In between the Economic Survey and the Railway Budget speech of the minister, Mamata Banerjee also sung in the same tune.
In fact the Presidential address first gave the blueprint of the government policies for all the sectors.
The basic content of the policy is not for developing a new financial or economic architecture replacing the existing one, but for hiking public expenditure for infrastructure, health, education, social and welfare programmes, incentives to corporate houses and for boosting exports. The objective is to anyhow tide over the situation and achieve and sustain a growth of 9% per annum.
India has not yet fully opened up its banking and financial sector and this is one of the major reason that has insulated the country from the severe and acute adverse impact of the global economic meltdown, though some spillover effects are experienced in some sectors.
However falling short of calling for a new financial architecture, the Union finance minister, Pranab Mukherjee was bold to say in his Budget speech that he would not privatize public sector banks and insurance companies, thus pouring cold waters on the expectations of the advocates of liberalization. He said that public sector banks and financial companies will be given all support, including capital infusion, to grow and remain competitive.
Further, the finance minister was proud to laud former Prime Minister, Indira Gandhis bold decision to nationalize private banks 40 years ago as wise and visionary.
The finance minister said : The financial sector is the life blood of any economy. Our Governments approach to the banking and financial sector has been to ensure robust oversight and regulation while expanding financial access and deepening markets. The merit of this balanced approach has been borne out in the recent experience, as the turbulence in the world financial markets has left the Indian banking and financial sector relatively unaffected. Never before has Indira Gandhis bold decision to nationalize our banking system exactly 40 years ago on 14th of July, 1969 appeared as wise and visionary as it has over the past few months. Her approach continues to be our inspiration even as we introduce competition and new technology in this sector.
The finance ministers realization came late. Earlier when the same Congress-led UPA coalition was in power in the last five years, they were hell bent on liberalizing the insurance sector. This could not happen as the ruling coalitions supporting partner the Left parties combine vehemently opposed the move. Now that the finance minister has announced that he would not privatize banking and insurance sector, will he remain true to his words or the situation would change after the impact of global financial crisis withers away.
The finance minister has also said : a single Budget Speech cannot solve all our problems, nor is the Union Budget the only instrument to do so. One has wait and see if the finance minister would be continuing in the same spirit in the subsequent annual Budgets and whether other ministries and organs of the government would be moving in the same spirit.
Another significant pronouncement of the finance minister is about disinvestment of government equities in the public sector undertaking (PSUs). He said : The public sector undertakings are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51% government equity in our enterprises, I propose to encourage peoples participation in our disinvestment programme. This pronouncement marks a deviation from the governments policy of open ended blind economic liberalization and privatization. But the finance minister needs to outline in detail his plans for peoples participation in the disinvestment programme. Will the common man be enabled to purchase shares in profit making PSUs
The finance minister said that the significant increase in the inflow of foreign capital as important, not so much for bridging the domestic savings-investment gap, but for facilitating the intermediation of financial resources to meet the growing needs of the economy. According to him Indias high growth of 8.5% per annum from 2004 to 2008 was fuelled in very large part by private investment and private sector investment has been affected by the current global macro-economic conditions.
Governments hike in expenditure for infrastructure, health, education, social and welfare programmes, and incentives to corporate houses and for boosting exports have already resulted in an increase in fiscal deficit from 2.7% in 2007-08 to 8% in 2008-09. The provision budgetary figures show the fiscal deficit 2008-09 at 6.2%, while according to the finance secretary, Ashok Chawla it would be 8% if financing of crude oil and fertilizer bonds are taken into account.
According to the Budget speech the difference between the actuals of 2007-08 and 2008-09 constituted the total fiscal stimulus. This fiscal stimulus at 3.5% of GDP at current market prices for 2008-09 amounts to Rs 1,86,000 crore. These measures were effective in arresting the fall in growth rate of GDP in 2008-09 and we reached a growth of 6.7%.
In the Budget 2009-10 has projected total expenditure at Rs10,20,838 crore, an increase of 36% over the previous years budgetary estimate. Non-Plan expenditure has been projected at Rs 6,95,689 crore, marking an increase of 37% and the Plan expenditure has been projected at Rs 3,25,149 crore, marking an increase of 34% over the previous years budgetary estimate. However, with this increase the government is hopeful of containing fiscal deficit at 6.8%.
