OPINION
THE BUDGET : A DAMP SQIB?
Dr.K.Shanker Shetty
Dr.K.Shanker Shetty
"A citizen can hardly distinguish between a tax and a fine, except that a fine is generally much lighter." – G. K. Chesterton
Indian budget 2012 – 13 was presented in the parliament on 16 – 03 – 2012 with the background of a slow paced global recovery after the crisis. Though Indian economic performance has been quiescent there are sufficient alarming indications of declining trend in growth rate; double digit inflation ruling throughout 2011; strangulating monetary policies with, ever increasing rate of interest; fiscal profligacy continuing unabated widening the fiscal deficit increasing the deficit financing, rising prices; declining foreign and domestic private investments; languishing manufacturing sector etc. Simultaneously at the macro level, GDP is expected to be at 6.5%; agriculture 2.5%, industry 3.9% and service sector at 9%. External trade at $39billion has not improved the situation with trade balance and current account remaining highly negative.
In the circumstances budget should have primarily aimed at reducing fiscal deficit; minimizing subsidies and unearthing blackmoney. Divestment should have been progressive; planned expenditures should have increased; tax rates should have helped to improve the effective demand along with low rates and improved efficient tax collection management. Infrastructure should have been widened with adequate funds. However, even the railway budget has failed to modernize with better safety measures. Oil and gas sector needs more investment with better technology. Reforms must have been revived with speed.
In the circumstances, it is worth the trouble to understand whether the Finance Minister has succeeded, through his budget 2012, to chalk out effective measures to secure at least some of the objectives which would have helped to revive national economy from its stagnation status. A cursory glance at the budget, however, would reveal the naked truth that it has been a "non – event", - a status quo exercise plagued by political cycles and imperatives. From the beginning the budget exercise was affected by political exigencies, fiscal negatives, bureaucratic bungling and environmental complexities. It has utterly failed to achieve fiscal prudence, reduce rate of interest, attract FDI, avoid subsidies. This is despite of the fact that export has been quiescent; imports moving upward though savings / investment ratio to GDP being reduced marginally. Budget also declares about food security; bring down subsidies below 2% of the GDP; deregulating diesel and LPG in the near future. New equity schemes, infrastructure bonds, proposals to reform capital market by attracting foreign investors in banking, insurance and civil aviations etc. National manufacturing policy; tax rebate to retail investors were assured. Power generation, has been aimed at by improving coal, transport, oil and gas with high investments. There are proposals to improve agricultural sector and intensify the process of inclusive development. Social sector as usual found prime of place though ultimately they shall prove to non – starters to raise the standard of living. Even, when China has earmarked $100 billion, the budget proposed only $40 billion for defence is a matter of concern indeed.
The budget 2012 also aims at achieving fiscal deficit of 5.1% and GDP growth rate at 7.6%. It also plans to have Rs.30,000 crores divestment as against Rs.40,000 from 2011 – 12. It indicated continued market borrowing, and non plan expenditure through subsidies. We find in the budget proposals to encourage coal and power sectors; reduction of revenue deficits; advance pricing for foreign investors; current account deficit at 3.5%; amending FRBM Act etc.
However, the question arises as to whether the budget has remained a "visionary exercise" to improve India’s growth process? In all probability, it may not. Because, the proposal to reduce fiscal deficit to 5.1% as against 6.5% at present is a tall order unless equally harsh measures are taken up. Similarly, projected GDP growth at 7.6% is doubtful if the current policy trends continue. The proposal to limit the fiscal deficit at 2% of GDP and tax – GDP ratio at 12.6% shall be remain wishful thinking unless positive steps are taken. Due to hike in excise and service taxes inflation shall pick – up once again towards scaling double digits. Interest rate continues to remain high as per RBI policies and is likely to affect domestic investment in industry, infrastructure and manufacturing sectors. In absence of reforms, regressive steps towards foreign multi – product retails may not improve product quality or competitive pricing. Worst is the corporate sector has been thoroughly disappointed with the lukewarm attitude towards reforms in economic sector. Current account deficit target of 3.6% as shown in the budget shall remain a dream. Budget does not provide any positive provisions for the revival of stock – markets and capital market.
