DR. WAQUAR ANWAR analyses the Budget 2009 and finds that FM, in his tight rope walk, has tried to appease all and arrange funds for continuation of existing projects.
Budget making is generally referred to as a fine balancing act where a Finance Minister has to arrange revenues without hitting anybody hard. The same is true in the case of Pranab Mukherjee for his endeavours to appease all and arrange funds for continuation of existing projects. Such tight rope walking is possible in the case of direct and indirect taxes and the FM’s assertion in Para 137 of his speech is meaningful. He says, “My tax proposals on direct taxes are revenue neutral. On indirect taxes they are estimated to yield a net gain of Rs. 2,000 crore for a full year.” Obviously this projected net gain from taxation is not sufficient to meet the requirements of fund outlays for various schemes, which are mostly continuation of existing projects, including flagship programmes.
ART OF GOVERNANCE
The Congress party, owing to its long innings in the power gallery, has excelled the art of governance. We notice that art of governance at its marvel best in the case of Budget 2009. Oil prices were hiked prior to the budget. Euphoria was created in presenting the Economic Survey prior to the budget. So much so that the market was expecting that scheme for disinvestment of government shares in public sector companies will be announced. This hidden-cum-open secret of disinvestment was loudly announced in the Economic Survey and silently kept in abeyance in the budget so that it may serve as a shock absorber against any shortfall later. There is a dichotomy involved in talking about the virtues of disinvestment and Public-Private-Partnership and calling Indira Gandhi’s bold decision to nationalise our banking system – ‘exactly forty years ago – on 14th July, 1969’ – ‘wise and visionary.’ The FM adds, “Her approach continues to be our inspiration.”
Another point related to this art of governance is that subsidies relating to oil are not included in the budget as that would severely disturb the fine tunings of the presentation.
The knee jerk reaction of the stock market was not expected. Sensex slipped 953 points in intra-day transactions. Many reasons for this phenomenon are being cited including FM’s silence on major policy reforms, increase in MAT, status quo on Securities Transaction Tax, confusion on disinvestment. Another reason is that the stock market did not vouch the focus of the budget on infrastructure and rural sectors.
BUDGET FOCUS
Budget 2009 is especially focussed on rural sector and infrastructure. Both these sectors got commitment for huge funding. National Rural Employment Guarantee Scheme (NREGS) is the flagship project in rural sector. It is a success story since its implementation in February, 2006. In fact it is said that one of the reasons of the success of Congress party and its allies in the recent elections was the success of this scheme. It is another story that the man, who worked hard and, perhaps, with sincere commitment to make it a success, the then Union Minister of Rural Development, is sitting unnoticed on the opposition benches because his party supremo did the political blunder of misaligning with the Congress party in the pre poll-days. NREGS is getting 144% higher allocation of fund as compared to 2008 budget estimates.
Infrastructure includes, besides companies in the business of infrastructure development and contracting, those that execute irrigation projects, power distribution and transmission lines.
MINORITIES
Minorities have also been mentioned perhaps because their favour has also contributed to the success of the ruling combine in the last general elections. The fund allocated for the Ministry of Minority Affairs is 1740 crore which is 74% higher than that in the previous year. This includes funds for Multi-Sectoral Development Programmes for minorities in selected minority concentration districts, Grants-in-Aid to Maulana Azad Education Foundation and provisions for National Minorities Development and Finance Corporation and Pre-Matric and Post-Matric Scholarships. Further, allocations have also been made for the new schemes of National Fellowship for Students from the Minority Community and Grants-in-Aid to Central Wakf Council for computerisation of records of State Wakf Boards.
Para 53 of the speech under the sub-head ‘Welfare for minorities’ is continued by Para 54 that describes an allocation of Rs. 25 crore each to the two new campuses of Aligarh Muslim University (AMU) in Murshidabad in West Bengal and Malappuram in Kerala. Thus allocation in favour of AMU has been clubbed under the sub-head of welfare of minorities instead of that under education or under aid to central universities. This mindset of the Central government may be welcomed by the leaders of the minority community who are spearheading the movement for declaration of the institution as a minority one. The budget speech may be taken as a candid acceptance of that demand!
