The so called "Dream Budget"

There was a huge speculation and expectation from all sectors of the economy over the recently announced union budget 2013-14. People from every walk of life are generally concerned about the budget as it lays the necessary foundation and allocates resources for the functioning and wellbeing of the economy. The primary role of the government is to ensure its people a healthy environment so as to enable its citizens to pursue their activities with ease and comfort. In this regard the budget has to be implemented in such a way that it provides some certainty about its allocation and policies. As Mr. P. Chidambaram in his budget speech has clearly said that “the purpose of the budget and the job of the finance minister is to create the economic space and find the resources to achieve the socio economic objectives.”

Now that the presentation is over and the curtains are closed the question is that how well as he achieved his task.  And now as the speculation that started and was on clouds over a month has reached its bottom, the question that arises in all our minds is how far our expectations are fulfilled? Both the bureaucrats and the common man have their own concerns about the budget. Given the difficult situation the Indian economy is facing right now as growth plummets, persistent high inflation, huge fiscal deficit and widening current account deficit. The current budget in this scene is not all together a disappointment but with hope and skepticism. The finance minister though has not done much anything, this is the right move and the path to follow in the short run to reach the potential growth target of 8 percent.

The current fiscal deficit is 5.2 percent of the total GDP and the finance minister has targeted to bring it down to 4.8 percent of GDP in the next year. The only possible way to achieve this is by introducing austerity measures which is reducing the government expenditure and increasing the tax to generate revenue to finance the hovering fiscal deficit .However the government and the finance minister has not taken this stand as the Eurozone countries especially Greece and Spain has been severely affected because of austerity. The austerity measures in the Eurozone were unavoidable as its financial institutions have been seriously broken down and it has been forced upon by them. But that is not the case with India, the Indian banks and other financial institution has been doing reasonably well in the post financial crisis of 2008. The reserve bank of India following a strict monetary policy suit as able to achieve its objective quite well. So it is fair enough to say that the government is solely responsible for this tough situation with respect to its huge fiscal deficit. The government with its misguided policies in the recent years by not properly weighing down between the plan and non-plan expenditure has brought us to this situation.

The finance minister has this time carefully estimated his expenditure plans and allocated the funds efficiently only to the necessary programs that promotes growth. This budget has clearly concentrated on the welfare schemes as it has introduced a series of measures to lift the women, scheduled castes and scheduled tribes. The all women bank is a positive and welcome move. The gender budget has Rs. 97,134 crore and the child budget has Rs. 77,236 crore in this budget. The budget also allocated Rs. 1000 crore to Nirbhaya fund to empower women and keep them safe and secure on the wake of continuous discrimination and assault to women. As farmers are worried about the FDI in the multi brand retail the government in this budget has given some boost to the agricultural sector. The government has allocated Rs.7,00,000 crore to farmers as agricultural credit. The government has provided Rs. 500 crore to start crop diversification program. The budget has provided Rs. 200 crore to start a major initiative for establishing Nutri farms. On the Research and development front he has provided funds to certain agricultural institutes. The Food subsidy bill has been proposed and he has just added Rs. 5000 crore for food subsidy bill. The budget has allocated Rs. 14,873 crore for JNNURM making a promise of 10,000 buses which is likely to make transportation easier. There is good news for the textile industry as Rs. 2400 crore is allocated for modernization of power loom sector. The plan expenditure for 2013-14 is 24% higher than the revised estimates and the non-plan expenditure is 10.81% higher than the revised estimates. Enough funds have been allocated for infrastructure development. He has proposed 37,330 crore for health out of which Rs.4, 727 crore is allocated for medical education, training and research. The mid-day meal scheme is provided with Rs. 13,215 crore. The government has allocated Rs. 80,194 crore for rural development and its flagship programs making an increase of 46 percent out of which MGNREGS is provided with Rs. 33,000 crore, Pradama Mantri Gram Sadak Yojna (PMGSY) will get Rs. 21,700 crore and Indira Awas Yojna (IAY) is provided with Rs. 15,184 Crore. The finance minister has also allocated sufficient funds for the Ministry of Human Resource Development for providing incentives to the youth by increasing jobs and employment opportunities. The defense expenditure has been hiked by 5.3 percent to Rs. 2,03,672 crore. However a little reduction on this segment would have been good as it is one sector that gets huge funds in the recent years. Apart from these the finance minister has allocated sufficient and enough funds to various department and its programs.