Hence, what the economy needs is a pragmatic approach. Yet, there is no positive concrete steps indicated to reforms by expediting goods and service tax, direct tax code, entry of multi – retail giants, foreign investments, civil aviation etc., except lip service. Adequate provisioning for funding through PPP route would have given enough push to coal, power and transport sector. Budget may even fail to enthuse the inflow of FII capital into Indian economy.
Thus, on the whole from the macro – level perspectives the budget 2012 – 13 proves to be a damp – squib since it may not help to revive the economy to the level of 2007 – 09, making it a driver economy of the global scale as is the case with China. India’s budget exercise, hence must be based more of merits on economic terms rather than being captive to political compulsions. On the taxation front, the Finance Minister has failed to inject a sense of positive urge. The minor dissection conducted in the personal income tax sphere, by tinkering the slabs and raising the basic exemption by a meager Rs.20,000 has not fooled the common people. This paltry raise has been nullified with negative impact due to the hike of 2% in excise duty and service charges across the board. Ever increasing oil prices resulting in raising fuel prices and additional burden on account of increased hike in excise and service charges is bound to poke more holes in the small pockets of people with limited sources of income. Resultantly, heat of inflation may be the order of the day making the daily life of commoner more miserable due to rising prices and inflationary spiral.
In nutshell, it must be concluded that the current budget with its various omissions and commissions, has created a dent on government credibility and reputation. There is no hope of fiscal consolidation or the growth recovery can be ensured. The continuity of education cess on individual tax payers without accountability and transparency as regards its actual utilization is perplexing. In order to sustain growth and stability, prudent and pragmatic policies are missing. Subsidies may continue unabated due to political compulsions. Therefore, the budget 2012 may not help to change the living conditions, despite of aspirations of the common people. Once again it has been proved, as in the past, that budget in India is an exercise in futility nay a damp squib. The point to remember is what government gives, it must first take it away, seems to be the guiding philosophy of budget makers in India.
Author is an economist and a former General Manager of Vijaya Bank
Indian budget 2012 – 13 was presented in the parliament on 16 – 03 – 2012 with the background of a slow paced global recovery after the crisis. Though Indian economic performance has been quiescent there are sufficient alarming indications of declining trend in growth rate; double digit inflation ruling throughout 2011; strangulating monetary policies with, ever increasing rate of interest; fiscal profligacy continuing unabated widening the fiscal deficit increasing the deficit financing, rising prices; declining foreign and domestic private investments; languishing manufacturing sector etc. Simultaneously at the macro level, GDP is expected to be at 6.5%; agriculture 2.5%, industry 3.9% and service sector at 9%. External trade at $39billion has not improved the situation with trade balance and current account remaining highly negative.
In the circumstances budget should have primarily aimed at reducing fiscal deficit; minimizing subsidies and unearthing blackmoney. Divestment should have been progressive; planned expenditures should have increased; tax rates should have helped to improve the effective demand along with low rates and improved efficient tax collection management. Infrastructure should have been widened with adequate funds. However, even the railway budget has failed to modernize with better safety measures. Oil and gas sector needs more investment with better technology. Reforms must have been revived with speed.
In the circumstances, it is worth the trouble to understand whether the Finance Minister has succeeded, through his budget 2012, to chalk out effective measures to secure at least some of the objectives which would have helped to revive national economy from its stagnation status. A cursory glance at the budget, however, would reveal the naked truth that it has been a "non – event", - a status quo exercise plagued by political cycles and imperatives. From the beginning the budget exercise was affected by political exigencies, fiscal negatives, bureaucratic bungling and environmental complexities. It has utterly failed to achieve fiscal prudence, reduce rate of interest, attract FDI, avoid subsidies. This is despite of the fact that export has been quiescent; imports moving upward though savings / investment ratio to GDP being reduced marginally. Budget also declares about food security; bring down subsidies below 2% of the GDP; deregulating diesel and LPG in the near future. New equity schemes, infrastructure bonds, proposals to reform capital market by attracting foreign investors in banking, insurance and civil aviations etc. National manufacturing policy; tax rebate to retail investors were assured. Power generation, has been aimed at by improving coal, transport, oil and gas with high investments. There are proposals to improve agricultural sector and intensify the process of inclusive development. Social sector as usual found prime of place though ultimately they shall prove to non – starters to raise the standard of living. Even, when China has earmarked $100 billion, the budget proposed only $40 billion for defence is a matter of concern indeed.
