No relief for households, no tax cuts for industry. Just what more can you get from an interim budget? An election message, perhaps.
With an eye on polls less than three months away, as Pranab Mukherjee presented India’s 12th interim budget, the undertone behind his 80-minute drone was clear: “Vote for the Congress.”
<b1>Gushing with what the UPA has done for major votebanks — farmers and minimum wage employees through reminders of schemes launched in agriculture, education, rural development and health — Mukherjee, who last presented a budget on February 29, 1984, dashed the expectations of the industrial elite.
Neither the “dream run for the economy”, nor the “fastest ever improvement in living standards over a four-year period” could stop the Sensex from falling 329 points — with India’s biggest companies tumbling: Reliance Industries and ICICI Bank fell 5.8 per cent.
He, however, did point out that during “financial stress, tax rates must fall and our ability to pay taxes must rise”. That’s a signal for tax cuts in the main budget that a new government will unveil in July, feel industry chamber FICCI president Harsh Pati Singhania and ICICI Bank joint managing director Chanda Kochhar.
“I have no doubt that the continued stimulus for various flagship programmes will provide relief to all sections — especially the ‘Aam Aadmi’,” said PM Manmohan Singh. “The benefits of the stimulus for industry and the export sector announced earlier continue to be available.”
Singh was probably referring to Mukherjee’s extension of an interest subsidy of 2 per cent for six more months, till September 30, to employment-oriented export sectors like textiles and gems and jewellery, which are reeling under the adverse impact of the meltdown. The cost: Rs 500 crore.
Apart from setting the electoral skew towards “the hand that alone can help our nation on the road to peace and prosperity,” Mukherjee was working under two large constraints.
One, political legitimacy at a time when the government’s tenure is ending and there is no guarantee of it being able to deliver on the announcements. According to a senior finance ministry official, who refused to be quoted, they didn’t even send the “routine paragraphs” on revenues and expenditures to the minister this time.
Two — and more worrisome — the high fiscal deficit (the difference between the total expenditure of the government and its receipts and is equivalent to its total borrowings) that prevents the government from any further indulgence in the form of cutting taxes or offering sops. At 6 per cent of 2008-09 GDP (gross domestic product), the fiscal deficit is 3.5 percentage points higher than budgeted.
Reason: “…to provide much-needed demand boost to counter the situation created by the global financial meltdown,” Mukherjee said. But while blaming the global meltdown for the current economic crisis where the index of industrial production has fallen by 2 per cent, he remained upbeat about growth.
“In these difficult times, when most economies are struggling to stay afloat, a healthy 7.1 per cent rate of GDP growth still makes India the second fastest growing economy in the world,” he said. In fact, the Rs 332,835 crore fiscal deficit, that’s 5.5 per cent of 2009-10 GDP, works out to a growth rate of 7 per cent, Finance Secretary Arun Ramanathan told reporters at a post-budget press conference. Embedded in this number is an inflation rate of 4 per cent.
If global meltdown was the constraint on the revenues side, 26/11 sucked out Rs 141,703 crore (the defence budget), up 24 per cent over last year’s revised estimate. “The Mumbai terror attacks have given an entirely new dimension to cross-border terrorism,” Mukherjee said. “A threshold has been crossed. Our security environment has deteriorated considerably.”
Politically, the budget was trashed. “This is indeed a farewell budget, and it does provide ample justification why the people also should bid farewell to the Congress,” said LK Advani, of the Bharatiya Janata Party.
“The interim budget has exposed the inadequate response of the UPA government to the severe impact of the global recession,” said Prakash Karat of the CPM.
“After seeing Lalu Prasad’s lollipop, we have today seen Pranabji’s lollipop,” said Gurudas Dasgupta of the CPI. “The budget is simply a poll lollipop. It’s an election budget without any realistic fundamentals of economy.”
As they quibble over lollipops and farewells, the nation looks at electing a new government in May that will present its full budget in July.