Hearing the budget speeches of Yashwant Sinha, one should agree that he could be a strong contender for the tag of filmy finance ministers of India. During the budget session of 2000-01, he proposed a policy to limit of reporting of payments made by film producers. According to him by doing so, the industry and ministry could come together- "Hum Saath Saath Hain." (Also name of a Bollywood Movie)
Sinha was also the Finance Minister who offered some relief to Venture Capital Funds in 2000. However his wit and populist policies were no match for the external crises that roasted global markets. And therefore, Sinha also is a strong contender for the title of 'Unfortunate Finance Minister'.
In 1991, he presented the budget on the back of the forex crisis. During the budget of 1999, the issue was that of Pokhran Blasts. In 2000, his budget came on the back of the Kargil war. And in 2001, the background was the Gujarat Earthquake and attack on Parliament. Phew!
Here is a look at some policies from each of his budgets:
The 1991 budget was an interim one. There were no changes in income tax rates neither any revision in customs and central excise duties. But, Sinha did reveal the extent of damage to the economy. He said, "The budget deficit of the Central Government reached a level of Rs 13,000 crores, on 30th November 1990, as a consequence of revenue shortfalls and expenditure overruns. The Wholesale Price Index registered an increase of 8.5 per cent, while the Consumer Price Index rose by 11.9 per cent, during the first eight months of the current financial year. The sharp deterioration in the balance of payments situation led to a rapid depletion of foreign exchange reserves, which dropped to Rs 3142 crores at the end of November 1990 and this sum was not even sufficient to finance imports for one month."
In whatever was limited to an interim-budget, he tried to do away with subsidies, although he did plead with the Parliament to wait for a regular budget. That, could have offered some time to come up with a formidable strategy.
Speaking on fiscal consolidation, Sinha said, "In our quest for fiscal consolidation, it is essential to rationalise expenditure on subsidies. As a first step in this direction, I propose to reduce the budgetary allocations for the major subsidies on exports, fertilisers and food from Rs 9,550 crores in the Revised Estimates for 1990-91 to Rs.8,616 crores in the Budget Estimates for 1991-92."
Budget of 1999
Besides the sanction imposed post the Pokhran Nuclear tests, India had to also brace up for the Asian Economic crisis. The Finance Minister said, "The East Asian financial crisis took a heavy toll of important economies in the region and spread to other countries. Japan continued in recession and in August 1998 severe crisis afflicted Russia. By January 1999, the contagion had spread to Brazil triggering massive capital flight and a steep depreciation of the currency. World output growth dropped below 2%, the growth of world trade decelerated sharply, commodity prices fell steeply, currencies were savaged and capital flows to developing countries declined sharply."
However there were a few positives from the budget speech. He said, "In India, we had to contend with the additional challenge of economic sanctions imposed on us after the Pokhran nuclear tests. While we have not remained unaffected by these developments, we have reasons to be satisfied at the way we have withstood the impact of these challenges. Despite the hostile economic environment, our GDP growth in 1998-99 has accelerated to 5.8% compared to 5% last year. Our farmers have led the way with 5.3% growth in agriculture and allied sectors. Since the beginning of 1998-99, we have added $2 billion to our foreign currency reserves as of February 23, 1999 and we have successfully curbed undue volatility in the forex market. The current account deficit in the balance of payments is estimated at a modest 1.4% of GDP compared to 1.6% in 1997-98. Although inflation had risen sharply during the year, we have succeeded in bringing it down to below 5% now.
Immediately after his budget of 1999, the challenge of war befell upon India. By the time the budget of 200-01, India had comfortably won the battle of Kargil. However, the costs of a war could disturb even those economies running surplus budgets. Ours was after all a deficit. The war certainly seemed to dent many of the plans of the Finance minister. But he did manage to maintain some balance.
Surcharge was increased from 10% to 15% on non-corporate tax payers with income above Rs 1,50,000. This to contribute to the Kargil fund. Senior citizens received a hike in tax rebates from Rs 10,000 to Rs 15,000. Women were offered an additional tax rebate of Rs 5000.
A major cheer for the startup ecosystem was the clearance from tax authorities for approval of venture capital funds.
The Finance minister said, "The principle of "pass through" would be applied in tax treatment of Venture Capital Funds, whose income would be free of tax, except when not distributed within the period that may be prescribed in the guidelines of SEBI. Income in the hands of its investors, which would otherwise be taxable, would also be kept tax free, and there would only be a one-time payment of tax by the Venture Capital Fund at the rate of 20%, when the Fund distributes its income to the investors. The same rate would apply to undistributed incomes also." Speaking on the incentives, he said, "these will facilitate the coming together of Saraswati (i.e.knowledge) and Laxmi (i.e. wealth) to bless entrepreneurs and investors."
Other populist measures such as student loans too were offered. Allowable deduction for repayment of education loan was hiked from Rs 25,000 to Rs 40,000 as an allowable deduction. Besides, Dividend Income in the hands of share-holders was continued to be made tax-free.
The 2001 Budget
The Gujarat earthquake did impact the economic scenario of the country. Rs 500 crore was made available to the state from the national calamity contingency Fund. The calamity necessitated a line of credit worth $800 million from the World Bank and Asian Development Bank.
Speaking about the loss, Sinha said in his speech, "The earthquake in Gujarat has been a terrible and unprecedented tragedy in terms of loss of life and damage to property. Although I am confident that the inherent resilience and entrepreneurial spirit so characteristic of the people of Gujarat will result in quick restoration of economic activity, I would like to assure the House that we have the capacity to fully meet the challenges of such natural calamities without deflecting from our path of pursuing our economic goals."