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The India Budget 2013 – Austerity versus Growth?

28 February 2013
Channel NewsAsia – AM Live!

The India Budget 2013 – Austerity versus Growth?

The India Budget 2013-14 was one of the most highly anticipated Indian budgets in recent years. It was expected to help pull India out of an economic slump and demonstrate fiscal prudence to the investor community. Leon Perera, Chief Executive Officer of Spire Research and Consulting, shared his views on Channel NewsAsia – AM Live! on the morning prior to the Budget speech.

P. Chidambaram, Finance Minister of India, would probably rein in spending rather than increasing taxes to raise revenue for this year’s budget. Austerity would reassure foreign investors of the Indian government’s ability to execute fiscal prudence, which would be needed to attract FDI as well as portfolio investment in government, corporate and infrastructure bonds.

While public spending would likely decline, this would be no cause for alarm. According to the Economic Survey presented one day before the Budget, India is recovering from its current ailing economic health. A reduction in the fiscal deficit would also enable the Central Bank, the Reserve Bank of India (RBI), to lower interest rates, boosting growth prospects from the monetary policy front.

However, Perera noted that government revenues could be raised by divesting state-owned companies, selling telecommunications spectra, raising excise duties and imposing duties on diesel run vehicles.

Perera also opined that there may be some tax surcharge on the super-rich, but this should not affect the health of the economy. As income tax levels are already on the high side, Perera argued that any such surcharge would not be of such a magnitude as to provoke disinvestment or a migration of elites. Instead, investors would probably be more exercised by the pace of pro-investor economic reform to liberalize market access.

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