So, inflation is not going to go down in the foreseeable future. “I expect the average inflation to be lower next year,” Mukherjee said. Even the extra money he has put in the hands of taxpaying households by raising the exemption limit by Rs. 20,000 to Rs. 1.8 lakh, is feeble --- if you make Rs. 5 lakh per annum, you will save Rs. 172 per month.
The sole exception: “very senior citizens, eighty years and above” for who the exemption limit has been raised to Rs. 5 lakh. Meaning upto an income of Rs. 5 lakh they pay no taxes. “I am not yet eighty,” he told the Parliament with a suppressed smile. For senior citizens, he has reduced the age to 60 from 65 years.
This is in tune with the proposed direct taxes code (DTC), where the minimum exemption limit for an individual will be Rs. 2 lakh. Likewise, he has raised the minimum alternate tax for companies to 18.5% from 18.0%, 2 percentage points short of the 20% mark that the DTC has proposed.
He had a good opportunity to control inflation immediately by cutting customs duties on crude oil and reducing excise duties on petrol and diesel. By not doing that, Mukherjee has shown that even in a year that has five state elections looming --- perhaps to keep this flexibility for the impending oil crisis unfolding from West Asia --- he can be a tough finance minister.
More than what he has done, it is what he hasn’t that provided inverse relief. By not raising excise duties and service tax rates, as expected, he has not fuelled inflation further. So, the markets cheered the budget by rising almost 600 points, until reality bit --- that economic growth in this budget was a medium-term aspiration with a thrust on physical and financial infrastructure that would take two to five years to show up ---and finally closed just 123 points higher.
This financial disappointment will be temporary, though. With foreign investors being allowed to buy mutual funds, it is only a matter of time that the great asset transfer from developed but stagnating economies like Japan, EU and US begins to buy the India story, whose growth rate Mukherjee has forecast at 8.75-9.25%.
We can visualise this economic growth in urban areas teeming with shoppers in malls and restaurants. Those enjoying the fruits of economic growth, will have to pay for part of it, Mukherjee seems to say in this budget. Consequently, he has expanded service taxes to two new services ---restaurants and hotels --- and extended the scope to seven (clinics, life insurance and so on), for all of which you will pay 10.3% more.
The other big issue before the country is black money. Nobody expected an instant solution and Mukherjee’s “five-fold strategy” to fight it ---including appropriate legislative framework, setting up institutions for dealing with illicit funds and developing systems for implementation --- is a good theoretical start, though like all good things, we await implementation.
The budget has its reformist moments. So, the direct taxes code will be effective from April 2012. Waiting in the wings are financial sector legislative reforms with the amendment of insurance, banking and pension laws.
BJP leader and former finance minister Yashwant Sinha said “the budget is completely devoid of reforms”. But it is the opposition, including the BJP, that is holding back the goods and services tax.
And when critics cry that there are no big-bang reforms, it’s time to be more circumspect --- just how many big-bang reforms can you expect from a trillion-dollar economy? Increases in foreign direct investment in specific sectors will happen gradually, not instantly. Particularly controversial is FDI in retail, for which a huge politics needs to be managed.
If you want to see the real impact of Mukherjee’s budget, look at rural India, where budgetary allocations have risen on an already high base. “The biggest reforms are not the ones that make headline, but the ones concerned with the details of governance, which affect the everyday life of aam aadmi,” he said.
To give the inflation weary people a leg up, he has indexed the wages they get from Mahatma Gandhi National Rural Employment Gurantee Act to inflation. Meaning, if inflation rises by 10%, so will wages, an excellent pro-poor policy.
Additionally, 2.2 million Anganwadi workers and helpers will see their remuneration double to Rs. 3,000 and Rs. 1,500 per month, respectively. Further, he has doubled the scholarship scheme for scheduled castes and tribes children in classes 9 and 10 to benefit 4 million students. And apart from increasing budgetary allocations to Bharat Nirman on village roads, irrigation programmes, drinking water and so on to Rs. 58,000 crore --- a rise of 20% --- he has also finalised a plan to provide rural broadband connectivity to all 250,000 panchayats in the country.
The aam aadmi has also got benefits on the housing front by getting subsidised interest rate of 1% if the house is worth less than Rs. 25 lakh and the loan is less than Rs. 15 lakh (from Rs. 10 lakh and Rs. 20 lakh respectively).
Finally, by paving the path for cash transfers on various subsidies like fuel and foodgrains, Mukherjee has taken the first tentative step towards ensuring better delivery of these entitlements. By the time UPA presents its next budget, the system, he said, will be in place --- if the politics is able to smother the vested interest industry that has sprung up around them.
“This is a budget that matches the challenges our economy faces ---sustained growth, inclusive growth, equitable growth --- and thus, a determined effort to curb inflation,” Prime Minister Manmohan Singh told Doordarshan.