As
Finance Minister Pranab Mukherjee knows from past experience,
public response to a budget depends as much on how it
is dressed up as on what it contains. Not surprisingly,
in the course of a long and dilatory introduction to
his post-election Budget speech, he attempted to persuade
his listeners that he seeks to accelerate recovery,
restore growth and do so in a fashion where the fruits
of these efforts would be more equitably distributed.
India, he seemed to suggest, has weathered the global
crisis well and is poised to return to its years of
high growth. His aim was to facilitate that process
and ensure that the common man would be included among
the beneficiaries of the turnaround.
The fact of the matter, however, is that in terms of
new fiscal initiatives the Finance Minister has done
little. He has tinkered with direct taxes, offering
marginal concessions to personal income tax payers and
imposing new minimum tax requirements for the corporate
sector, which together with other manoeuvres are revenue
neutral. Direct taxes are projected to garner the same
amount of revenues as expected prior to the new tax
measures. In the case of indirect taxes, the large excise
duty reductions resorted to a few months earlier as
a temporary measure aimed at stimulating demand and
reviving growth have not been withdrawn. The revenue
loss on this count has been more than neutralised by
adjustments in other areas, by measures that were not
primarily aimed at additional resource mobilisation.
Thus, a few customs duties have been restructured to
protect or stimulate domestic industry. And excise duties
at the 4 per cent level have been raised (with significant
and substantial exceptions) to ensure convergence in
the run up to the proposed goods and services tax (GST).
In the net, these measures are projected to yield additional
revenues to the tune of Rs. 2,000 crore in 2009-10.
These limited initiatives on the tax front have implied
that spending measures have also remained more or less
the same as before, except in two areas where the Finance
Minister's hands are tied. First, with the full-year
effects of the implementation of the recommendations
of the Sixth Pay Commission having to be recorded for
the first time in the regular budget, the salary and
arrears bill of the government has registered a substantial
increase. Second, since the Sixth Pay Commission's effects
and the revenues foregone and the expenditures incurred
as part of stimulus packages announced to address the
effects of the global crisis increased the government's
borrowing significantly last year, its interest bill
has risen substantially. These pre-committed expenditures
have resulted in a sharp increase in the non-Plan spending
of the government. As a result, aggregate expenditures
have risen even though there are no brave new initiatives
launched by a government that has come to power with
a comfortable majority, and by the Congress Party which
has significantly increased its influence within the
coalition that governs the country.
Unfortunately, the comfortable mandate and the claim
of the previous UPA government that its efforts at reform,
growth and redistribution were being hampered by a Left
that was obsessed with stalling pro-market reform had
generated expectations of significant new measures.
Media speculation suggested that those expectations
included large tax concessions, a major privatisation
thrust and substantial financial liberalisation. What
is more, the Economic Survey which was written almost
as a pamphlet advocating reform only strengthened such
expectations.
However, having stuck with the status quo on the taxation
front and burdened with higher salary and interest expenditures,
if the Finance Minister had delivered on the expected
fiscal measures the revenue and fiscal deficits would
have increased sharply from there already high levels
of 4.8 per cent and 6.8 per cent of GDP respectively.
Given the fiscal conservatism that characterises neoliberal
ideology, this was not on. In the event, the expectations
created in the run up to the budget were belied. The
details of the budget were so obviously in variance
with the rhetoric that preceded and accompanied it that
it disappointed most, if not all. Most sections of the
population see the Budget as having taken away, with
a second hand, what it sought to give with the first.
Examples were not hard to find. A marginal increase
in the exemption limit and the abolition of the surcharge
on income tax for personal income tax payers is accompanied
by increases in indirect taxation that are bound to
impinge adversely on this section. The abolition of
the Fringe Benefits Tax and a further extension of the
tax holiday for export-oriented units, which must please
corporations, are accompanied by a hike in the Minimum
Alternate Tax that would hurt a significant number of
them. And the promise of inclusiveness for the poor
has not been accompanied by outlays that match that
rhetoric.
This lack of coherence implied that first responses
to the budget were mixed and muted. But these were not
the only reasons why the budget proved a disappointment.
Its principal failure is that though the Finance Minister
gifts himself significant resources from non-tax sources,
such as about Rs. 35,000 crore from the sale of 3G spectrum
and massive borrowing reflected in a 6.8 per cent fiscal
deficit to GDP ratio for 2009-10, he has not done much
to either spur investment or deliver benefits for the
poor and deprived.
Consider the claim made by the Minister that he intends
reversing the recent economic downturn and restoring
the buoyancy the economy has displayed in recent years.
The increase in total expenditure in 2009-10 relative
to the revised figures for 2008-09 amounts to 2 per
cent of GDP. But, as noted, much of this increase is
the consequence of previously committed non-Plan expenditures
rather than Plan expenditures with long run effects.
Thus, the budgetary support for the central plan relative
to 2008-09 is projected to increase by just around one
half of one percent of GDP. That much for the Finance
Minister's claim that his budget seeks to stimulate
growth and induce buoyancy. In fact, his speech is disingenuous
when it claims that the difference between the actual
fiscal deficits of 2007-08 and 2008-09, amounting to
3.5 per cent of GDP, constituted the purposively delivered
fiscal stimulus to combat the downturn. Much of this
was due to a pre-committed set of expenditures which
have since been erroneously treated as outlays needed
to deal with the recession.
