Indian economy is shining, but only for a few

Updated: Mar 1 2006, 05:30am hrs
The finance minister has just presented the third Budget of the United Progressive Alliance government. Since almost all the major indicators of the economy have been showing a healthy trend in the recent past, Budget making turned out to be a relatively easy exercise. While there is nothing spectacular or populist in the Budget, it has got several commendable features and a few weak spots.

Let us start with the revenue side. After a long period, the tax-GDP ratio of the Centre is expected to cross the 10% mark during the current year to reach 10.5%. Budget for the next year projects the ratio to further increase to 11.2%. This will imply that tax revenue devolution to states will increase by another 20% or so over the current years increase of a similar order. It will be of great help to backward states, whose dependence on the Centre is greater.

The tax proposals for next year do not include any changes in direct tax rates either for individuals or corporates. Most of the changes proposed in indirect taxes are in the direction of tax reforms. An attempt is also made to rationalise the rates and reduce concessions and exemptions to the minimum. This appears to be the main factor contributing to the expected revenue buoyancy.

Coming to the expenditure side, Plan expenditure during the current year is more or less as projected and non-Plan expenditure is somewhat on the lower side as compared to Budget estimates. The projected increase in total expenditure for next year is just under 11% as compared to projected increase in revenue receipts of about 16% over the revised estimates of the current year. The conservatism in expenditure is more evident on the non-Plan side with an income of 7%. On the Plan side, a respectable increase of 20% is projected.

A comparatively better performance on the revenue front and restraint in expenditure during the current year resulted in improved revenue and fiscal deficit as compared to the projections. The finance minister has projected further improvement in these critical fiscal parameters for the next year.

Coming to the detailed expenditure proposals for the next year, over which the FM spent over an hour of his speech, frankly there is not much to be excited about. Yes, respectable increases in outlays are indicated for Bharat Nirman and the so-called eight flagship programmes of the UPA government.

Also, there is a promise to increase the outlay for the National Rural Employment Guarantee Programme beyond the proposed Rs 14,300 crore, if required. A number of new initiatives by way of setting up new boards and grants for various institutions have also been announced. Of course, there is something or other for each of the states which are going for Assembly elections this year.

The FM has certainly highlighted the problems of the farm sector generally, and the sad plight of the small and marginal farmers in particular. However, except for invoking Saint Thiruvalluvar, the great Tamil poet, on compassion, he has not really addressed their problems.

The Indian economy is certainly on an upswing. The FM has not announced anything which will disturb the optimism. The sad fact, however, is that India is shining only for a few. The present Prime Minister, when he was finance minister, promised reform with a human face. The reform process, as reflected in the current Budget, is neither humane nor compassionate.

The writer is director, Council for Social Development. These are his personal views