There are several positive signals. The relaxation of sectoral caps on telecom, civil aviation and insurance, allowing banks greater latitude for investment in the capital market, liberalisation of FII limits, and the commitment to settle the issue of brokers fee are market-friendly measures. On the investment side, the promised equity support to PSUs, setting up of an Investment Commission and the National Manufacturing Competitiveness Council and tax concession for automobile, textile and shipping sectors are pro-industry. These measures have been well integrated with the articulation of activities from the CMP to give the Budget a sense of balance.
The responsibility of programme formulation, and resource allocation has been put on the Plan Panel. This will result in engaging the Panel with individual ministries on an extended battle on ongoing and new schemes from which the finance ministry can distance itself. This is clever, and offers a plausible explanation to the strategy of merely outlining intent without having to flesh out the schemes.
The focus on agriculture, primary health and, most importantly, on irrigation and water supply, are quite in the direction that planned development should follow. The regret is that several of the concepts, like repairs and renovation of water bodies etc., have been tried out in the past.
There is no clarity on how the existing obstacles to delivery can be overcome. In all, 25 per cent of primary school teachers are absent everyday. There is no mechanism for providing cooked mid-day meal meals in nearly 20 states; primary health centre doctors do not attend dispensaries. These are basic state government functions and it is difficult to perceive how any statement of intent in the Budget can make these things happen.
A major concern is the mismatch between the roadmap of the Economic Survey and the announcements in the Budget. According to the Survey, 7-8 per cent GDP growth can be sustained primarily through growth in industrial production of over 10 per cent, rapid development of infrastructure and improvements in agriculture. Apart from the concessions to selected sectors, the strategy on incentivising industrial investment is not clear.
On infrastructure, power sector investments mentioned have been under consideration for months? much more needs to be done. The Vallarpadam Port Scheme in Kochi is an old chestnut, and there is very little new for the shipping, airports, roads, and rail sectors. So, where is the employment going to come from? It appears that increase in employment has to come out of rural wage labour for various irrigation, water harvesting, road-building kind of schemes, which is a throwback on the earlier models of planned development.
Even in agriculture, mere doubling of credit may not convert subsistence level farming into a viable business model. One would have liked to see new ideas. In particular, it is interesting that there is very little mention of technology upgradation in agriculture.
Turning to the fisc, the slippage of the fiscal responsibility management target from 2007 to 2008 is worrying. Not much relief has been given in taxes except the raising of the exemption ceiling to Rs 1 lakh per annum. There is some rationalisation of custom duties on inputs but little movement on the Kelkar Report on removal of exemptions. The Budget states that the fiscal deficit will be 4.4 per cent of GDP next year. Revenue receipts have not been adequately clarified. Receipts from income tax are expected to increase from Rs 40,269 crore in RE 2003-2004 to Rs 50,929 crore in 2004-2005? up 25 per cent. Now that over 1.5 crore assesses will go out of the tax net, it is not clear if this target is realistic.
Similarly, corporation tax may increase from Rs 62,986 crore to Rs 88,436 crore ? a rise of 40 per cent! If receipts figures are apparently overstated, then the fiscal deficit would be much more. There is also some lack of clarity in the excise proposals. What is the impact of the new textile sector regime? It is important that these numbers are given out transparently.
In summary, the FM has managed to incorporate the CMP into his Budget without explaining the implementation part. There is some movements on the reform agenda, but many areas have not been addressed. On balance, the Budget is careful and correct but could have been much better.
The writer is former finance secretary and economic advisor, PMO