Reforms on rewind

  • Gautam Chikermane, Hindustan Times, New Delhi
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  • Updated: Mar 17, 2012 10:45 IST
  • Union finance

    Union finance Minister Pranab Mukherjee arrives at Parliament to present the budget 2012-13, in New Delhi. PTI Photo by Shahbaz Khan

  • Budget 2012-13

    Meira Kumar, P Chidambaram and LK Advani listen to Pranab Mukherjee present Budget 2012-13.

  • Industrialists

    Industrialists watching Union finance minister Pranab Mukherjee presenting the annual Budget 2012-13, on the screens at CII in New Delhi. PTI Photo by Kamal Singh

  • Union finance

    TV combo grab shows Union finance Minsiter Pranab Mukherjee  presenting General Budget 2012-13, as Speaker Meira Kumar tries to quieten  protesting members  in  Lok Sabha on ...

  • Rahul Gandhi

    TV grab shows  Congress party general secretary Rahul Gandhi  listening to the Budget speech of Union finance minister Pranab Mukherjee  in  Lok Sabha. Agencies

  • Lok Sabha members

    TV grab shows Lok Sabha members listening to the budget speech of finance minister Pranab Mukherjee in New Delhi. Agencies

  • sniffer dog

    A sniffer dog is used to secure sacks of financial papers related to the budget at the Indian Parliament hours before the Indian budget is ...

  • financial papers

    Workers carry sacks of financial papers related to the budget at the Indian Parliament hours before the Indian budget is presented, in New Delhi. Finance ...

  • minister Pranab

    Finance minister Pranab Mukherjee poses for the media in parliament prior to presenting the national budget in New Delhi. Government was due to deliver its budget ...

  • General Budget

    FM Pranab Mukherjee presents Budget 2012-13 as Prime Minister Manmohan Singh looks on.

Walled in on four sides - by politics, slowing economic growth, high and unrelenting inflation, and inability to balance government spending with revenues - finance minister Pranab Mukherjee had little room for manoeuvre.

As a result, Budget 2012 has failed to serve the growing aspirations of India 2012.

For an economy that is crying for reforms - structural like in manufacturing, labour or factories; capital through increases in foreign direct investment in various sectors; or regulatory with focus on consumer protection - Mukherjee's seventh budget offers little more than a reversal.

As far as households go, on the personal income tax front, while Mukherjee has given benefits with one hand, he has dealt financial blows with both - first on account of inflation, second by increasing the number of services he will tax.

At the lower end of the income ladder, therefore, the Rs 20,000 increase in exemption limit to Rs 2 lakh will put about Rs 172 in the pocket every month. But the 10% inflation rate will increase the monthly cost of living by Rs 1,600 and the tax on new services will eat Rs 200.

Even on the highest slab, the Rs 1,888 per month he has doled out to households earning more than Rs 10 lakh per annum in no way compensates the Rs 8,000 worth of price increases and Rs 1,000 on account of service tax.

The flame of inflation will continue to burn households through this year. Economic recovery in the US, crisis abatement in the EU and major oil producer Iran in a geopolitical crossfire will ensure global oil prices rise all over again.

Shreyas Navare's take on the budget.

Now, read into his proposal to throw all subsidies out such that they add up to less than 2% of the GDP next year, and what you have is probably a petrol and diesel price hike that will sustain high inflation.

There is no way the government can pass and fund the Food Security Act unless fuel subsidies are done away with by deregulating diesel prices.

For households, it will increase prices in the system. This is necessary, however, and if the government has the political will to bite the bullet this year, things would stabilise by the next budget.

Beyond households lies an economic atmosphere. Here, Mukherjee has taken a U-turn towards the control-and-command economy of the 1980s.

Classifying controlling interest as an 'asset' is fine. But doing that retrospectively from April 1, 1962 is incongruous with global governance.

As a result of this change in law, the government could collect the $2 billion from Vodafone that the Supreme Court had overturned. But this single action will take India back to an age where global capital suspected it, shunned it.

With growth slowing down and the sovereign risk on doing business rising, brave will be the dollar that enters India.

But there is a silver lining to Mukherjee's budget: a renewed thrust on controlling black money and tax evasion.

From compulsory filing of returns for foreign assets to expediting prosecution proceedings, Mukherjee has set the ball of disincentives to black money rolling.

At the level of governments, India has finalised 82 double taxation avoidance agreements and 17 tax information exchange agreements.

The budget bodes well for infrastructure development, with a Rs 50,00,000 crore investment ambition, half of it from the private sector, during the 12th plan.

These include financial incentives like tax-free bonds and external commercial borrowings for capital expenditure in roads, airlines, low-cost affordable housing projects.

But forcing Coal India Ltd to sign fuel supply agreements with power plants is yet another control-and-command action. It may spur electricity production in the short term but its philosophical leanings do not belong to the 21st century.

Today, the answer to shortages is not allocation but competition, efficiency. Breaking up CIL's subsidiaries into independent companies or privatising coal mining, for instance.

It looks as if Mukherjee has one leg in 1982, when he presented his first budget; his second leg in 2012, when the UPA coalition is running from crisis to crisis; and his mind in 2014, the year of the next general elections.

Between the three, he has chosen the familiar walk to the past. Whether this will allow the UPA to move towards the future, is the political gamble underlying Mukherjee's uninspiring budget.

Oppn thumbs down 'regressive' budget | Price rise is an unavoidable scenario now: FM | Cong gives full marks to Mukherjee's performance | Sensex fizzles after rosy start | Industry gives a thumbs down | Download Budget speech


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