Watching the “Budget Specials” today, I was struck by the monotony of the responses coming from most panellists. Most were circumspect. Many were plain “disappointed. Reason being that finance minister Pranab Mukerjee failed to enthuse the stock market. In fact the market tanked by 870 points on the Bombay Stock Exchange.
But once you crunch the numbers, it is evident that once again India Inc has been given more sweeteners than they deserve. For example, the series of direct and indirect tax concessions in the wake of the global economic crisis has led to the tax revenue forgone – taxes that India Inc should be paying - reach as much as Rs. 4.18 lakh crore (Rs 4.18 trillion) in 2008-09.
Rather than withdrawing these concessions to enable greater resource mobilisation and spending in critical areas, Mukerjee has chosen to extend these concessions for the entire financial year of 2009-10.
In fact, the abolition of the Fringe Benefit Tax and Commodities Transaction Tax will also adversely impact tax mobilisation. Despite the welcome increase in the Minimum Alternative Tax levied on corporates from 10 per cent to 15 per cent of their profits, the Budget is revenue neutral on the direct tax front and direct tax revenues are expected to increase by 7 per cent only, which is much less than the nominal growth of GDP.
Not surprisingly, India Inc is mighty pleased. HDFC Chairman Deepak Parekh proclaimed on a TV show: "I think I am overall very happy with the Budget." Stating that he did not see any reason for being negative on the Budget, Parekh noted that the Finance Minister mentioned the role of the private sector and private finance in the speech.
Indeed, looking at the fine print it comes as no surprise that contributors to the Congress Party's kitty have been rewarded in ample measure. For example, Mukesh Ambani has come out a winner – Mukerjee has restored the seven-year tax break on natural gas production. “We are very happy about the clarification as it ends the ambiguity," said PMS Prasad, President and CEO (Oil & Gas) of Reliance Industries.
Similarly, the finance minister's has extended fiscal benefits available to the IT-BPO sector under Section 10A/10B for one year to “help the industry mitigate the impact of the current economic environment and help India retain its competitiveness.” Translated in plain language it means companies like Infosys, Wipro and Mahindra Tech (Satyam) will continue with the tax holiday they have enjoyed for the past decade.
Prime Minister Manmohan Singh sees nothing wrong with granting largess to these companies, which have not contributed to innovation and have no patents to their names. Instead, he trotted out a lame explanation: “The main aim of the Budget is to minimise the impact of global recession,” adding that its focus was to ensure that short-term requirements of the economy as well as medium-term goals were achieved.
Really? Is foregoing revenues to the extent of Rs 4.18 trillion minimise the impact of the global recession? The Prime Minister may hail the Budget as an “admirable job”, but the hosannas are being sung by the fat cats on business channels and pink papers, not the much-vaunted aam admi.
“It is essentially a rural development-oriented Budget," claims the Prime Minister. And the likes of Montek Singh Ahluwalia, P Chidambaram, and Kapil Sibal – the neo-liberal cabal that guides government policy nowadays – are shouting from the rooftops that in the Budget handsome additional allocation has been made for inclusive growth and other flagship programmes like Urban Renewal Mission and National Rural Health Mission.
Those who had hoped to make a fast buck in these times are complaining that there was no announcement on privatisation of PSUs, banking “reforms” and throwing open the insurance sector to foreign finance capital. “Nothing that was expected has happened except for some bit of focus on infra. But he (Mukerjee) did not say anything about divestment, he did not say anything about insurance. All of that are having an impact on the market,” complained Saurabh Nanavati, CEO of Religare Asset Management.
But talk of the Budget being “socialist” or “populist” is sheer bunkum. In fact Parekh was being honest when he said, "You must understand that he (Mukerjee) mentioned the role of the private sector and private finance...Disinvestment will happen. The government needs more money...I don't see any reason for (being) negative at all."
In fact the “captains of industry” openly said on TV that disinvestment and other “reforms” were not mentioned in the Budget precisely because Mukerjee did not want to raise a storm in Parliament – he would do all this, and much more, without much fuss at a later date, preferably when Parliament is not in session.
So where does that leave you and me? Sure, some crumbs have been thrown to the middle class by way of raising personal tax exemption limits marginally. LCD TVs may become slightly cheaper and mobile handsets could go the same way. So what?
Looking at the big picture - After all, India is a billion strong country - the numbers tells us the Budget is grossly inadequate in meeting the challenges of economic recession, growing job losses and declining purchasing power of the masses.
The total expenditure is slated to increase by a mere 2 per cent of GDP only, essentially to meet non-developmental expenditures like interest payments and implementing Sixth Pay Commission recommendations. So this Budget neither provides a stimulus for growth nor meets the needs of “inclusive growth” for the aam admi.
While Mukerjee has failed to provide the resources required to stimulate the economy, the neglect of its role in terms of allocations is more significant in areas that touch on the lives of the mass of the people.
Crucial sectors, like agriculture and rural development, where the effects of the prolonged agrarian crisis and the agricultural growth slowdown of 2008-09 have been severe, have been provided little support in terms of Plan outlays. The required lowering of interest rates to 4 per cent on farm loans has not been done. Instead, only an incentive to repay loans on time has been announced.
The allocation required to implement the Right to Education is shockingly absent in the Budget. The increase in budgetary allocation for elementary education is less than Rs 200 crore. In fact the non-seriousness of the Government for the universalisation the Integrated Child Development Scheme (ICDS) is seen in the meagre increase in allocation of only Rs. 360 crore.
The allocation for the social security schemes for the unorganised sector workers is only Rs. 100 crore more than last year, belying the claims made by the Finance Minister. While the increase in minimum wage for the NREGA to Rs 100 makes sense in States where the wage rate is lower, a meaningful expansion of NREGA would have required a much larger allocation than the Rs. 2350 crore increase over what was spent in 2008-09.
Similarly, the Rural Health Mission has been allocated only Rs 1730 more than what was spent last year. And it is indeed unfortunate that the Finance Minister has given his stamp of approval to an increase in the price of foodgrains by Re 1 per kg for Antodaya families and a cut in the allocation of food quotas by 10 kg to BPL families in the name of the Food Security legislation. None of the promises made to women including the widow pension scheme has received increased allocations. All this even as the well off get tax exemptions, cheaper LCD TVs and, of course, BMWs.
Indeed, far from meeting the requirements of the people, the Budget will further widen the gap between the haves and the have-nots. Mind you, this is the first Budget of this government. There are four more to go. For the aam admi, the struggle to protect and improve his livelihood has just begun.
Yet the fat cats are whining. “Somehow I was thinking that the Railway Budget was a little populist. Now this one seems to have outdone that. Honestly, there seems to be too much of social spending," complained Saurabh Nanavati of Religare Asset Management. Yeh dil mange more?