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Infrastructure to Wash Black Money White

Plan on anvil to privatise PSUs to bridge deficit

  • Finance minister Pranab Mukherjee is expected to announce a major privatisation plan for state-owned companies and an ambitious scheme to channel black money stashed abroad into infrastructure and allied sectors when he presents the budget in Parliament this Friday.While the finance minister is unlikely to offer any amnesty scheme for tapping black money, as had been done by his predecessor P Chidambaram during the United Front regime of the 1990s, Mukherjee’s bu­dget may contain inn­ovative measures to tap ill-gott­en wealth parked ab­road for investment in areas wi­th a huge appetite for cash.

  • Policy makers involved with the budget-making exercise believe an amnesty sc­heme may not go well wi­th the general public as the government has been beset by charges of corruption du­­r­ing the past couple of ye­ars. Any such measure wi­ll be seen as punishing honest taxpayers and re­warding the dishonest. Ra­ther, the budget is likely to come out with schemes th­at indirectly encourage people to invest black money in legitimate business ventures after paying a moderate tax, a top official, who is in know of the developments, said.This would serve the twin purposes of mopping up additional revenue wh­ile simultaneously pump-priming the slowing economy, the official said, adding that Mukherjee is likely to adopt a ‘carrot-and-stick’ ap­proach wherein those not reinvesting unaccounted for money into the economy would be dealt with severely.

  • There are various estimates of black money stashed abroad by Indians, ranging from $462 billion to $1.6 trillion. With economic growth expected to slow down to less than 7 per cent this year and a rather dismal outlook for the next financial year, tax revenues are unlikely to remain buoyant in 2012-13.The government would also have to garner substantial non-tax revenue through an aggressive disinvestment progr­amme. Unlike in 200­9-10, when the government could resort to fiscal stimulus to minimise the ill-effects of the global crisis on economic growth, the finance minister is in a precarious position now with widening deficit and a slowing economy.

  • With the capital market still choppy, the budget is likely to look at privatisation of certain state-owned companies as an option to raise large resources through disinvestments, the official said. During pre-budget discussions earlier in the year, Ficci president RV Kanoria had expressed similar views, suggesting that taxes should not be the only revenue mobilisation effort. Disinvestments could be a major source of non-tax revenue.He had even suggested that Coal India should be privatised. With market capitalisation of Rs 2.5 lakh crore, CIL alone would fetch enough revenue to bridge the deficit. The coming year may not be very easy to maintain fiscal discipline. Fiscal deficit would have to be brought down to 4.1 per cent of GDP as per the recommendations of the 13th finance commission. This should be a Herculean task, considering the difficult economic situation.

  • The thinking in the finance ministry is to restore the pre-2008-09 tax rates by raising both excise duty and service tax by 2 per cent to 12 per cent. This will help the finance ministry mop up over Rs 50,000-Rs 60,000 crore additional tax revenue. Also, there is a proposal to introduce a negative list of 30-odd services and tax all other services to widen the net.With the recent assembly election results far from satisfactory for the Congress party and the parliamentary standing committee on finance recommending a substantial hike in the income-tax exemption limit and income-tax rates under the direct tax code (DTC) bill, the budget may provide some sops to the salaried class.

  • “It will be very bold, if all the proposals of the standing committee on DTC bill are implemented in 2012-13 budget. But the fact that it has come out just before the budget, some provisions may be implemented, indicating the soft-launch of DTC,” a direct tax expert at Deloitte, Raju Srinivasan, said.Ficci’s tax expert SB Gupta said expectations were that personal income-tax exemption limit would be raised from the present Rs 1.8 lakh annual income to at least Rs 2 lakh. The slab for the topmost rate of 30 per cent is likely to be raised to Rs 10 lakh from the present Rs 8 lakh.

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