At a point of time when the price of tur dal has soared to Rs 78 along with food and condiment prices touching new heights and the impact of the increase in the fuel prices awaiting to take effect, the official figure of inflation is around -2% compared to 4.8 % at the time of the Interim Budget. Although the Economic Survey made the intentions of the government clear – streamlining the direct tax regime, FBT phase-out, correction in dividend tax, rationalisation of the customs duty structure, a road map for disinvestment, a subsidy rationalisation scheme, GST and a re-working of the FRBM, many remained pious intentions in the actual Budget .
Though Budget proceeded more or less on the same lines as the Interim Budget, one fact that needs to be considered is that the nearly Rs. 4 lakh crore injected through the three stimulus packages in the earlier regime has now generated the risk of a liquidity surplus.
The credit flow did not occur to the magnitude expected in the key sectors. Global recession set the risk appetite clock in the reverse. There is a tag to growth expectations: the US economy which is badly effected by recession has to take a U-turn.
The Indian economy depends on agricultural growth notwithstanding any other global linkages, despite its declining share in the GDP to around 17 %.
What is noteworthy is the outstanding farm credit, despite a write-off to the order of Rs 70,000 crore, is at an impressive Rs 2.64 lakh crore. If the figures are to be believed, after re-lending Rs 70,000 crore, an additional Rs 10,000 cr has been pumped into farm credit. While the Budget targeted a credit flow of Rs 3.25 lakh crore, which in itself is impressive, it is highly laudable that the interest rate incentive of 1% is linked to prompt repayment of loans.
This is the first time ever that the Centre has accorded recognition to discipline in borrower behaviour during the last four decades since bank nationalisation. However, both the flow of credit and the Rs.1,000 crores proposed for the Accelerated Irrigation Benefit Programme and direct fertiliser subsidy to the farmers instead of to the fertilizer industry, lack of mention of agriculture reforms in the areas of farm-related infrastructure like storage godowns, cold storage godowns; research and development linkages to the farmer, comprehensive insurance package at affordable cost and the whole pricing mechanism and marketing system would make the growth target of 4% for the sector a lofty ideal.
A short run growth curve has no comfort to offer. When the G-7 is moving towards economic nationalism, bail-out packages, nationalisation of banks etc., the reformers who toed the line of market liberalisation are gasping for breath. The finance minister is in the most unenviable position. Yet, he did not make use of the opportunity for announcing bold measures to make the Budget stand out as a foundation for the next four years. There was very little mention of the unfinished agenda of financial sector reforms. There was also no effort to divert excess cash savings to either increased consumption or investments in infrastructure.
Extension of income-tax relief and the promised introduction of GST are drops of water on parched soil. Removal of the surcharge on IT, FBT and CTT are the most popular welcome moves although they alone do not add up to enhancing the promised simplification of the tax regime.
The sagging manufacturing sector did not receive any further impetus, save a few exceptions by way of reduction in excise on small cars. Tax on gold purchases is a worthy disincentive, but was not accompanied by any incentive for investments in infrastructure. One expected the FM to take advantage of the current scenario of additional release of money to all government employees, both existing and retired, with the implementation of the Sixth Pay Revision Commission?s recommendations. This seemed to have missed the finance minister?s attention.
Pranab Mukherjee?s acknowledgement of a strong regulatory regime in the financial sector and an announcement that the banking and insurance would continue in the public sector at the current level, brought cheer to many in the public sector, particularly in the context of an open invitation, at the beginning of the Budget Speech, to the private sector to boost economic growth. But the mention of financial inclusion and inclusive growth are just ornamental utterances.
Even after the huge deficits projected deviation from the fiscal prudence engineering of the FRBM Act, revenue deficit at 4% and fiscal deficit at 6.2 %, there is no hope of moving into a higher growth trajectory and effective exit from recession. This Budget was for the social sector and the RLEGPA wage assurance of Rs 100 per day is to have a cascading effect on the wage market in the farm sector.
In more than one way, it was a Budget of pious intentions and hope for growth. The effort chalked out in reaching the targeted growth leaves much to be desired.
The author is regional director, PRMIA – Hyderabad Chapter and director (projects and research), Development & Research Services (P) Ltd, Hyderabad.