The Hindu : I expect demand revival from rural sector: Sinha

Online edition of India's National Newspaper
Saturday, Mar 02, 2002

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I expect demand revival from rural sector: Sinha

By Our Special Correspondent

NEW DELHI MARCH 1 . The Union Finance Minister, Yashwant Sinha, today defended his taxation proposals in the budget and said that he had made a compromise to balance fiscal rectitude and economic slowdown. ``We settled for a compromise and we know a compromise does not satisfy anybody,'' Mr. Sinha told a post-budget meeting organised by the FICCI here today.

He was responding to queries as to how he envisaged a demand revival when he had imposed additional taxation burdens on the general population. Since there was going to be a revenue shortfall of Rs. 20,000 crores in the current fiscal, he said he could not repeat last year's performance of tax give-aways of nearly Rs. 16,000 to Rs. 17,000 crores. ``I was persuaded last year that the give-aways will generate demand and we will get revenue. That did not happen. Still, there is some revenue give-away in the latest budget too,'' he added.

The Finance Minister explained that he expected demand to be generated from the rural sector which had received much attention in the budget. ``We all know rural demand leads to industrial demand. That is where I expect the demand revival to generate.'' The second area which would lead to a demand pick-up was the expected improvement in the global economy. ``Once the global economy picks up, our export demand would increase.''

Mr. Sinha explained that he could have presented a ``pleasant'' budget this year too, ``but the feel -good factor would have disappeared even faster than last year.''

Taking on the industry's point about lack of announcements pertaining to investment allowance, withdrawal of minimum alternate tax and some excise concessions, he said there was no investment allowance in the mid-1990s and yet there was a spurt in investment. ``Sometimes, we look for solutions that are too simplistic and they fail to deliver.''

Mr. Sinha explained that conceding the demand for investment allowance would have meant a revenue loss of around Rs. 7,000 crores, the reduction in corporation tax to 30 per cent would have meant another revenue loss of Rs. 5,000 crores and each point of reduction costs Rs. 5,000 crores.

Instead, he said the budget contains a lot of sector packages such as those for textiles, steel and tourism which would generate employment and demand when these sectors pick up. The textile industry was in the doldrums and competition was likely to hot up once the multi-fibre arrangement ended in 2004. Similarly, he referred to the package for the development of urban centres since they could be engines of growth which they had ceased to be as of now.

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