The budget as expected by many as turned to investment led growth from consumption led growth. In a situation that demands fiscal prudence Mr. Chidambaram has provided incentives and boosted the investment scenario which is very much essential to kick start the growth. It is really disappointing to see that middle class are the one who will be worst affected. It seems they are always prone to difficulties in most of the situations. This budget also has not done anything good to this class except maintaining a lowest tax slab rate to offset the inflationary burden on the middle class. A 10% surcharge on the super-rich though temporary, is good as they won’t mind to pay a little more. This will also reduce the income and wealth inequality as it is one of the reasons for depression. The finance minister has said the Current Account Deficit (CAD) is a serious worry. The import of coal is expected to come down as domestic coal production gets a boost from the move to permit Coal India to partner with private companies. Import of oil and gold are the major component for the widening current account deficit. The Oil and gas industry gets a boost by moving from profit sharing to revenue sharing and faster clearances for exploration blocks. The import duty on gold has been hiked to reduce the craving demand for the yellow metal.  The economic survey has stated that the savings at its eight year low a day before the budget.  The share of the financial savings against physical saving as reduced in the recent years. The government has introduced a lot in this segment to boost investor confidence. An idea to introduce Inflation Indexed Bond has been made in the budget to protect household savings from inflation. Bonds such as this one will be remarkable in the present inflationary situation and will reduce the demand for gold which is being considered as a hedge against inflation. The budget has also proposed to raise the income limit for Rajiv Gandhi Equity Saving Scheme to promote household savings. The real estate sector is one of the booming sectors in the recent years as housing prices are continuously raising every year, it is considered as a better investment. This sector is also benefitted from this budget by providing additional incentive to first time home buyers. However the budget has proposed a levy of one percent Tax Deduction at Source (TDS) on immovable properties except agricultural land to make property transaction transparent. The reduction in the securities transaction tax cheers the investors. And commodities transaction tax is raised for non -agri commodities.  The finance minister has strongly said Foreign Direct Investment is inevitable and foreign cash inflow is the need of the hour to finance the current account deficit. The finance minister has clearly distinguished between Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII). And the finance minister in his budget has made sure to boost foreign investor confidence and infrastructure investment by introducing new ports, industrial corridors and tax free bonds.

The overall budget is quite pragmatic given the tough situation but one has to know that by just juggling numbers here and there to show fiscal consolidation is not going to help. The finance minister in his speech has said “ I dare say I have provided sufficient funds to each ministries and departments consistent with the capacity to spend the funds” But the question that need to be asked in a country with huge corruption and black money slashed away is that how well the funds allocated are used and implemented. Introducing a regulatory authority to oversee that these funds are used efficiently and to the maximum for implementation and development of its programs will be better.  But it is really disappointing that the government has not done much to curtail inflation problem. The consumers especially the middle class are worst affected in this regard. The middle class has to shed out even more after this budget. Mobile phone will become expensive. They have to pay more to eat as the budget has imposed service tax on all air conditioned restaurants and moreover the city restaurants are on the move of revising their price lists with rising prices of vegetables and other food commodities. The budget has made it mandatory to buy set top boxes and at the same time has also increased the import duty making them costlier leaving the citizens with no choice. Cigarettes have become costlier which gets thumbs up as we can expect a positive show on the people’s health. SUVs become dearer as import duty and excise duty have been raised.  Since the allocation for fuel subsidy has been lowered, travelling becomes expensive with the rise in diesel prices. With little good reforms and failures on some front the budget has managed to balance short term goals and long term growth drivers. With now all that is estimated and over let’s just wait and see how the economy proceeds and tackle all those serious macro-economic problems that threaten India’s growth prospects. With just one month to go to start with the next financial year let us hope that the situation in global economy improves and the engine of India’s growth story starts with a positive note.