Originally Published 2013-03-07 00:00:00 Published on Mar 07, 2013
The focus on delivery of various schemes is missing in this budget. Each year, public money is being poured into them, but things remain the same unless there are dynamic state ministers monitoring everything. Some provision for effective monitoring should have made in budget 2013-14.
Budget 2013: Eye on elections
The parting budget of any regime is expected to please all. But P Chidamabaram's Budget this year does not seem to have pleased many. .

The Indian economy is at a low point and the Central Statistical Organisations predicted GDP growth for 2013 is at 5 per cent, and the actual GDP growth rate in the October-December period (Q3) is at a ten year low of 4.5 per cent. That in the background, Mr Palaniappan Chidambaram has given the impression that everything is hunky dory and that we have nothing to fear but fear itself. Also, its great comfort to know that most other countries are in similar trouble.

He has glossed over the phenomenon of black money stashed abroad and circulating at home; the growing inequality of incomes; corruption eating away the entrails of the economy; women's vulnerability in India and especially on the streets of Delhi; the low rate of investment and high food inflation. Some of these got passing mention -the Current Account Deficit for instance -and he has come up with schemes to correct the situation. It is not only China which would surpass us in GDP growth in the next one year, but there will be many more. But he has managed to present a rosy picture on the whole which of course was probably a 'command performance'.

By coming up with the first 'women's only' public sector bank, the UPA government has struck a good election strategy to woo women voters. After all even though the sex ratio of the country is tilted towards males than females (940 females to 1000 males) women are diligent voters. Sewa however started the first such cooperative bank many years ago for women in the informal sector and has continued with it.

By focusing on youth and skill development, again he has addressed a large section of voters who will be pleased with new schemes for skill development with possibilities of employment. But unless there is growth in manufacturing, there is not going to be much scope for their absorption in the organised sector. For the unorganised sector which has been the receiver/absorber of all who cannot be employed in the formal or organised sector, he has addressed a long standing demand for fuller insurance coverage which should go down well with the poor. But how it will translate at the ground level is yet to be seen. Thus all three sections have been handpicked with the polls in mind.

He has granted more money to all the pet areas of previous finance ministers -health, education, tribal welfare, people with disabilities, clean water, garbage disposal, environment, backward regions, small and medium enterprises etc reflecting a wholesome paternalistic approach. He has also addressed the fall in savings rate by calling for inflation indexed bonds, easier housing finance and saving certificates. He has encouraged investment in equity markets also through the Rajiv Gandhi Equity Savings Scheme. All these would have looked laudatory moves in normal times. But today, it is not normal times.

Investment is stagnant and something big has to be done to spur investment. By reducing tax on capital goods investment by 15 per cent for investors investing Rs 100 crore, he has made a significant gesture. But other ways of encouraging investment were expected by the market and when nothing else came except a reduction in STT (securities transaction tax) and increase in royalty payments abroad to Indian investors, and residency requirement for investors from Mauritius, the Sensex fell.

With an eye to the possible downgrade by the Credit rating agencies, he has managed to bring down the fiscal deficit to 5.2 per cent of the GDP this fiscal and for next fiscal he has a lower estimate of 4.8 per cent. This is going to be good news for companies who want to borrow in the international markets as the interest rates will not be hiked which would have been the case had the downgrade taken place. This fiscal consolidation itself is something quite admirable but the devil may lie in the detail because he has not cut subsidies, something he could not have dared to do when the elections are so near. But he has cut government expenditure quite drastically in many critical areas which could recoil on the UPA's fate in the future.

He has not cut defence expenditure for 2013-14 on the other hand and has in fact has raised it which should go down well with the hawks who have been complaining about perceived shortfalls in India's military preparedness. Food subsidy has been maintained and he has promised a food security bill. On the tax side, he has tried to give incentives to some languishing exports like reducing taxes on leather machinery and duty on precious and semi precious stones in their raw forms. He has increased the allowance for imports of gold because there is hardly any more scope for raising import duties. So he has been realistic and is asking people to bring in gold instead of the government having to import it and thus creating problems for the current account deficit.

He has pleased the general people by promising that only the super rich will be taxed an extra 10 per cent. No one can quarrel with that except the numbers seem very few. Many more earn more than Rs 1 crore a year and he should have made an effort to catch them in the tax net.

India will still be vulnerable to the whims of the FIIs to cover the CAD. It is an area which he showed concerned and rightly so. Coal and oil imports are not the only reasons for the big current account deficit -sluggish export growth is the problem. Raising the competitiveness of Indian industry is a problem which none of the sops offered in the budget can possibly take care of. It has to do with a lot of other factors, like skill and disciplined labour force, efficiency of power and low interest rates and high transportation and transaction costs. Unless Indian industry picks up and goes on a higher growth trajectory, Indian GDP growth cannot match China's.

Service sector growth has also seen ups and downs because of problems in the US and Eurozone, but one sector which he has picked has been doing well -the restaurant business and he has tapped it for the government coffers. Dining out will become costly and buying luxury cars and SUVs or marble slabs will also be costly. No one among the poor will be bothered about either of these. But continuing food inflation will affect them.

Every year, agriculture is given many incentives and sops. This year, storage and silos have received their due share of incentives which is probably good move considering there is starvation among plenty and pictures of rotting food grains appearing regularly in newspapers and TV channels. Much more however needs to be done to distribute foodgrains to the poor in a corruption free manner.

The focus on delivery of various schemes is missing in this budget. Each year, public money is being poured into them but things remain the same unless there are dynamic state ministers monitoring everything. Some provision for effective monitoring should have made in budget 2013-14.

(The writer is a Senior Fellow at Observer Research Foundation, New Delhi)

Courtesy : The Pioneer,

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David Rusnok

David Rusnok

David Rusnok Researcher Strengthening National Climate Policy Implementation (SNAPFI) project DIW Germany

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