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Wasted opportunity

Presenting the interim budget for 2009-10, External Affairs Minister Pranab Mukherjee, who is holding charge of Finance, stuck to past practice even in these unusual times and did not announce tax cuts or any other stimulus that some sections of trade and industry were expecting. With the UPA government’s mandate due to lapse and the general election scheduled to be held in less than three months, the basic objective was of course to secure just a vote on account, leaving the successor regime to formulate the regular budget. The interim budget provides for Rs.9,53,231 crore of expenditure, of which plan expenditure accounts for Rs.2,85,149 crore and non-plan expenditure Rs.6,68,082 crore. Mr. Mukherjee has said that an additional plan expenditure of 0.5-1 per cent of the GDP will need to be considered in the regular budget, which will be left with the challenge of mobilising the resources. Anticipating lower tax revenues, the budget has provided for a higher fiscal deficit. Revenue and fiscal deficits are estimated at 4 per cent and 5.5 per cent of the GDP respectively. Though lower than in 2008-09, these will not meet the canons of fiscal prudence but clearly in a downturn rigid fiscal targets that seemed achievable when the economy was on a high-growth path cannot be mechanically adhered to.

The interim budget has disappointed the stock markets, with the Sensex falling by over 300 points. Clearly it is a case of exaggerated expectations on the part of the market. Also, having announced two stimulus packages in December and January and having secured Parliamentary approval in October for huge supplementary grants, the government was left with little fiscal headroom. The UPA’s flagship programmes have been promised adequate funds — the National Rural Employment Guarantee Scheme is to get Rs.30,100 core and the Integrated Child Development Services programme Rs.6,705 crore. Infrastructure which was expected to get a big boost has received very little attention. Some public sector banks will be recapitalised over the next two years so that their capital adequacy levels are brought in line with international norms. The provision for major subsidies, including those on petroleum, food and fertilizer, has been increased to Rs.95,479 crore. If the interim budget has set a rather limited role for itself, it would seem to be as much because the government has run out of options as from considerations of propriety and tradition. Yet the economy is in a crisis that warrants a much bolder effort and it is difficult to get away from the feeling that the interim exercise has turned out to be a wasted opportunity.

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