Union Budget 2009-10: Fails to live up to expectations
July, 07th 2009
The government of India's Budget is a big event and therefore naturally raises expectations. It is the first Budget of a newly elected government with a new finance minister, and the economic situation is domestically and globally challenging. Expectations are thus sky-high. It is not that the media or the market alone which created these expectations. The Presidents address to the joint session of Parliament on June 4, 2009, and the Economic Survey of July 2, 2009, added grist to the mill. Pranab Mukherjees Budget has failed completely to live up to these expectations.
A Budget, in this day and age, has primarily to fulfil three kinds of expectations. The first is of economic growth, the second relates to the social sector and the third deals with the welfare of the poorest of the poor and the weakest of the weak. Let us take up these one by one and see what the finance minister has delivered.
After five years of drought on the economic reforms front and after a path-breaking slew of reforms advocated by the Economic Survey, it was legitimate for us to expect a reform-oriented Budget. Unfortunately, it is not.
Fiscal deficit has gone up to 6.8% of the GDP compared to 6.2% in the interim Budget. Worse, reforms in this sector have been postponed to a future date. Similarly, the deregulation of the hydrocarbon sector has also been postponed. Disinvestment of PSUs, about which so much was said in the Presidents address and the Economic Survey, has been summarily dismissed with no more than Rs 1,120 crore shown as proceeds from it, compared to Rs 25,000 crore mentioned in the Economic Survey. No attempt has been made to rationalise subsidies.
There are no major announcements with regard to infrastructure. Targets like constructing 20 kilometres of National Highways per day or relating to ports, airports, telecom, etc., which are sectors still largely under the control of the government, have just not been mentioned, as if they are of no consequence. Nothing has been said about foreign direct investment being raised in various sectors. The Raghuram Rajan Committees report on financial sector reforms has been snubbed it is not even mentioned in the Speech.
On the taxation side, the finance minister has been less than bold. He has abolished the Fringe Benefit Tax (FBT) and the Commodity Transaction Tax but has raised Minimum Alternate Tax (MAT) from 10% to 15%. An adjustment of slabs in corporate and personal income tax could have left more money in the pocket of the corporates and individuals for investment and expenditure in these trying times. If his direct tax proposals are revenue neutral as the finance minister claims they are, then clearly somebody gets relief and somebody else pays for it. He has left indirect taxes largely unchanged except for some tinkering here and there. In view of the fact that he has decided to stick to April 01, 2010 for the implementation of Goods and Services Tax (GST) this appears to be in order.
Never before has there been such disconnect between the Economic Survey and the actual Budget as in this year.
As far as the social sectors are concerned, the Budget does increase allocations here and there but fails to tackle basic issues of delivery to the people. It is shameful that even after six decades of Independence, many of our citizens live without basic amenities like a reasonable dwelling, sanitation, electricity, drinking water, proper roads, education and health. We need to solve these problems as quickly as possible. We need to abolish hundreds of central and centrally-sponsored schemes. The government of India should fully fund and supervise the remaining schemes.
The basic welfare issue continues to be the identification of the beneficiaries. Almost all our welfare programmes are meant for people living below the poverty line. There is a wide variation in this number. In Chhattisgarh, this figure is 70%. The Unique Identification Card for all Indians is a good idea but who will identify the status of the cardholder? The huge discrepancy in the existing list of beneficiaries favours the undeserving. Unless this problem is sorted out, corruption and nepotism will continue. The finance minister has failed to address this issue in his speech.
The finance minister has paid fulsome tribute to late Indira Gandhi for her bold decision to nationalise our banking system 40 years ago which has saved this sector from the current meltdown in the world financial markets. Yes, and the government also showed vision in appointing the Sixth Pay Commission four years ago which has saved our economy from the global meltdown. The nation will be better off without such vision and without such responses.
On the whole, it is a timid Budget when a bold Budget was needed. It is a Budget which has postponed crucial decisions. It is a Budget which has been resoundingly rejected by the stock markets.