The budget 2012 also aims at achieving fiscal deficit of 5.1% and GDP growth rate at 7.6%. It also plans to have Rs.30,000 crores divestment as against Rs.40,000 from 2011 – 12. It indicated continued market borrowing, and non plan expenditure through subsidies. We find in the budget proposals to encourage coal and power sectors; reduction of revenue deficits; advance pricing for foreign investors; current account deficit at 3.5%; amending FRBM Act etc.
However, the question arises as to whether the budget has remained a "visionary exercise" to improve India’s growth process? In all probability, it may not. Because, the proposal to reduce fiscal deficit to 5.1% as against 6.5% at present is a tall order unless equally harsh measures are taken up. Similarly, projected GDP growth at 7.6% is doubtful if the current policy trends continue. The proposal to limit the fiscal deficit at 2% of GDP and tax – GDP ratio at 12.6% shall be remain wishful thinking unless positive steps are taken. Due to hike in excise and service taxes inflation shall pick – up once again towards scaling double digits. Interest rate continues to remain high as per RBI policies and is likely to affect domestic investment in industry, infrastructure and manufacturing sectors. In absence of reforms, regressive steps towards foreign multi – product retails may not improve product quality or competitive pricing. Worst is the corporate sector has been thoroughly disappointed with the lukewarm attitude towards reforms in economic sector. Current account deficit target of 3.6% as shown in the budget shall remain a dream. Budget does not provide any positive provisions for the revival of stock – markets and capital market.
Hence, what the economy needs is a pragmatic approach. Yet, there is no positive concrete steps indicated to reforms by expediting goods and service tax, direct tax code, entry of multi – retail giants, foreign investments, civil aviation etc., except lip service. Adequate provisioning for funding through PPP route would have given enough push to coal, power and transport sector. Budget may even fail to enthuse the inflow of FII capital into Indian economy.
Thus, on the whole from the macro – level perspectives the budget 2012 – 13 proves to be a damp – squib since it may not help to revive the economy to the level of 2007 – 09, making it a driver economy of the global scale as is the case with China. India’s budget exercise, hence must be based more of merits on economic terms rather than being captive to political compulsions. On the taxation front, the Finance Minister has failed to inject a sense of positive urge. The minor dissection conducted in the personal income tax sphere, by tinkering the slabs and raising the basic exemption by a meager Rs.20,000 has not fooled the common people. This paltry raise has been nullified with negative impact due to the hike of 2% in excise duty and service charges across the board. Ever increasing oil prices resulting in raising fuel prices and additional burden on account of increased hike in excise and service charges is bound to poke more holes in the small pockets of people with limited sources of income. Resultantly, heat of inflation may be the order of the day making the daily life of commoner more miserable due to rising prices and inflationary spiral.
In nutshell, it must be concluded that the current budget with its various omissions and commissions, has created a dent on government credibility and reputation. There is no hope of fiscal consolidation or the growth recovery can be ensured. The continuity of education cess on individual tax payers without accountability and transparency as regards its actual utilization is perplexing. In order to sustain growth and stability, prudent and pragmatic policies are missing. Subsidies may continue unabated due to political compulsions. Therefore, the budget 2012 may not help to change the living conditions, despite of aspirations of the common people. Once again it has been proved, as in the past, that budget in India is an exercise in futility nay a damp squib. The point to remember is what government gives, it must first take it away, seems to be the guiding philosophy of budget makers in India.
Author is an economist and a former General Manager of Vijaya Bank
Comments