This is not to imply that the Finance Minister does
not have a ''vision'' as to how growth will occur. Query
him about the insubstantial increase in expenditure
on rural development in its various forms and he would
refer to his promise to increase the flow of credit
to agriculture (from the banks and not the budget) from
Rs. 2,87,000 crore in 2008-09 to Rs. 3,25,000 crore
in 2009-10. Ask him about the adequacy of the support
provided to crucial infrastructure sectors in terms
of additional public investment and he would point to
the fact that the India Infrastructure Financing Company
Limited (IIFCL) would provide banks refinance to the
tune of 60 per cent of their exposure to infrastructure
projects in the private-public partnership (PPP) mode.
In sum, expenditure to stimulate growth does not come
fully from the government but substantially from an
ostensibly independent banking sector offering credit
to the private sector. The private sector, it is presumed,
will respond to this offer, with a little help from
the state, and hike its investment targets. There is,
of course, no guarantee that this would indeed occur.
The lack of correspondence between rhetoric and practice
is not confined to the growth objective alone. It also
affects the promise of being inclusive and benefiting
the common man. Consider, for example the Finance Minister's
claim that allocations for a flagship programme like
the National Rural Employment Guarantee programme have
been hiked by 144 per cent. That is true when you compare
the budget estimates for 2009-10 with the budget estimates
for 2008-09. But, the fact of the matter is that since
the NREGS is a demand driven programme, the allocation
for it in the 2008-09 budget was just notional, with
the promise that more would be provided in response
to demand. Even with the still limited implementation
of the NREGS, actual allocations in 2008-09 were much
higher than budgeted for and rose to Rs. 36,750 crore.
Compared to this the budgetary allocation for 2009-10
at Rs. 39,100 crore is just Rs. 2,350 crore or 6.4 per
cent higher. Assuming that implementation improves and
states get their act together, this figure would be
far short of what is needed.
There are many other examples of such inadequacy. The
Rural Health Mission has been allocated only Rs. 1730
(or around 1.2 per cent) more than what was spent last
year, although the evidence shows that India is a country
where private expenditure dominates total health expenditures
and leads to indebtedness in rural areas. Despite the
fact that the Supreme Court had ordered a few years
back that the Integrated Child Development Scheme should
be universalised, the increase in allocation for this
still sparsely delivered scheme is only Rs. 361 crore
or 1.1 per cent more than earlier. While the Right to
Education has been recognised, the increase in budgetary
allocation for elementary education is less than Rs.200
crore. Above all, while the UPA has made much of its
proposed Food Security Act (which will reduce allocations
of rice or wheat to the poorest from 35 kg to 25 kg
per month), the subsidy on food is expected to increase
by just Rs. 8862 crore, even though the minimum support
price and, therefore, the required subsidy per kg has
gone up substantially.
Put all this together and it appears that this budget
is not merely incoherent and self-contradictory, but
also inadequate to meet its own objective of higher
growth with a human face. This, however, is not to say
that this budget lacks direction altogether. One thrust
in the budget is to sustain concessions offered to private
capital in the name of the recession. As has been noted
above, a significant part of the government's stimulus
aimed at combating the downturn triggered by the global
financial crisis was the sanction of large of excise
duty reductions that were expected to sustain demand.
These cuts were seen as temporary. But this budget,
despite proclaiming that the worst of the downturn is
over, has chosen to stick with these reductions.
More than this, the budget pushes ahead with or promises
to undertake further economic reforms that would please
financial capitalists. One direction such reform has
taken is a range of tax concessions that have been provided
to investments made by the New Pension Scheme (NPS)
Trust in private equity. Besides dividend tax concessions,
these investments have also been exempted from the Securities
Transaction Tax. This would only encourage the diversion
of savings in pension funds to the stock market in the
hope of higher returns. This would benefit stock market
operators, but would also increase the vulnerability
of the life savings of middle class citizens deposited
in the NPS. This implicit sanction for speculation of
the kind that triggered the ongoing financial crisis
has been strengthened by the abolition of the Commodities
Transaction Tax, despite the evidence that transactions
in commodities markets have grown at a pace where they
point to speculative trends that clearly need reigning
in.
Finally, an important direction of renewed reform is
the new drive for privatisation, which had been advocated
in the Economic Survey released a few days back. While
promising to sustain public control over public sector
assets the Finance Minister has made the case in the
Budget for creeping privatisation. To quote him: ''The
Public Sector Undertakings are the wealth of the nation,
and part of this wealth should rest in the hands of
the people. While retaining at least 51 per cent Government
equity in our enterprises, I propose to encourage people's
participation in our disinvestment programme.'' The privatisation
agenda is now being promoted in the name of ''people's
participation''. The idea ostensibly is to obtain resources
for the budget through sale of public equity to the
public at large. In itself, this is not merely shortsighted,
but, given the growing profitability of the public sector,
irrational. But it may be the option the government
will exercise if it finds, as is likely, that expenditures
are rising more than it expected and revenues are falling
short of projected.
The Finance Minister does know that the truly common
man does not invest in equity. The ''people'' he speaks
of as public stakeholders are members of the small elite
who directly or indirectly participate in trading in
the stock market. The idea is to sell public assets
to them, so that they can sell it on to higher bidders,
leading inevitably to influence if not control by big
private capital. It is these interests that the budget
primarily serves. But judging by the first response
of the stock market even they are not impressed. And
that possibly is because the Finance Ministry, by converting
Economic Survey 2008-09 into a pamphlet advocating accelerated
''reform'' of a kind that sounds irrational given the
lessons of the recent crisis, created expectations of
liberalisation that it could not itself meet. This time
around this could not be blamed on an intransigent Left
that was unwilling to accept the reality of modern India.
It is because the advocates of irrational neoliberal
''reforms'', which restructure policies in favour of private
capital, seem to be out of tune with what is feasible
in actually existing capitalist economies – especially
those that are functioning political democracies.
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