A lawyer would tell you that there is nothing like not doing anything. Not doing anything, in legal speak, means doing something.
That is why I say praise the finance minister for not what he did in the budget, but for what he didn’t do.
By keeping the standard excise duty and service tax rate unchanged at 10% -- against a widely-expected 2 percentage point hike – Pranab Mukherjee has taken some pressure off prices of goods and services. He made some announcements for poll bound states, but in terms of actual numbers he hasn’t set aside much money for populist schemes. The result: he hopes to keep expenditure under check and cut the fiscal deficit from 5.1% of GDP this year to 4.6% in 2011-12. If the fiscal situation improves, it means less pressure on the Reserve Bank of India to increase interest rates.
He hasn’t given any tax major concessions. The urban middle class would be disappointed, but there will be more coming their way when the Direct Tax Code comes into effect from April 2012. The minister has pruned the list of excise duty exemptions, which reinforces continuity in the slow, but continuing, process of tax reforms.
I am happy for another thing that the finance minister didn’t do. He didn’t announce an amnesty scheme to unearth black money. In television interviews later, he said an expert committee will look into it. One hopes the expert committee concludes against an amnesty scheme, for such schemes in the past have not been effective in curbing black money, and amount to a slap on the face on honest tax payers.
What you make of Pranab Mukherjee’s budget for 2011-12 is tied to what your expectations were, and the context you set for the evaluation.
After two decades of economic liberalization that transformed India’s economy into one of the world’s fastest growing, set off a virtuous proliferation of entrepreneurial talent and put the state on a gradual retreat, the government is no longer the on engine that drives the economy.
There was a time when the government accounted for 80% of the economy. Today, it’s tad over 15%. That’s the new reality – that the government’s ability to influence broader economic trends is limited. But there are some old challenges that continue to bog new India – some 300 million get counted as poor; about third of the population can’t read or write; income security remains a privilege of few; disparities are wide and growing with inflation. And these challenges still demand redress by the state.
Seen against such a context, Mukherjee seem to have done a descent job with the job.
There has been criticism that his budget didn’t come with a Big Idea. But why on earth, a budget should come with a Big Idea for the broader economy. I am sorry, but that demand is not in sync with the new reality of new India. Ideas galore in today’s India. The government must be a facilitator, and not a creator or owner, of those ideas.
Successive finance ministers in the past have increasingly decoupled the Union budget from broader policy making. Mukherjee has chosen, and rightly so, not to veer off that course.