RAISING DIRECT TAX TARGET - ILL FOUNDED OPTIMISM OR IMMENSE FORESIGHT?
But then, it becomes apparent as one reads through his entire statement, that the Finance Minister was not talking through his hat. He has obviously based this ill-timed optimism on hard-core data. The actual tax collection for 2007-08 was at Rs.3,14,468 crore, a 36.6% rise over collections made in FY07. The estimate for current fiscal was at Rs.3,65,000 crore, and the Finance Minister has asked the CBDT to revise the Budget estimates upwards at around Rs.4,00,000 crore, which is a 9.60% upward revision over the earlier set target for FY09 and 27% over and above the actual collections made in FY08.
How can the Finance Minister revise the direct tax targets upwards in today’s scenario? Last fiscal, especially the first half was extremely buoyant. And if such upward revisions had been made then, it might not then have sounded like hollow words. But today, it does not somehow have a ring of truth to it. Inflation is expected to be around 10%, a surety in the first half of the current fiscal. Economic growth rate for the current fiscal has been estimated at 8.5%. So taking an average rate of inflation at 8.5% for the entire current fiscal, and taking into consideration the GDP growth rate of 8.5%, we are talking of a notional GDP of 17%. As against this, if crude prices had not soared and inflation had not spiraled to this height, growth rate was estimated at 9% and inflation was expected to be at an average of 6%. So this means, even when things were hunky dory, the notional GDP was expected to be around 15%. Which is still lower than 17% currently predicted. Maybe Mr.Chidambaram has based his optimism on this rise in notional GDP?
Infact Mr.Chidambaram has stated, “ even if you take a 25% increase over last year’s collection of over Rs.3,14,468 crore, the budget estimates must be revised upwards very sharply”. And when asked to explain this rationale behind this increased target despite a slowdown in economic growth, he said, “ every estimate says that economy will still grow at 8.5% this fiscal”. Well, what does he mean by “every” estimate? On what estimates has he based this optimism?
Obviously, Mr.Chidambaram is the Finance Minister and when he utters something, it is supported by facts collated by an army of very able financial brains. He is not the kind to just mouth things, at least that has been the track record so far. And surely, these “positive” signs are not being sent as smoke signals, heralding the onset of the election campaign. Elections are scheduled to be held after the UPA Govt submits its report card in February, so there is no way in which he can afford to just say things for the sake of garnering votes.
These are utterances for which he is fully accountable. This upward revision of CBDT figure is in direct contradiction to the currently, non existent optimism and buoyancy in the economy. But then, if Mr.Chidambaram has said so, we need to pay more close attention. The first quarter results of the current fiscal are just around the corner and the advance taxation figures would also come in soon. These two figures would go a long way in validating the current buoyancy, which the Finance Minister has expressed.
We will now keep a close watch on this call of optimism, which Mr.Chidambaram has given, despite the trying times ahead. Let us see whether he had the foresight, for which he has always been praised or whether this was just a political gimmick with an eye on the vote bank.
But then, it becomes apparent as one reads through his entire statement, that the Finance Minister was not talking through his hat. He has obviously based this ill-timed optimism on hard-core data. The actual tax collection for 2007-08 was at Rs.3,14,468 crore, a 36.6% rise over collections made in FY07. The estimate for current fiscal was at Rs.3,65,000 crore, and the Finance Minister has asked the CBDT to revise the Budget estimates upwards at around Rs.4,00,000 crore, which is a 9.60% upward revision over the earlier set target for FY09 and 27% over and above the actual collections made in FY08.
How can the Finance Minister revise the direct tax targets upwards in today’s scenario? Last fiscal, especially the first half was extremely buoyant. And if such upward revisions had been made then, it might not then have sounded like hollow words. But today, it does not somehow have a ring of truth to it. Inflation is expected to be around 10%, a surety in the first half of the current fiscal. Economic growth rate for the current fiscal has been estimated at 8.5%. So taking an average rate of inflation at 8.5% for the entire current fiscal, and taking into consideration the GDP growth rate of 8.5%, we are talking of a notional GDP of 17%. As against this, if crude prices had not soared and inflation had not spiraled to this height, growth rate was estimated at 9% and inflation was expected to be at an average of 6%. So this means, even when things were hunky dory, the notional GDP was expected to be around 15%. Which is still lower than 17% currently predicted. Maybe Mr.Chidambaram has based his optimism on this rise in notional GDP?
Infact Mr.Chidambaram has stated, “ even if you take a 25% increase over last year’s collection of over Rs.3,14,468 crore, the budget estimates must be revised upwards very sharply”. And when asked to explain this rationale behind this increased target despite a slowdown in economic growth, he said, “ every estimate says that economy will still grow at 8.5% this fiscal”. Well, what does he mean by “every” estimate? On what estimates has he based this optimism?
Obviously, Mr.Chidambaram is the Finance Minister and when he utters something, it is supported by facts collated by an army of very able financial brains. He is not the kind to just mouth things, at least that has been the track record so far. And surely, these “positive” signs are not being sent as smoke signals, heralding the onset of the election campaign. Elections are scheduled to be held after the UPA Govt submits its report card in February, so there is no way in which he can afford to just say things for the sake of garnering votes.
These are utterances for which he is fully accountable. This upward revision of CBDT figure is in direct contradiction to the currently, non existent optimism and buoyancy in the economy. But then, if Mr.Chidambaram has said so, we need to pay more close attention. The first quarter results of the current fiscal are just around the corner and the advance taxation figures would also come in soon. These two figures would go a long way in validating the current buoyancy, which the Finance Minister has expressed.
We will now keep a close watch on this call of optimism, which Mr.Chidambaram has given, despite the trying times ahead. Let us see whether he had the foresight, for which he has always been praised or whether this was just a political gimmick with an eye on the vote bank.
RAISING DIRECT TAX TARGET - ILL FOUNDED OPTIMISM OR IMMENSE FORESIGHT?
But then, it becomes apparent as one reads through his entire statement, that the Finance Minister was not talking through his hat. He has obviously based this ill-timed optimism on hard-core data. The actual tax collection for 2007-08 was at Rs.3,14,468 crore, a 36.6% r By Ruma Dubey |
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