Wednesday, March 3, 2010

Union Budget 2010

(This article was originally written for the CNN-IBN blog)

Burgeoning fiscal deficit, inflation breathing down your neck and the promise to keep the growth story intact, not the best time to be the Finance Minister. Pranab Babu had his task cut out. How does his respond? Does he come up with a populist budget (the WB election issues are there) or he buckles down the pressure exerted by the India Inc.

Let’s try to analyse it under different heads:
The new income tax regime ensures that the salaried middle class ends up paying less and the upper middle class lesser. We were just discussing fiscal deficit by the way and the deficit will now go up by 26000 cr. Tax savings by an additional amount of Rs 20,000 for investments in long-term infrastructure bonds are now allowed but is it enough considering the major portion of the savings still finds its way to the savings bank account. I think the FM has missed out here. The excise duty inches up 2% (on car and SUVs) and the oil prices shoot up not because revolutionary deregulation has become a reality but basic duty on petroleum products has been enhanced. So FMCG companies gain as the middle class spends more but who loses out, it’s him again, the ‘aam aadmi’, who doesn’t earn enough to be taxable but still relies on kerosene. Though there was a relief from the service tax front as it stay put at 10%. Raising the rate of Minimum Alternate Tax (MAT) from 15 per cent to 18 per cent of book profits could be the cause of complaint for the infrastructure firms. 

GST, the tax reforms aimed at uniformity, transparency, widening the tax net and that has found favour in more than 100 nations still seems to be in the dock as no concrete roadmap was announced. Labour reforms, oil deregulation, fertilizer subsidies, the most hotly debated topics considering the existing scenario didn’t get the due attention. So, it seems the structural deficiencies causing deficit are here to stay.
Nutrient based fertilizer subsidy is a step in the right direction but unless followed up with more radical steps so that the benefits directly reach the farmer, it could be the case of too little too late. Providing project import status with a concessional import duty and full exemption from service tax to installation and commissioning of mechanised handling systems, pallet-racking systems, cold storage, cold room and processing units in mandis and warehouses will reduce the wastages during handling and storage. It’s high time we looked at agriculture as a source of revenue by taxing the rich farmers and passing on the benefits to the marginal and landless farmers. 

It was noteworthy that forty-six percent of plan allocations in 2010-11 will be for infrastructure development. It goes to show that the FM has realised that for the sustainability of the Indian growth story, infrastructure has to be robust. Tax breaks on investments in long-term infrastructure bonds is a welcome step. The major concern would be proper execution of such projects. 

Social Sector: 
Increased allocation to rural development initiatives like National Rural Employment Scheme, Bharat Nirman, Rajiv Awas Yojana for slum dwellers etc shows that Bharat will no longer be neglected vis-à-vis India but the major cause of concern with such schemes have been corruption and leakages in the system. Unless these issues are properly dealt with, they would be a burden on the exchequer. The NREGS too needs to go beyond funding temporary activities like digging up wells, check dams etc. It could be used to develop permanent assets for irrigation. Provision for further capital for regional rural banks will help in credit penetration as well as stop fund leakages as targeted beneficiaries can be directly paid through bank accounts. National Social Security Fund has been created for workers in unorganised sector. This is modest beginning but a much needed initiative nevertheless. 

Other Initiatives: 
Clean energy cess on coal produced in India, concessional duty on solar power rickshaw developed by Council of Scientific and Industrial Research, increased allocation for new and renewable energy are a proof of the progressive thinking of the government but it needs to be sustained to be effective. The higher education was neglected by the FM that too considering the immense possibilities of PPP in this sector. The continuing shortage of skilled workforce should have rung a bell or two by now. 

All in all a budget that will yield positive results if the initiatives are effectively implemented. Else it could be the classic case of, ‘Too much boast, little toast”. 


  1. u always balance the cord. a dynamicaly balanced. illustrative and informative as well lucid. well done!