam aadmi Budget. However, I would welcome that. I am not in the camp which feels that populist Budgets are necessarily a "bad" thing. If there is a massive transfer of resources to the common urban Indian, and to farmers in rural India, that will be good provided the subsidies are explicitly shown in the government's accounts, and the fiscal situation is safeguarded - if these two things are achieved, God bless all "populism"!

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Creditor: Good afternoon sir. Every time the FM brings in new reforms in education, infrastructure and so on. Don’t you think this time around the FM should take proper steps for better administration rather than tinkering with taxes?

Raghav Bahl: Yes my friend - the efficiency of delivery systems is far, far, far more important than any, as you put it, "tinkering" with taxes !!

Swaminathan: Do you think the FM will have to dole out some SOPS to the textile sector since they are suffering due to the currency and they are a large employment generator?

Raghav Bahl: My sense is that all the labour/export intensive sectors, of which textiles is certainly one, will get some relief in the Budget

Suman: Don’t you think more tax liability should be burdened on higher income group people and tax slab of 30 per cent (maximum) to be increase to about 60 per cent to 70 per cent so that people having lower income (i.e., 2 lakh to 2.5 lakh) could be spared from payment of income tax.

Raghav Bahl: My dear friend, I hope your suggestion is never implemented. It has been shown that tax collections are buoyant only when tax rates are "moderate". To increase tax rates to 60 or 70 per cent is a recipe for disaster as that will create far too much incentive to evade taxes, thereby increasing white collar crime in society, increasing the black economy and depleting the government's coffers!

Dr Priya: FBT should be abolished, especially on ESOPS. What’s your take?

Raghav Bahl: FBT, as it currently stands, is wrong and should be abolished - having said that, I do believe that there is a case of moderate taxation on ESOP gains in the hands of employees. But yes, they've got it completely wrong in the current formulation

Mohit Sohal: What is your take, will the Budget have a positive impact on the Sensex or will the Sensex see a crash post Budget?

Raghav Bahl: I think the Budget this time is likely to be "Sensex" neutral, which means that the Sensex may rise, fall or remain flat depending on other factors impinging on it, most notably global liquidity/sentiment factors . With the extra-ordinary amount of tax buoyancy that PC enjoys this year, he should be in a position to show a healthy fiscal deficit - the problem is likely to be passed on to the next Budget, with higher social sector spending and pay commission recommendations etc.

Sunil S Matkar: Will this Budget be beneficial for corporates?

Raghav Bahl: Should be only "marginally" beneficial, since frankly, nothing much remains to be done "for corporates" - they now have to perform in the market place, rather than look to the government for sops

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AC Agrawal: I have one more question. The inflation is so high and tax slab needs to revised for salaried class what is your take?

Raghav Bahl: The tax slabs need to be revised, I would agree but whether that should be done because of "inflation being high", I am not sure I agree with that formulation. Inflation is not that high for an economy growing as fast as ours is.

Sunil S Matkar: Will this Budget be more of vote driven or really for country’s benefit?

Raghav Bahl: Let's face it, in every democracy, especially closer to the polls, governments act to ensure that they are re-elected. Nothing wrong with that - it's quite the glory of democracy, and we should not carry on and on about something which is a "natural concomitant" of functioning within a democracy!

Roop Shetty: We have been hoping the Banking Segment will do well in the financial year 2008-09? What do you think about RBI's stand on the same?

Raghav Bahl: RBI has traditionally taken a very conservative stance and again, while it is fashionable to peg them back on this, the fact is that almost every financial contagion in this world has stopped at India's shores and perhaps some of the credit for that ought to be given to RBI's conservative stewardship of our economy

Sunil S Matkar: Do you believe that the property prices are at peak level? So will the government do something through this Budget?

Raghav Bahl: I think the whole issue of inflated asset prices (and not just property prices) is something that should exercise the mind of every policy planner. I can only hope that any step that gets taken to cool down prices will be a "calibrated" one, rather than a sharp cut or sledgehammer because policy makers need to realise that inflated asset prices also create the "wealth effect", which in turn fuels consumption, and in turn keeps the growth rate high.

Shrikant Durge: will FM give long term capital gain tax on stock this time?

Raghav Bahl: I hope not it's high time our policy makers realise that it is important to have a stable tax regime, rather than change it around every two or three years. My sense is that he will not do any such precipitate thing

Swaminathan: Will this years Budget also leave a lot of unfinished agenda? What about power sector reforms, insurance etc?

Raghav Bahl: Things like power sector reforms etc are non-Budget policy items, and can/should be addressed on an ongoing basis, outside the Budget exercise

Sree: hi nice chatting u following you since Doordarshan show days , how do sense the slow down Indian economy because of last few IIP and other numbers?

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Raghav Bahl: Thanks - this slowdown is clearly a matter of some concern, and perhaps the BIGGEST challenge before the PM and FM - ie, while a little slowdown is needed to cool down the economy, you have to keep your eyes on the ball to ensure that you don't end up pushing the economy into recessionary conditions - in fact, they've got to keep their feet on the accelerator and the brake, and use BOTH these in such a synchronised manner that we accelerate as soon as the spectre of a recession becomes real. This is all easier said than done, but the fact is that this is the biggest challenge before India's economic policy makers

Patroche: Don’t u think the FM should b bold enough to say yes lets stop the subsidy. I know people who start an industry for subsidy and close it down?

Raghav Bahl: Economic policy should be made to encourage the good guys and not to stop the bad guys - bad guys should be handled through other laws of the land

Sunil S Matkar: Do you expect the RBI should cut interest rates following Fed path, to see recovery in loan sector?

Raghav Bahl: My sense is that the RBI will NOT cut rates until the "oil price suppressed" inflation rate has fallen to about three per cent on a steady state basis. Perhaps then they will

Naveen Raipur: Essential commodities me speculation rokne ke liye kya commodity exchange band kar dena chahiye? (What should be done to stop speculations in essential commodities)

Raghav Bahl: Institutions like futures exchanges are important for an efficient price discovery in the economy - we should regulate them properly, rather than ban them. Banning them is like throwing the baby out with the bathwater

CBB: Do you expect the FM to do something exciting for pension funds to enter our markets and something to get more long term retail investors into the market? Since retail has a low equity holding in India?

Raghav Bahl: I am sure he would like to but his friends in the Left have to agree! This is where I believe the BJP/NDA should be displaying a larger "national consensus building" approach. Some matters need to be treated as "non partisan" and good for the country, like the civil nuclear deal

Hari: What is one googly that u expect from Finance Minister this Budget?

Raghav Bahl: An increase in the Service Tax rate, to take it closer to the Cenvate Rate.

The concluding remarks

Raghav Bahl: Well, I guess it shall be a "non disruptive" Budget, with a bias towards a transfer to resources to the rural sector and the aam aadmi. And if this is done transparently, without disrupting the fiscal balance of the country, then this is the best that we should hope for. Cheers.