Quoting ancient sage Kautilya, the finance minister said that the return to the target set by Fiscal Reforms and Budget Management Act for fiscal deficit would be possible at the earliest and as soon as the negative impact of the global crisis on the Indian economy have been overcomed. On medium-term fiscal perspective, the government is awaiting the recommendations of the 13th Finance Commission. The government has already initiated institutional reform measuresessential for maintaining a stable balance of payments, moderate interest rates and steady flow of external capital for corporate investment. These measures would encompass all aspects of the Budget like subsidies, taxes, expenditure and disinvestment
Some suggested reforms includes directed transfer of subsidy to farmers instead of routing it through fertilizer companies, setting up of a expert group to advise on a viable and sustainable system of pricing of petroleum products, low tax rate to promote voluntary compliance.
On the social and welfare front, the Budget assured to continue interest subvention scheme for short-term crop loans to farmers, convergence of other schemes with that of National Rural Employment Guarantee Scheme with increase allocation, enactment of National Food Security Act for distributing 25 kg of rice and wheat at Rs 3 per kg to the poor, increased allocations for Bharat Nirman schemes, launching of the new Pradhan Mantri Adarsh Gram Yojana for integrated development of 1000 village populated predominantly by the scheduled castes, restructuring of the Swarna Jayanti Gram Swarozgar Yojana as National Livelihood Mission with universal application and eradicating poverty by 2014-15, increase in corpus for Rashtriya Mahila Kosh, launching of National Mission for Female Literacy with focus on the marginalized groups, universalisation of Integrated Child Development Scheme, full interest subsidy on loans to students from weaker sections pursuing higher education, , increase in plan outlay of the ministry of minority affairs, welfare of workers in the unorganized sector, Rashtriya Swasthya Bima Yojana to give health insurance cover to all families living under the poverty line.
All the proposed social and welfare measures look good, but the moot point remains is fine tuning of the ailing government machinery
For infrastructure development, the Budget suggested that India Infrastructure Finance Company Ltd (IIFCL) would adopt takeout financing, an accepted international practice of releasing long-term funds for financing projects as it would effectively address asset liability mismatch of commercial banks arising out of financing and free up capital for financing new projects. IIFCL will refinance 60% of commercial bank loans for public-private partnership projects in critical sectors over next 18 months. Government has planned to develop a blueprint for long distance gas highway leading to a National Gas Grid.
The Budget has proposed to raise, in a phased manner, the threshold for non-promoter public shareholding for all listed companies. It has proposed extension of banking services to non-banked areas.
On the direct tax front the Budget has proposed no hike in Corporate Tax rates a major incentive to corporate houses. Surcharge of 10% on personal income tax has been eliminated and the loss of revenue on this account has been compensated by a 5% hike in minimum alternate tax (MAT) paid by corporate tax payers. As a grant of relief to corporate taxpayers the period allowed to carry forward the tax credit under MAT has been extended from seven to 10 years. Sunset clauses for tax holidays in respect of export profits has been extended by a year. Fringe Benefit Tax on the value of certain fringe benefits provided by employers to their employees has been abolished. The provision of weighted deduction of 150% on expenditure incurred on in-house R&D has been extended to all manufacturing business except for a small negative list. Investment-linked tax exemption has been proposed for setting up and operating cold chains, warehouses, laying and operating cross-country natural gas or crude or petroleum oil pipeline. All capital expenditure, other than expenditure on land, goodwill and financial instruments will be fully allowable as deduction.
Commodity Transaction Tax levied with a view to check manipulations in the commodity exchanges has been abolished. It is proposed to create an alternative dispute resolution mechanism within Income Tax Department for resolution of transfer pricing disputes. Tax holiday has been extended for commercial production or refining of mineral oil and natural gas. The scope of presumptive taxation has been expanded to cover small businesses with a turnover up to Rs 4 lakh an incentive to small enterprises
The income of New Pension System Trust has been exempted from payment of income tax and any dividend paid to this Trust from Dividend Deduction Tax. All purchase and sale of equity shares and derivatives by NPS Trust will also be exempt from Securities Transaction Tax. Self-employed persons will be able to participate in the NPS and avail of the tax benefits. Personal income tax exemption limit for individuals has been raised to Rs 2.40 lakh for senior citizens, to Rs 1.90 lakh for women and to Rs 1.60 lakh for all other categories of individual taxpayers
In respect of indirect taxes, the finance minister made some adjustment with a view to boost exports, increase availability and to garner revenue. However, all these measures are aimed at to tide over the problems created at home due to the recent global financial crisis and not for an alternative financial and economic architecture.