Juggling numbers will not lead to higher growth
THE Finance Minister has proposed higher outlays for some social sector schemes knowing full well that they will not be utilized. When P. Chidambaram was shifted to the Finance Ministry in August 2012, many welcomed the change. It was hoped that his induction would lead to certain bold steps and end the era of policy paralysis. He deferred implementation of the General Anti Avoidance Rules. But the enthusiasm has evaporated with a lacklustre budget. Short of resources for sops and concessions, the Minister has brought about cosmetic changes and preferred the status quo. His desire to improve the fiscal deficit could only be met if he raised both direct and indirect taxation and cut down expenditure significantly. The consequences of cutting down expenditure will be a reduction of economic activity, which will prove adverse to growth. The budget contains no significant steps to boost manufacturing or agriculture. Exports are low and the rupee somewhat shaky. Inflation, more particularly food inflation, is high. I seriously doubt if this budget can put us back on a higher growth path.
There is jugglery in the way tax rates have been increased for certain sections both in relation to direct and indirect taxes, and the expenditure has been hugely cut down/under-provisioned. Only by cutting down expenditure has Mr. Chidambaram made this year's and next year's fiscal deficit optically more presentable. Examples of this abound in the detailed budget document. The food subsidy bill was estimated this year at Rs.75,000 crore. The revised estimate is Rs.85,000 crore. For next year's budget, the estimate has been reduced to Rs.80,000 crore, yet the Finance Minister claims to have provided Rs.10,000 crore extra because of the Food Security Bill! Effectively it is only an increase of Rs.5,000 crore, whose impact on food subsidy will be marginal. The UPA's flagship scheme, The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) originally provided for Rs.40,000 crore. In the past two years this amount has been reduced to Rs.33,000 crore. The current year's actual estimate is at Rs.29,387 crore. Next year's actual expenditure may be even less. The Finance Minister has optically brought the proposed target back to Rs. 33,000 crore knowing full well it will not be utilised. The most glaring example of failure is the Rs.29,677 crore Pradhan Mantri Gram Sadak Yojana. The revised estimate for this road construction plan in the current year is Rs.8,100 crore. For the current year, it is proposed to increase the expenditure to Rs.15,690 crore. Under the Direct Cash Benefit Transfer Scheme, the new flagship programme touted by the United Progressive Alliance, the 26 schemes have a budgetary allocation of Rs.5,595 crore. Till date, however, the actual expenditure is only Rs.5.38 crore. And this was said to be the gamechanger for Indian politics. There is a warning in the budget. The petroleum subsidy of Rs.96,980 crore is intended to be brought down to Rs.65,000 crore. It is an indication that petrol, diesel and gas prices will further increase. The budget will not change the status quo. It does not make directional changes. It is more an accounting exercise that neither helps the poor nor the middle class.