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BUDGET 2013-14 LOOK-GOOD, FEEL-GOOD, CAUTIOUS STEPS

Cover Story

DR. WAQUAR ANWAR analyses the Union Budget 2013-14 and opines that the mantra in this exercise seems to be look-good and feel-good.

One may pity the Finance Minister (FM) who has to be cautious and guarded as he cannot be simply an economist but also a political economist. There are many stakeholders like political constituencies and pressure groups, and other watchful eyes like those of credit rating agencies. The net effect may be a pity for the nation as a whole.

There is one glaring example. Revised estimate (RE) for the year 2012-13 shows that expenditures were less than what were provided in the Budget for the year. It means that either the concerned ministries did not utilise the allotted funds or the FM did not release funds accordingly. Both are negative reasons calling for adaptive and corrective actions and so the budget documents should have stated the reasons. But the FM has claimed credit for this, saying that it indicates austerity measures! Now the FM in his speech talked about the proposals for the next year with reference to revised estimate giving the impression of big boost to the economy.

However, if we consider the new proposed budget with reference to that approved last year (BE – 2012-13), the position will not look that good. For example, take the case of Ministry of Minority Affairs where Rs. 3135 crores was provided in the approved budget of 2012-13 and the expenditure is estimated to be Rs. 2200 crores – reduced to 70% of the approval. The proposed expenditure for the year 2013-14 at Rs. 3511 crores is stated as 60% more than the revised estimates whereas it is simply 12% more than the previous approved budget. If we adjust estimated expenditure to the factor of inflation, the position would be further bad.

The mantra seems to be look-good and feel-good.

 

GROWTH & INFLATION  

The FM said, “Our goal is higher growth leading to inclusive and sustainable development… the development must be sustainable – economically and ecologically …Looming large over our efforts to stimulate growth is inflation.” These are very good statements. So controlling inflation without slowing the growth is the task before us. On inflation the FM stated, “Some inflation is imported. Supply demand mismatch, for example in oilseeds and pulses, also pushes up inflation. Aggregate demand is another cause of inflation.”

On the issue of imported inflation, an uncontrollable factor, it is stated that FM rightly lamented, is the cost of oil imports. Another factor surprisingly is the case of coal import. In a country like India which has abundant coal we should have controlled this factor. One agrees with the concern expressed by the FM when he says, “In the medium to long term, we must reduce our dependence on imported coal.” However, the solution provided by him is ‘to devise a PPP policy framework, with Coal India Limited as one of the partners, in order to increase the production of coal.’ This PPP route may have doubtful credentials and may be taken with a pinch of salt!

The budget document says, “It is food inflation that is worrying, and we shall take all possible steps to augment the supply side to meet the growing demand for food items.” This statement means that in the eyes of the central government food inflation is caused by high demand of food items as compared to their supply and this can be controlled by augmenting the supplies. It is painful that on an issue that is affecting badly the vast majority of Indians the government has come out with such a shallow analysis. One of the factors of ever rising prices of food items is the forward and futures trading in commodities encouraging speculations in the market which may not have any relationship with demand and supply of the items so traded.

 

TAXATION

The government needs taxes and duties. It cannot lose sight of all possible measures without hitting below the belt. For this purpose certain serious and token steps have to be taken. For example, the tax on super rich may not yield much to the revenue but it has a symbolic effect. 42800 persons file their income tax returns showing taxable income of more than Rs. 1 crore. A surcharge of 10% has been levied on their income urging this affluent class to bear this small burden following the spirit of Mr. Azim Premji.

The FM appealed in these words, “I am confident that when I ask the relatively prosperous to bear a small burden for one year, just one year, they will do so cheerfully.” Instead of increasing the rate of tax for this category the FM opted for the surcharge mode which is valid for one year. It is another matter that many times surcharges are renewed year after year! The symbolism of this step can be understood with reference to the situation in the USA where it may not be easy for the governments to tax the super-rich.

The common taxpayer was expecting better treatment in the form of increasing exemption limits in consonance with the rising cost of living. This Aam Aadmi got a raw deal. 1.8 crore taxpayers with total income up to Rs. 5 lakh have been provided with a tax credit of Rs.2,000. The revenue of the government could not afford more than this.

 

OTHER MEASURES

There are a number of issues of public interest discussed in the budget speech of the FM. Some such issues are described hereunder in brief.

GOLD VIS-A-VIS EQUITY: The FM is concerned about the gold-grabbing tendency of Indians and suggests that we should instead opt for equities. For this purpose the Rajiv Gandhi Equity Saving Scheme has been made more attractive so that the household sector is incentivised to save in financial instruments rather than buy gold. But another move is contrary to this policy.  The duty-free baggage limit has been increased to Rs 50,000 in the case of a male passenger and Rs 100,000 in the case of a female passenger.

POST OFFICES: Post offices are at the threshold of modernisation and face lift. They will become part of core solution, offering real time banking sector. So they will be anything but the traditional post offices. Obviously their erosion of business by private courier services led to such redefining their basic character.

DIRECT TAX CODE: DTC may come back to the house by the end of the Budget Session of the Parliament. The FM has categorically stated that the statute is not intended to be an amended version of the Income-tax Act, 1961, but a new code. One hopes that the benefits available in the Income Tax Act, particularly those relating to business activities like printing of books and magazines by religious institutions, these are essential for them to fulfil their objects, will continue. The new code should be an improvement of its old version, and not the otherwise.

[waquaranwar@yahoo.com]



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