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Mainsteam, Vol XLIX, No 12, March 12, 2011

Union Budget 2011-12: Please All, Please None

Wednesday 16 March 2011

by Paranjoy Guha Thakurta

Pranab Mukherjee is the most seasoned politician in the present government. He was the Finance Minister more than a quarter-century ago when Manmohan Singh was the Governor of the Reserve Bank of India. He has seen economic policy in the country change over the decades. In this year’s Budget, he has conveyed an impression that he is trying to walk the proverbial tightrope by seeking to please everyone and his brother. That’s not an easy task in the best of times. The chances that he will fail are quite high.

Mukherjee has not just attempted to please his two bosses, the Prime Minister and the United Progressive Alliance chairperson Sonia Gandhi, he has also tried to keep happy disparate sections, from the gungho economic liberaliser to the socialist in the Congress party, from the aam aadmi to the khaas aadmi—which is over-ambitious, to say the least, and which is why he will not succeed.

He left no one in doubt when he stated right upfront: “Certain events in the past few months may have created an impression of a drift in governance and a gap in public accountability... such an impression is misplaced.”

Whether this Budget will help refurbish the battered image of the government is far from certain, but Mukherjee has tried hard to reconcile the interest of the market-friendly faction in the ruling party even as he has showered homilies ostensibly aimed at establishing the government’s pro-people credentials.

Here are a few instances of the politically-correct statements made by him. We have been told that the government has to “reconcile ecological concerns with development aspirations”. Further, the Budget is aimed at “sustaining a high growth trajectory, making development more inclusive and improving our institutions, public delivery and governance practices”. That’s not all.

Our Bengali babu has assured us that “corruption is a problem which we have to fight collectively”. But he has not revealed any specific measure that would tackle the issue of money-laundering through tax havens like Mauritius (the clutch of small islands that is the source of more than 40 per cent of the country’s inflows of foreign direct investment). Nor has he answered charges of crony capitalism levelled against the ruling regime.

We have to wait for a Group of Ministers (GoM) to come up with its report on putting together a “competitive system for exploiting natural resources”, including, presumably, tele-communications spectrum. And this particular GoM—headed by, you guessed right!— will also look into state funding of elections, speedy processing of corruption cases against public servants, transparency in public procurement and contracts, and discretionary powers of Union Ministers. That’s quite a handful.

MUKHERJEE has made a few excessively optimistic assumptions in his Budget calculations which have raised doubts and caused consternation about the viability of the exercise. First, he has assumed that the average rate of inflation during the coming fiscal year starting April 1 would be contained at five per cent. This appears clearly unrealistic especially since he has also proposed a cut in the government’s subsidy outgo by Rs 20,000 crores, three-fourths of which would be on subsidies on petroleum products such as cooking gas, kerosene and diesel.

Given the fact that the world oil prices have been boiling since the political crises in North Africa and West Asia and that India imports 80 per cent of the country’s requirement of crude oil, a set of hikes in prices of petroleum products has clearly been factored into the Budget calculations. How then would inflation be kept at five per cent, especially since the government has not proposed any cut in customs or excise duties on crude oil or petroleum products?

The second optimistic assumption made by Mukherjee is that while there would be a revenue loss of Rs 11,500 crores on account of direct tax concessions, indirect tax collections would rise by Rs 11,300 crores (although tax rates have not been changed) on account of better compliance and industrial growth in a buoyant economy.

The third optimistic assumption he has made is that the Central Government’s expenditure will go up by just three per cent during the next fiscal year against an expected 30-odd per cent in the current year. Then, even as the minimum wages given to beneficiaries of the government’s much-touted “world’s largest social security scheme”, namely, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), have been increased since these have now been linked to the Consumer Price Index, the Budget has kept unchanged the total outlay on the MGNREGS at Rs 40,000 crores.

A section of the middle classes is happy with the concessions given to personal income tax-payers. But one should not forget the fact that barely three per cent of India’s 1.2 billion-strong population pays income tax and of this proportion two per cent do not have much of a choice since salaried employees receive their wages after taxes have been deducted at source.

Budgets in India are much more than statements of financial accounts of the country. Important pronouncements on the political economy are also made on the occasion. Mukherjee took a leaf out of Railway Minister Mamata Banerjee’s book when he named a few educational institutions in Tamil Nadu, West Bengal and Kerala (where elections are scheduled in April-May) that would receive grants of relatively small amounts, varying between Rs 10 crores and Rs 200 crores, in his Budget speech where the numbers are often measured in hundreds of thousands of crore rupees.

Like the farmer in the field, Mukherjee continues to pray to Lord Indra and Goddess Lakshmi. He certainly needs their blessings. For it is indeed difficult to please everybody. In fact, the problem with spreading happiness thinly is that one may end up pleasing nobody. That is the real and present danger in his Budget.

(Courtsy: The Asian Age)

Paranjoy Guha Thakurta is an educator and commentator.

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