Why has the budget failed to receive any applause?
Added: (Tue Mar 06 2007)
Pressbox (Press Release) -
New Delhi, 6th March 2007: The detractors of the Finance Minister, Mr. P. Chidambaram, may have had a field day in holding back their applause for the 2007 Budget in spite of buoyant revenues, much above projections and expectations, rising foreign exchange reserves, record foreign direct investment at $10 billion, high savings rate at 32 per cent of the gross domestic product or GDP, record foreign remittances at $23 billion and 9.2 per cent annual growth rate—the highest in independent India's history. How is it that even though the world is impressed by what is considered India's near economic miracle has not been adequately appreciated at home?
What has gone wrong? Is it pure politics of the right and left? It would seem so. Even the defenders of the Budget within the ruling party and its allies and outside supporters are somewhat muted in their words of praise. Why is this so? Is it because inflation is the real culprit and it is running away to new high levels? Although the rate of inflation is already 6.7 per cent of the GDP and is calculated on the basis of the wholesale price index, it does not tell the real story of where the shoe pinches at the retail level? Is it that the prices of onions are counted in the tears they bring out in the eyes of the housewife? Onions are just one factor, but they are the proverbial last straw on the camel's back. They are just an example of everything from rice, wheat, sugar, fruit and vegetables and the price effect in the household kitchen and the mark up in the eateries' menu card or at the dhaba or halwai prices.
Prices have been rising all the time, but in 2006 and the first ten odd weeks of 2007, they have gone up by 30 per cent to 100 per cent. There are a few things cheaper and that helps the statistician juggle the inflation rate and the wholesale price index.
It is true the Finance Minister has cut import duties across the board and cut excise on crude and vegetable oils and even biscuits, but the critics will invoke Marie Antoinette in saying that if you can't have bread or bake bread, take a biscuit or eat cake. He has made dog food cheaper and he accuses his critics of lacking a sense of humour. Is the Budget a joke? Is human food less important? But does Mr. Chidambaram have much control over the marketplace or market forces. He is trying to increase supplies by facilitating imports and give a push to farm production through a crash programme for the supply of quality seeds at affordable prices, but he can only go that far and no more. He has to keep his fingers crossed for the rest of the year.
The Minister may have cut tax on footwear in the hope that the shoe pinches less in the days to come, he may have cut the tax on steel, but raised the prices of iron ore to curb exports and cement. The builders, at least one of them, announced that he was raising the prices of apartments right away from the moment of the budgetary revelation of higher input costs of construction. Those who have borrowed money from banks for apartments are angry because interest rates on their debts have been rising for several weeks, from 10 per cent to 13.5 per cent now. Although this is a pre-Budget impact, their anger is being sharply expressed now. Take a sample: a salaried man says he used to pay an equated monthly instalment or EMI of Rs. 6,800; it has gone up to 9,900. His salary has not been raised 30 or 40 per cent, nor is it likely to be; nor is he expecting a windfall, especially if he is a government employee or at lower levels in the private sector. The report of the Pay Commission is far away and even an interim relief is unlikely soon.
Even the one time public sector motorcar company is rising small to medium sized car prices from March 15 as steel will cost more. All other carmakers are or will follow suit as the example of the leader in the market is there. But it might be argued that a car is still a symbol of relative affluence, but even motorbikes and scooters are dearer and they are used by the aam adami.
But must the Finance Minister take all the flak for inflation? Is he responsible for it? Could his policies, the best or worst of them, curb it? Yes, he must take the rap, for he is the man in the hot seat and he is taking all the criticism in his stride and with a smile. He is trying to be Mr. Unflappable. But where does the buck stop? It stops at the top. The Prime Minister does not own up to it too publicly, but it is clear that he accepts all the blame. He has broad shoulders. It was so in 1991 when liberalization began and his recipe was clear: there is no gain without pain. There are no free lunches. Yet he is being forced to provide a lot of free lunches, especially to the families of dying farmers, 149 of who have committed suicide in the first 59 days of the year 2007, that is the full months of January and February.
Yet the Budget provides Rs.2, 25,000 crores worth of credit for five million farmers and help for their families. Will all the money reach the last hamlet, the last farm? That depends on the States. Yes, the Finance Minister and his financial advisers in different Central Ministries and departments and advisers and controllers in the Planning Commission monitor outcomes at the Central level and in the States. They do hold the purse strings. They can withhold release of funds. That is all they can do, but if the States and the Central departments are unable or incapable of utilizing properly all the money provided for or available, what could poor Mr. Chidambaram do? Outlays and outcomes are two different things. There is a lot of talk about it, but the red tape and bureaucracy, the rules and regulations are there to follow. Misuse is even then hard to prevent.
Somewhere on the way, the monies released get diverted. Where? That is neither a catch 22 situations nor a 64 million dollar question. Could you blame it on corruption or sheer laxity in administration? Is that where administrative reforms come in? Reforms, which have been talked in turn and out of, turn forever and will be for ever, with little result, signifying nothing.
Yet the Finance Minister has given a sop by raising the tax limit for men, women and senior citizens by Rs.10, 000 to incomes of Rs. 1,10,000, 1,45,000 and 1,95,000 respectively. That seeks to cover 10 per cent of inflation in two years and a tax break of Rs.1,000 for one and all. But political critics have called it a missed opportunity. They wanted income tax exemption raised by Rs.50,000, even though that is a tall order. They believe that level might be reached in next year's populist Budget as the General Election is due in the year 2009 when a vote on account will be due. But the year later Budget will have to be populist on many counts as happens to financial book keeping when a big election is due.
Some people believe that the Congress defeats in Punjab and Uttarakhand and unlikely gains in the upcoming elections in Delhi and U.P. left the Congress listless and left it with no desire to be too generous in giving concessions this time round. But the social sector, education and health, have received massive provisions, but the one per cent increase in education cess on all taxes across the board will take away the few tax breaks offered.
The stock market has been tumbling like never before and will the bears yield ground soon to the bulls? The government is said to be concerned over the economy being overheated and would not mind a one per cent drop in the gross domestic production to curb inflation and stop hawala or black money going into speculative markets. The higher tax on mutual funds' and other dividends may or may not be a damper, may or may not encourage savings with banks and post offices.
The Finance Minister has promised a Micro Finance Bill to increase the comfort level of small borrowers, especially the poorest of the poor farmers and small craftsmen in the rural landscape where 400 million are still engaged in agriculture although the share of farming in the GDP is down to 15 per cent and grain production has gone up marginally to nearly 210 million tonnes. Industry accounts for 26 per cent of the GDP. Services dominate the economy with more than 50 per cent. There are promises to keep for women and children, the Scheduled Castes, Scheduled Tribes and the backward. What does the future hold for them. Will time tell or refuse to tell?