There are many good features of the Budget 2009 presented by Pranab Mukherjee, Finance Minister (FM), on July 6, on the floor of the Parliament. However, there are certain other aspects that should be considered and remedial measures taken so that our growth may be blemish-free.
Budget 2009 has been presented in the midst of the global financial crisis and it is expected that the opinions regarding the causes of the crisis were considered while preparing the Budget. Such expectations apart, it is feared that the same old ideas have ruled. One of the major causes of the present global financial crisis is the flow of funds in speculation market. But in our case the financial market of Forward and Futures trading under commodity exchange continues unabated.
The announcement in the Budget relating to withdrawal of Commodity Transaction Tax (CTT) levied on transactions in commodities traded on recognised exchanges is a case in hand. Although this announcement has no real meaning as the tax levied earlier by the earlier FM was never notified. Yet this gives a big psychological boost to the commodity market. This door for forward trading in commodities market was opened by the Vajpayee administration and the gate has been further widened by the Manmohan administration. (The opening up forward trading in currencies is the sole doing of the latter!)
INTEREST FREE LOANS
Full interest subsidy on education loans to weaker section is a welcome move. Such application of interest-free loan should be further broadened. Interest-free loans as a mode of finance was promoted by the earlier FM in Budget 2007 wherein loans to institutions set up for training farmers about water management practices, preparation of projects for public private partnership (PPP) and seed money to state governments for upgrading of ITIs were financed without interest. It was expected that this mode of financing will be further experimented. The government may consider interest-free loan for farmers instead of the present practice of giving rebates for early refund of loan and/or writing off both principal and interest elements of the loan.
Two aspects relating to the educational loans and financial assistance to institutions of higher education may be considered. One is that the system of capitation money for higher education is being recognised and encouraged in this process, and education is becoming a lucrative commercial entity. Another aspect is that funding of primary and school education is being ignored. Obviously higher education cannot grow at the cost of primary and basic education.
GST: The announcement relating to introduction of Central GST and State GST from April, 2010, is welcome. One can appreciate the difficulties and efforts involved in making this announcement a reality. The steadfastness with which the central government has pursued the case of VAT gives the hope that GST era will usher in and duties and taxes on trade and business will become less cumbersome. In this regard an exercise of classification of goods and services in line with that in Central Excise needs to be done. In the present scenario same items are classified differently by the central and state governments and with this confusion the intended simplicity, efficiency and transparency will be difficult to achieve.
MICRO AND SMALL SECTORS
Micro and small sectors of the economy have been left high and dry, despite huge potential of these sectors to turn around the economy. There is need to revisit microfinance too. The present system of formation of Self Help Groups (SHGs) with the sole objective of linking with commercial banks without any collateral and the high rate of interest involved in this mode of financing should be reviewed. The potential of cooperative sectors with interest-free microfinance should be probed and encouraged. Any task force for this job will be a welcome move.
STRUCTURAL WEAKNESS
In order to understand the strength of the economy of India we have done an analysis of the ‘”Consolidated Fund of India” as made available in the Budget 2009 documents. The position of debt servicing has been arrived by combining interest payment as shown in the Revenue Disbursement Account with the disbursement of internal and external debts as appearing in Capital Disbursement Account. This debt servicing required has been compared with the Internal and External Debt Receipts (Capital Receipt Account) and non-debt revenue, including interest (both Revenue and Capital Accounts) and the outcome is noted in TABLE-1.
Detailed computations are shown in TABLE-2. We understand that there is much scope to disagree with the assumptions made for these computations. However, whatever are the assumptions and the consequent analysis the result will be similar to that depicted in Table-1. TABLE-1 shows that almost all the new debt is required to service the obligations of interest on old debts and instalments of debts payable. Another aspect highlighted in TABLE-1 is that the non-debt inflow of fund generated by the Indian economy is less than one third of the obligations relating to past debts.
The precarious situation of our economy as discussed in the above paragraph calls for an ab-initio review of all related affairs of the economy. This may be a zero base budgeting (ZBB) approach!
(waquaranwar@yahoo.com)