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The presentation of the Union Budget by the Finance
Minister this year was bound to be a balancing exercise.
For one thing, there is a basic political context in
which the Budget is being drawn up. The UPA government
is in power on the basis of a National Common Minimum
Programme (NCMP) which has been broadly endorsed by
the Left parties, and it is the support of these parties
which allows the government to remain in power. Naturally
therefore, some attention must be paid by the Finance
Minister to the commitments of the NCMP and the demands
of the Left parties.
Moreover,
this budget is being framed in what will be an election
year, in which five states will go to the polls to elect
new assemblies, and in all of which the ruling party
is a major contender for power. Therefore, very unpopular
budgetary strategies, or those which would directly
affect the living conditions of people very adversely,
were not to be expected.
In addition, there is a broader economic context, in
which the aggregate economic growth has apparently accelerated
to a dizzy pace, but in which deep agrarian crisis,
widespread rural distress and completely inadequate
employment generation are still the most dominant facts
affecting the majority of the population. In this context,
urgent measures are required to provide some protection
and support to farmers and to provide some measure which
would allow increased employment generation.
Most people would think that these conditions should
be sufficient to make the Budget one which is actually,
for a change, skewed towards the poor rather than towards
large capital in industry and finance. If despite these
conditions the Budget was still likely to be a ''balancing
exercise'', it is because the neo-liberal economic strategy,
to which the leaders of this government are apparently
still committed, is one which is fundamentally antithetical
to fulfilling many of the promises of the NCMP in an
effective way. For example, trade and financial liberalisation
reduces the ability of the government to raise enough
revenues to increase expenditure in desired areas as
much as is required or has been promised.
This is why the Budget has been a balancing act, high
on rhetoric for the poor but less forthcoming with enough
money for the important programmes that would affect
living conditions of ordinary people to provide decent
quality health and education facilities for all. At
the same time, the Finance Minister has sought to keep
large industry satisfied by persisting with all the
exemptions that allow corporates to reduce tax payments.
He has placated finance capital with some more financial
liberalisation measures that are potentially very dangerous,
including allowing foreign investors to hold more government
securities and allowing Indian mutual funds to invest
abroad.
It must be said, however, that for a change, there are
some positive features that deserve to be welcomed in
this budget. The first is the revelation that in the
current fiscal year there is evidence of increased tax
revenues and an increase in the tax-GDP ratio. Coming
after more than fifteen years of decline, this is clearly
a positive sign. Some of this increase in tax collections
reflects the growth of the economy, while some of it
is the result of the higher imports and higher prices
of oil imports which sharply raised government tariff
collections.
However, some of it is apparently also due to greater
enforcement and computerisation-aided identification
of tax-paying potential. It should be noted, of course,
that while corporate taxes are projected to increase
by around 20 per cent compared to last year’s actual
collections, corporate profits over the same period
are likely to have increased even more, as this has
been a year of exceptionally high increases in corporate
profitability, reflecting a pattern of growth that has
been very unequal. If this increase in tax-GDP ratio
is to mark a real turning point and be sustained into
the future, it will be essential to tax the rich more,
for example by reinstating capital gains tax.
The really bad news relates not to what has been done,
but to what has not been done in the Budget. The extent
of rural distress and the problems faced by cultivators
are simply not being taken as seriously as they deserve,
despite the fact that it was the political reaction
to this distress that has brought the UPA government
to power at the Centre. There was a lot of lip-service
to farmers in the Budget speech, but very little in
terms of concrete measures, even though much could have
been done.
The only significant measure is the promise of debt
relief, in terms of reduction of interest rates on institutional
credit from 9 to 7 per cent (although the National Commission
on Farmers had recommended a lower rate of 4 per cent)
and some concession on interest payments. (Incidentally,
while these have been mentioned in the Finance Minister’s
speech, they do not seem to be accounted for in the
expenditure budget.)The government is also seeking to
increase the number of farmers with access to institutional
credit. But even now, only a minority of farmers in
the country can access banks or formal institutions
for crop loans, and most still rely on input dealers,
moneylenders and other informal sources for their loans,
so this measure will not help them much.
In any case, credit is only a small part of the problem
– the real issue is the collapse of viability of farming,
the fact that often the prices farmers receive are lower
than the costs of cultivation. The National Commission
on Farmers has recommended a number of steps to be taken
on an urgent basis, such as the establishment of the
Price Stabilisation Fund which would protect our cultivators
from the vagaries of the international market. But no
such step has been taken and no provision has been made
in the Budget for this. Even such a necessary step as
increased protection for raw cotton producers by raising
import duties on this, has not been taken despite the
fact that several Chief Ministers of Congress-ruled
states have asked for this.
In addition, despite all the verbiage, the allocations
for the eight ''flagship programmes'' of the Government,
which were part of the NCMP, is extremely meagre, amounting
to less than Rs. 16,000 crore in total. Total education
spending is still below 4 per cent of GDP, despite the
Government’s promise to raise it to 6 per cent. The
National Rural Health Mission has received only Rs.
2,000 crore more, despite the grandiose claims made
about its spread. The ICDS programme will require at
least Rs. 8,000 crore if it is to be universalised within
a few months as the Supreme Court has ordered the government
to do, yet the allocation is less than Rs. 5,000 crore.
So this Budget reveals not only a complex political
balancing act, but also a basic tension between sticking
to a neo-liberal economic strategy and meeting the economic
expectations of the mass of people, generated by the
government’s own promises. It remains to be seen how
this tension will eventually be resolved. |
