Thursday, March 06, 2008

A Please All Budget

In more ways than one, the Union Budget 2008-09 tabled by P.Chidambaram is the “mother of all UPA budgets”. This is the last full Budget under the incumbent UPA government. It comes in the run up to general elections, as of now, scheduled for 2009, following back-to-back losses for the Congress in state elections in Gujarat, Uttar Pradesh, Punjab and Himachal Pradesh. No wonder then that the budget has been devised with a firm eye on the rural and urban voter.

A huge waiver of Rs 60,000 crore to the farmers is its centrepiece and a political masterstroke even though it’s not clear how this money is going to be raised. The moot question is whether this largesse is really going to benefit the farmers it is intended for marginal farmers with land holdings of up to 2 hectares. Only the debts taken from formal sources of credit- public sector banks will be waived. According to the National Sample Survey, nearly three in four farmer households have no access to formal sources of credit. Hence, the small and marginal farmers will continue to be beholden to rural moneylenders. Despite recognising the scale of the agrarian crisis, the Finance Minister had nothing to offer the 30 million small and 10 million marginal farmers who continue to bear usurious rates of interest.

This budget could be the swansong of Prime Minister Manmohan Singh and his chief economic advisor, Planning Commission Deputy Chairman Montek Singh Ahluwalia. They have sought to leave a legacy by making a very big investment in rural development. Hence the increase in outlays for the National Rural Employment Guarantee Scheme, which will now be extended to all the country’s 596 districts. Bharat Nirman, the flagship rural infrastructure development programme received an allocation of Rs 31,280 crores. Health and education found a substantial increase in the allocation, by 20% and 15% respectively. Calling them “twin pillars on which rests the edifice of social sector reforms” the Finance Minister has allocated Rs 34,400 crore and Rs 12,050 crore for education and health respectively. But the budget is found wanting on the rural roads front. The corpus for rural roads is a paltry Rs 4,000 crore.

In a column published in the Times of India on February 3rd, economist Swaminathan S Anklesaria Aiyar argued that roads are much more important than Sarva Shiksha Abhiyan and NREGS. He wrote that, “For every million rupees spent, roads raised 335 people above the poverty line. Every million rupees spent on education reduced poverty by 109 people, and on irrigation by 67 people. The lowest returns came from subsidies that are the most popular with politicians - subsidies on credit (42 people), power (27 people) and fertilisers (24 people).” Lip service is how one would describe the Rs 5,000 crore allocation for rural electrification.

The Economic Survey tabled by the Finance Minister on February 28th is a complete antithesis of the budget. It makes one wonder whether both came from the same Ministry. No measures have been undertaken to increase the cap on Foreign Direct Investment (FDI) into domestic market. To sustain a 9% growth the Survey demanded a raise in FDI for insurance to 49%, opening up the retail sector to foreign equity and 100% FDI in greenfield private agri banks. But these demands were not met. Instead Chidambaram endeared himself to the taxpayers by increasing the threshold taxable income by a steep Rs 40,000 to Rs 1,50,000 while for women it is Rs 1.8 lakh. The lowest tax rate of 10% cent will extend all the way to Rs 3 lakh, after which 20% tax will apply and 30% for salaries above Rs 5 lakh. This means an additional Rs 4,000 in the hand of a person who earns Rs 1.5 lakh. On the whole, the FM wants to put more money in the hands of the consumer, which would give them more spending power.

The Sensex reacted to the hike in short-term capital gains tax (the tax paid on a profit-making investment held for a year) from 10% to15%, by falling 1.38%. The revenue deficit, the excess of current expenditure over current receipts, was to have been brought down to zero by 31 March 2009 according to the Fiscal Responsibility and Budget Management Act. “This will not be done in 2008-09, but the year after that,” explained Chidambaram. That too could be wishful thinking once all the subsidies and the huge payout under the Sixth Pay Commission are counted.

Some Recommendations:

Young Poisoner's Handbook: A kooky thriller from the stables of British cinema that makes us believe that Mike Leigh and Ken Loach are not the only British auteurs.

Le Diable Probablement: Probably Robert Bresson's most underrated film. Placement is going on in my J-School and people are taking jobs solely on the basis of pay package. And in these tumultous moments, this movie makes me believe that my passion for journalism should hold precedence over a few more pieces of paper.

Grbavica: I dislike reading history verbatim. Its englightening to watch a movie which has historic backdrop. One such is Grbavica. The agony involved in the aftermath of Balkan War is portrayed in the most humane way. The chances of you not liking this movie are as much as me hanging myself- Zero.


At 9:38 PM, Blogger sowmitra said...

got little complicated as I got along reading...maybe u could have made it more simpler...must be commended for your effort...

At 6:35 AM, Blogger Insomniac said...

Of course a please all budget was the need of the hour for the congress..but the baffling this is that every incumbent party tries to play this card..but no one ends up getting elected for a second term..probably anti incumbency factor supercedes all...
But the baffling thing is the euphoria surrounding the 60,000 crore remains to be seen that this huge waiver helps the food prices come down..coz the issue of inflation hasn't been touched at all..

At 5:01 AM, Anonymous Anonymous said...

Its true tht majority of the media has concentrated on the hyped waiver which was supposedly beneficial for the agrarians..but the waiver has been specified with a catch that thee area of land held by them shud b within 1.5 hectare.Thr r many farmers who own lands much than the specified value but still need the waiver badly(like the cotton reapers of karnataka).. yet the budget did make a favourable impact..
nice post. All the best for ur placements!


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