Overview
After Didi, now Dada!! Our Honorable Finance Minister Pranab Mukherjee, fondly called Dada by his peers in the Parliament, presented his “continue–to–feel–good” budget in Parliament in a year that sees crucial elections in large states like West Bengal and Tamil Nadu. A budget that was more incremental by way of continuity in macro – economic policy, while not giving too much detail on the micro management required to run the economy of the world’s fastest growing democracy. Powered by a Gross Domestic Product (GDP) growth of 8.6% in a year of a normal monsoon in 2010-11, Dada has forecasted a growth of 8.75 to 9.25% for the next year, while invoking Lord Indra and Goddess Lakshmi for their continued blessings.
Some Key announcements and their impact
Amendment to Fiscal Responsibility and Budget Management Act, 2003
The Budget also demonstrates the faith that the Government has in the India story and global recovery. In times of increased spending and bailouts in the West, where green offshoots of recovery are yet to take firm root, the Budget has committed to introducing an amendment to the Fiscal Responsibility and Budget Management Act, 2003, laying a roadmap for the fiscal consolidation process for the next five years. The slowdown in 2007 – 08 had made the Government give up its consolidation process and spend to reduce the sharpening impact of declining global growth.
Establishment of the Debt Management Office and reclassification of government expenditure
As was expected by us, the Budget has laid the path ahead for the establishment of the independently run Debt Management Office in the Finance Ministry to take over the work of the middle office of professionally running the government’s debt raising programme. The commitment to introduce the Public Debt Management Agency of India Bill in the next Financial Year is a positive indication, which will leave the Reserve Bank of India to focus on managing the country’s monetary policy.
The committee set up under the Chairmanship of Dr. C. Rangarajan to define the classification of the governmental expenditure from plan and non – plan and capital and revenue to meet the expectations of the service sector, reflects the importance of the sector in the national economy.
Fertilizer Subsidy
The rise in the economic cost of the decontrolled fertilizers has caused an increase in the revised estimates of 2010 – 11 by 10%. However, the budgeted figures for 2011 – 12 are approximately the same as the budgeted figure for 2010 – 11. Additionally, of a mid – year decision to bring urea under the aegis of the Nutrient Based Policy (NBS) may also add to the Fertilizer subsidy burden, which is critical to the vote-bank no government can ignore.
Direct cash transfer to poor
The policy decision to change the mode of delivering subsidies to the needy by moving towards a direct cash transfer system is a requirement of the times, given the leakage and misappropriation of funds that has been alleged from various government run schemes. This may be a politically expedient step, considering that the delivery of services to larger number of people will now be monitored.
Financial Laws to be included
The government has committed itself to introducing or amending economic laws, reforms that the Bharatiya Janata Party (BJP) has bitterly opposed and refused to enable the passing of. However, a budgetary announcement of the same implies that the Finance Minster is confident of managing the post – state election environment. The Financial Sector Legislative Reforms Commission under the chairmanship of Justice Srikrishna will help the government rewrite the laws of financial sector to bring them in sync with modern times. The new Companies Act will also be introduced in the current session, reforming the regulatory environment of the companies in India.
Black money and the roadmap thereon
The politically explosive subject of illicit and black money stashed abroad has also been dealt with in detail in the Budget. The Finance Minister has declared a five point programme to tackle the issue, while citing administrative and diplomatic progress on this front as proof of his government’s commitment to bring back the illegally gotten wealth home.
Aam Aadmi and financial inclusion
The AAM AADMI and the philosophy of financial inclusion being the focus of the United Progressive Alliance, The National Food Security Bill has been nearly finalized and will be introduced in the course of this year, in consultation with the states. Hence, the cost of this bill and welfare programme of the government has been factored into the budget. An allocation of 36.4% of the total planned allocation for the year has been set aside to meet the cost of providing free food to the needy, 17% increase over the amount provided for in the previous year. Another flagship programme, Bharat Nirman, administered through six programmes across the infrastructure sector has been given 21% increase in allocation to broad base the spread of infrastructure. The key social scheme of the government, the National Rural Employment Guarantee Scheme, has been given no increase in budgetary support, but a policy statement of providing real wages by indexing them to the Consumer Price Index for Agricultural labour is a step to mitigate the impact of inflation on the poor. Even the doubling of wages for Aanganwadi workers and helpers is a step to create a constituency for the Government among the women. To aid further financial inclusion, 53,000 new bank branches will be set up in areas where population exceeds 2,000. Further, the government will contribute for a period of five years instead of three, to the co – contributory pension scheme for unorganized sector, Swavalamban. The exit period for the same has also been brought down to a minimum tenure of 20 years.
Elections to State Assemblies
The ensuing elections to Kerala and the opposition Congress – led United Democratic Front’s strategy to court the minorities is reason for the Centre of Excellence in Malappuram being granted Rs. 50 crore. Rs. 100 crore has been granted to the Kerala Veterinary and Animal Sciences University at Pookode, Kerala The story is the same for Mamata Banerjee led Trinamool – Congress combine in West Bengal, and the decision to grant Murshidabad Rs. 50 crore as well. The Congress’s strategy to bargain hard with the Dravida Munnetra Kazhagam (DMK) in Tamil Nadu for the elections has caused Rs. 20 crore being awarded to Rajiv Gandhi National Institute of Youth Development, Sriperumbudur, Tamil Nadu, and Rs. 10 crore to the Madras School of Economics. Also, the government has instituted an award in the name of Gurudev Tagore, whose memory has always been sought to be milked politically. This is done on the occasion of the 150th birth anniversary celebrations of Tagore.
The Uttar Pradesh elections due May 2012, and a desire to pose a strong challenge to Mayawati has made the Congress Party court the Scheduled Castes and Scheduled Tribes. The appointment of P. L. Punia, Mayawati’s former aide, as the Chairman of the National Commission for Scheduled Castes (NCSCs) was seen in this respect. Now, an increase of 25% in allocation for the same and separate allocation and sub – plan accounting of the expenditures incurred on their account will give a boost to the Congress campaign. Additionally, a scheme to award post – matric scholarships to SC and ST students, meeting the aspirations of the youth, is also seen in this light.
Final Thoughts
But some questions do remain. The introduction of GST is contingent on the Empowered Committee of State Finance Ministers making further progress on talks with the Centre. However, given the direction of political winds in West Bengal, it is unlikely that Dr. Asim Dasgupta, the State Finance Minister will continue as Chairperson of the Empowered Committee. So there is a chance the negotiations may have to begin afresh, unless a speedy resolution is reached. Over the past few months, the government has lost a lot of political capital. So a question of how it will manage a resurging BJP and extract compromises on passing the laws he has sought to amend. But, the man in charge of running the nation’s economy is one politician for whom even the Opposition has tremendous respect and regard for. Perhaps, he may need to en-cash his IOU’s to achieve his political and economic aims.
Posted by: Bharat Kant
A Student of MBA, SCMHRD College