EXPENDITURE LEVEL
Centre’s expenditure stood at Rs.100 crore at the time of independence and now it is estimated to exceed Rs.10,00,000 crore (Rs.10,20,838 crore, to be specific). Much water has flown since the independence. We have grown rapidly and we are proud to be considered a worthwhile developing country. Despite this one cannot deny the fact the major element of our expenditure is mainly the interest payment on government borrowings. This year the cost of implementation of Sixth Pay Commission’s recommendations has contributed to the bulge of the expenditure.
Debt waiver scheme for the farmers is a new element of cost that has been focussed. Such schemes are continuing in one form or the other. A problem with this type of cure is that instead of curing any disease for good the medicine itself becomes an ailment in the form of habit forming. The government, instead of outright debt waiver or piece meal interest rebates, may consider the proposal of interest free loans to farmers with the firm stand that the principal loan will not be waived.
FOCUS ON AAM ADMI
The commoner (Aam Admi) is much talked about in the recent presentations relating to budget. He/She gets mentioned in Budget 2009 speech at least once. Another term that has been made the buzzword is “inclusive budget.” It is very difficult to understand the meaning of these parlances. These are more like the Gharibi Hatao (eradicate poverty) catchphrase, which critics used to call Gharib Hatao (banish the poor), of the yesteryears. If we consider the increase in personal income tax limits under this head then we will appreciate that the marginal benefits provided for senior citizens, women and other taxpayers are soothing.
Abolition of Fringe Benefit Tax should also be welcomed. The argument put forward by certain quarters that this is not significant because the onus of taxation will now shift from employer to the employees does not hold good because individual taxpayers are liable to taxation only after certain levels and they are better tax planners than their employers! However, in the context of Aam Admi it may be noted that the benefit of abolition of 10% surcharge on personal income tax is going to persons in the higher bracket of income. The quantum of benefit to this Khaas Admi (VIP) is much more than that made available to the poor Aam Admi!
Cynicism apart, one should appreciate that rates of income tax continue to remain unchanged over the years. One may further hope that the rationalisation of taxation will make the rates further lower and the system of tax return filing and assessment procedures more Saral (easy) with higher base of assesses so that the government will forgo significant revenue. That will then be a win-win situation for both India and Indians!
The FM is conscious about his reputation with the women. That has got the beating, and he cannot avoid it. Waiver of 2% excise duty on branded jewellery that was levied by Chidambram in 2005 will not offset the impact of increasing custom duty on gold imports. Customers affording purchase of branded jewellery could afford that 2% duty. Higher cost of gold owing to increased custom duty will be more pinching.
Details to be announced relating to the system of corporate donations to political parties is awaited with interest. The announcement as made in the budget says that such donations will be routed through electoral trusts. 100% tax exemptions will be provided on donations to such electoral trusts provided these trusts distribute at least 95% of their income. Under the existing laws charitable trusts have to either apply 85% of their income in the year they receive the amount or set apart the amount not so applied for five years for specified purposes. Further, a company can donate up to 5% of its profit in a year with the approval of its board of directors. This shall have to be disclosed in the profit and loss account. Political parties have to declare all contributions above Rs. 20,000 to the Election Commission. It is hoped that the details of the electoral trust that will be announced will include the existing benefits available and improve further upon these.
It is interesting to note that one such trust named as Tata Sons Electoral Trust already exists. One wonders whether the term “electoral trust” has been borrowed by the FM from the name of this existing trust. Corporate sectors too guide the government. (Some people say that the corporate sectors guide the government more than the non-corporate Aam Admi).
Another loose thought that has hit the mind relates to addition of item for incidence of service tax. The addition of legal service in this dubious list may be to settle some score with the previous FM who is himself a lawyer and who had deflated the idea of service tax on this service on the plea that lawyers did not provide any service! New FM, although not a lawyer himself, has now recognised the services of this august profession!!
Service tax on cosmetic and plastic surgery services is bizarre. This idea may have cropped up after the news of the demise of Michael Jackson. The government may have decided to poke its “nose” for some facelift.
(waquaranwar@yahoo.com)