Manas Chakravarty: Tales about the Budget

WATCHWORD

The fiscal deficit
When little Bittu spent a night tossing and turning, his parents initially put it down to indigestion. But when the poor boy went without sleep for several nights in a row, and when his teacher complained about his being nervous and jumpy in school, his concerned parents had no option but to take their child to a doctor.

"I thought he probably had worms," said Mr Singh, Bittu's father, "and you could have knocked me down with a feather when the doctor took some psychological tests and said that it was the fiscal deficit that was worrying the kid."

"It's the Budget," explained Bittu's psychiatrist, "all these horror stories about the new government not being able to rein in the fiscal deficit are scaring people, especially impressionable young minds. They worry all night about whether Mr Chidambaram will be able to keep the deficit at 4.3 per cent, and have nightmares in which they see it shooting up to 4.7 per cent."

Bittu's mother, predictably, puts all the blame on Mr Singh, who is the editor of a pink newspaper. "He brought some of his FII friends home to dinner the other day, and all they talked about was how terrible it would be if the government couldn't keep the fiscal deficit under control. The child was sitting there with his mouth open throughout the conversation "" it obviously had a lasting impression on him." Mr Singh, however, looks at the positive side. "It's clear that my son has all the makings of a great economist," he said.

Meanwhile, Bittu is now undergoing extensive therapy sessions, in which grizzled veterans who have survived many Budgets soothe his fears.

PF rates
The government's proposal to have differential rates of interest on provident fund balances has been the focus of controversy in the last few days. While some people say that it would be unfair to have lower interest rates for workers merely because they earn a few thousand rupees more than their colleagues, others have more fundamental objections.

"It's well known that the backward castes are discriminated against all the time, so why shouldn't we have a special rate of interest for them?" demanded an RJD minister.

Similar demands have been raised by representatives of the scheduled castes, scheduled tribes, and the minorities. Sources say that, after accommodating all these demands, the rates of interest on provident funds will now be 10 per cent for SCs, 10.5 per cent for STs, 9.5 per cent for OBCs, 9 per cent for women, 8.5 per cent for minorities, 10 per cent for senior citizens, and 6 per cent for the suckers. Communists will get 12 per cent.

Budget expectations
In an attempt to gauge what the common man expects from the Budget, this correspondent had recently commissioned a survey. (None of the agencies involved in the election forecasts and the exit polls were involved, and every effort had been made to keep the survey psephologist-free.)

After speaking to all categories of people, making in-depth studies of the data, considering the permutations and combinations, and the correlations and regressions, we present below the summarised findings:

Professionals "" Reduce taxes so that we can save money
Housewives "" Lower taxes, so that our husbands have more money and we can spend it
Businessmen "" Lower taxes and raise customs duties, so that we have more profits
Workers "" Reduce taxes, give us more cash
Farmers "" We need free electricity, free water, more money
Investors "" Cut taxes and give us higher stock prices, so that we have more money
Schoolchildren "" We want free lunches, more pocket money

Economists have expressed surprise at the marked uniformity of opinion among all sections of the population. "The survey results are amazing," pointed out one of them, "everybody seems to want more money."

Vat is VAT
For those of you who are still unclear what VAT is, we offer below the definitive guide to VAT.

VAT is, of course, a multi-stage tax levied as a proportion of value added.

We follow the Invoice Method or the Tax Credit Method or Voucher Method and we obviously prefer the consumption to the income or gross product variant. The Tax Reforms Commission had suggested ModVat extended to most commodities and a rationalised tax system for states, but we are now likely to have a state VAT and a central VAT.

Note that the inclusion of CENVAT commodities under state VAT would avoid complete cascading from the system. Then there's the little matter of 100 per cent neutralisation of anticipated revenue loss and the compensation formula to be worked out, the conditional acceptance by several states, the band rates, and the roadmap by the empowered committee with a view to ensuring convergence.

I trust that this little explanation makes the entire matter of VAT crystal clear.

manas@business-standard.com