After the welter of reformist proposals in the Economic Survey, the Budget came as a damp squib that pleased none but highlighted the Government's urge to splurge on the so-called aam aadmi programmes.
Lest his views on fiscal deficit accumulation should be misconstrued, the Finance Minister, Pranab Mukherjee, promised to return to the Fiscal Responsibility and Budget Management target at the earliest and as soon as the negative effects of the global crisis on the Indian economy have passed. This is the best bargain out of a bad situation.
Pranab missed a golden opportunity
Spreading it thin
The augmented spending on the National Rural Employment Guarantee Scheme, Bharat Nirman, Pradhan Mantri Gram Sadak Yojana, Rajiv Gandhi Grammeen Vidyutikaran Yojana and Indira Awas Yojana and extension of the debt relief programme for farmers has attracted the criticism of spreading thin the scarce resources.
Given the delivery mechanism and outreach of these programmes and the leakages and wastages inherent to them, it is time an independent evaluation of all such flagship programmes was done before committing more funds to them.
Govt will not crowd out corporate borrowing
With the Government gripped by the high growth mantra, of 9 per cent, it ought to ensure that the manufacturing industry, in general, and the private sector, in particular, is not hassled. No doubt that is why, Mukherjee did not rock the stable tax regime.
But increasing the Minimum Alternative Tax (MAT) from 10 per cent to 15 per cent, the absence of a policy for closure of loss-making units, subtly pushing the list of items currently attracting the rate of 4 per cent to 8 per cent to ensure convergence of central excise duty rates to a mean rate and the high cost of borrowing from financial institutions, including banks, would add to the woes of corporates.
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If the UPA Government could take pride in stating that it had brought down fiscal deficit from 4.5 per cent of GDP in 2003-04 to 2.7 per cent in 2007-08 and the revenue deficit from 3.6 per cent to 1.1 per cent, it ought to be flustered by the fact that the revenue deficit as a percentage of GDP is projected at 4.8 per cent for 2009-10 compared with one per cent in the 2008-09 Budget Estimates (revised to 4.4 per cent) and the fiscal deficit at 6.8 per cent compared with 2.5 per cent in 2008-09 BE (revised to 6 per cent) last fiscal.
Of the budgeted revenue receipts of Rs 6,14,497 crore in 2009-10, just interest payments account for 37 per cent, or Rs 2,25,511 crore. The irony is that out of every rupee that comes from the Budget, borrowing and other liabilities account for 34 paise, while out of every rupee spent 19 paise goes to interest payments. Is the urge to spend to grow a sustainable proposition if the revenue-augmenting avenues are not explored through the instrumentality of Budget?
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No wonder, the Budget failed to ignite the market because it is devoid of forward-looking reforms, which India Inc has been looking for.
Soft target
The Budget, however, did rid the private players and individuals of some irksome levies such as the surcharge on income-tax, the Fringe Benefit Tax, the Commodities Transaction Tax, and extended some marginal relief to people in the lowest tax slab.
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Given the cautious nature of Mukherjee, his spending list is not oriented to stoke growth or demand but to appease the political constituency. But the fiscal excesses might come back to haunt him if the economy does not recover soon.
