Opinion - Editorials   

When silence speaks just as loud

If one has come to expect high drama from the annual budget, the United Progressive Alliance Government's third budget presented by Finance Minister P. Chidambaram was singularly lacking in it. High growth is the big idea behind the exercise but the push either from the side of investments in infrastructure or from the side of incentives has not been particularly strong, even as overall it has been without surprises, pleasant or unpleasant. With the economy registering a historically high growth rate of 8 per cent on average over the past three years, the Finance Minister perhaps felt he did not need to do more. Yet, if the country were to move towards the goal of achieving the East Asian levels of 8 to 10 per cent often invoked by Prime Minister Manmohan Singh, the question arises — could the budget not have been more ambitious? To its credit though, without being dramatic it is certainly sound and does not depart from prudent fiscal management. If last year Mr. Chidambaram had paused on fiscal consolidation, pushing the revenue and fiscal deficit reduction targets by a year, the actual performance in the current year has bettered his projections, with the revenue deficit coming down to 2.6 per cent of the GDP and the fiscal deficit to 4.1 per cent. This fiscal correction is to continue next year with the revenue deficit going down to 2.1 per cent and the fiscal deficit to 3.8 per cent. The Fiscal Responsibility and Budget Management Act calls for an annual reduction of 0.5 percentage point in the revenue deficit and any slackening on this score would have eroded the credibility of the commitment to sound fiscal management. The reduction in the deficits has been made possible in large part by the buoyancy in revenues — that increased by almost 20 per cent in each of the last two years — but a certain slowdown in spending also seems to have played a role.

More than the tax proposals, the Finance Minister has sought to emphasise spending, particularly in the area of anti-poverty and rural programmes and infrastructure. For the National Rural Employment Guarantee Scheme, an outlay of Rs.11,300 crore has been provided together with the promise of more if needed, as against the Rs.10,000 crore for its precursor, the food for work programme. An additional Rs.3,000 crore has been provided for other rural employment projects. Overall, the eight flagship programmes in the social sector — in the areas of rural employment, health, education, mid-day meal, and urban renewal — are to get a huge increase of 43.2 per cent next year. In addition, a range of measures to benefit farmers including a subvention to lower the cost of crop loans has been announced. A major constraint on growth has been infrastructure, particularly power, roads, ports, and communications and the higher outlays on these areas are welcome. If last year the need to foster institutions of excellence in education was recognised and a grant of Rs.100 crore made to the Indian Institute of Science, this year the three oldest universities in the country, Kolkata, Mumbai, and Madras are to get Rs.100 crore each, while the Punjab Agricultural University, Ludhiana, is to get a similar grant in recognition of its contribution to the green revolution.

In taxation, the budget follows the trend of the previous years and there are no major incentives or dampeners. Mr. Chidambaram has once again affirmed his commitment to the philosophy that moderate tax rates together with better administration and enforcement will generate high revenues. Following the declared intent to bring customs duty rates down to ASEAN levels, the Finance Minister has cut the peak import duty on non-agricultural products from 15 to 12.5 per cent. The heavy reliance on customs duties for revenue has obviously inhibited a sharper reduction. The cut in the excise duty on small cars is expected to provide a boost to the automobile sector, raising visions of India becoming a major manufacturer of small cars. The service tax from its small, hesitant beginnings has now grown into a major source of revenue and it was natural for the Finance Minister to increase the rate from 10 to 12 per cent, and also widen its coverage. The new activities brought into the net include ATM services, sale of space or time for advertisements, international air travel, auctioneering, and public relations management. The one-by-six scheme introduced with great fanfare as a magic wand to bring in more people into the income tax net is now to be abandoned on the reasoning that it has outlived its utility. On the other hand, two of the unpopular measures of the last budget, the tax on cash withdrawals from banks and the fringe benefit tax, are to stay. The fringe benefit tax is softened by reducing the value of travel covered from 20 to 5 per cent and by exempting contributions to approved provident funds up to Rs.1 lakh.

In the difficult areas of reform, silence seems to speak more eloquently than Mr. Chidambaram's words. The budget takes credit for Rs.3,640 crore from the sale of shares of public sector undertakings but that remains in the realm of wishful thinking. More significantly, there is not a word about the issue in the budget speech. Neither is there a mention of any move to pass through the increases in the price of petroleum products in the world markets as stressed in the Economic Survey. Another area touched upon in the Survey relates to subsidies. A Planning Commission study has shown that to confer a benefit of Re.1 through the public distribution system, the government spends Rs.3.65. Subsidies are no doubt a political minefield, but there is not even a plan to make the delivery system more effective and the Finance Minister has stopped with a call for political consensus. In the initial period, brave words announcing reforms ran ahead of what was politically feasible and opposition — particularly from the Left — either stalled some reforms or forced a modification. Having been bitten more than once, the Finance Minister has obviously learnt the virtues of prior consultation and consensus-building — rather than unilaterally announcing measures on which there is no agreement — in functioning as part of a minority, coalition government dependent on outside support.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

When silence speaks just as loud
From Eisenhower to Clinton to Bush
Was Bush speech a warning on separation?
For mature, strong bonds
Back to the villages in China
Nuclear separation scenarios
Bush is not welcome
Why not?
Manmohan's assurance
Welcome ruling

Copyright © 2006, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu