Originally Published 2011-03-05 00:00:00 Published on Mar 05, 2011
The Finance Minister has addressed the various deficiencies in agricultural production which are responsible for high food inflation. But the actual measures announced are not enough to shake up agriculture and as Dr MS Swaminathan pointed out - it will not make the youthful population take up farming.
On the whole a positive Budget

In Budget 2011-12, Finance Minister Pranab Mukherjee has ably presented a politically savvy and minutely detailed picture of the economy. He has promised 9 per cent growth and his biggest market ’mood lifter’ was the announcement of a reduction in the fiscal deficit to 4.6 per cent from 5.1 per cent last year. There are sops for middle class taxpayers and senior citizens, incentives for agriculture, and pay hikes for anganwari workers and helpers, but there is also a painful service tax for medical and diagnostic treatment in private hospitals. He has addressed the various deficiencies in agricultural production which are responsible for high food inflation. But the actual measures announced are not enough to shake up agriculture and as Dr MS Swaminathan pointed out - it will not make the youthful population take up farming. Positive action has been announced in the development of cold chains, on encouraging pulse and oilseed farming, on storage and farm credit so that the small and marginal farmers can get cheap loans.

Every year there are such announcements but little gets done at the ground level. We have the same story of big farmers cornering loans and debt relief packages and the small and marginal ones left to fend for themselves and get deeply indebted. Besides these broad measures there is nothing in the Budget that really tells us how the government plans to tackle food inflation and general inflation. Also there is no mention of the big problem of unemployment that is currently plaguing the countryside. He talked of enhancing manufacturing growth and increasing its share in the GDP but how this can be done has remained vague. It is true that manufacturing growth is important for providing jobs to skilled and semi-skilled labour but we are not sure how this is going to be achieved specially when input prices are going up and there is another fuel price hike in the offing. MGNREGA has been indexed to inflation which is a good thing but the amount of Rs 100 per day seems too little in real terms.

Tax sops to the corporate sector have continued in the form of a reduction in the corporation tax surcharge from 7.5 per cent to 5 per cent though MAT has been raised. But even as the markets cheered, opening up the mutual funds to foreign institutional investment may increase volatility of these funds. Many other hurdles for attracting direct foreign investment are being removed, which is a positive step. But it is still unclear how the government proposes to finance the widening current account deficit in the face of a dwindling flow of FII inflows due to recession in some EU member countries. He did mention that current account deficit is a problem and unless export growth is faster and imports slow down, financing the deficit would remain a big problem.

As for women, they have not been given the same treatment as men as far as the reduction in income tax exemption limit is concerned. For women, it remains at Rs 1.80 lakh while for men it has been reduced. Cash transfers to the poor instead of subsidised food, fuel and fertiliser is clearly on the cards and may happen next year. While this type of cash handout has worked in Latin American countries, in India it may not work as the compulsions and temptations of recipients for using cash for consumption purposes are many. While it is true that there are serious leakages in the PDS, cash handouts may not be a good substitute because public goods are the entitlement of the poor.

The cut in subsidies by Rs 20,000 crore is going to be welcomed by the World Bank and IMF. The US government has also hailed the increase in defence spending. US firms would want to pitch in and supply arms to India. Environmental concerns on the other hand have also been adequately addressed and the Finance Minister has proposed the development of electric vehicles and allocated `200 crore for clean energy fund and another Rs 200 crore for cleaning rivers other than the Ganga social sector allocation however has been increased by 17 per cent, in keeping with the UPA government’s proclaimed goal of pro-poor, inclusive growth.

On the whole, the Budget seems like a pacifier of sorts because though the current problems have been discussed, no deep solution was offered. May be the Budget speech is indicative of policy action that is to follow-hopefully legislations like the Food Security Bill would be passed in due course, paving the way for more action on the food inflation front. Another burning issue of black money and money stashed away abroad was mentioned but no amnesty scheme was offered. Also how the government intends to deal with rampant corruption and crony capitalism remains nebulous.

(The author is a Senior Fellow at Observer Research Foundation)

Courtesy: The Pioneer

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.