The Union Budget: 2012-13

A script of confused commentaries & which could only aggravate the inflation concerns

~~Suman Mukhopadhyay

The Finance Minister Dr. Pranab Mukherjee presented a disappointing budget, for the FY13. In order to avoid controversies probably, he  has left most of the things untouched. There was hardly any reforms and the scribblings in the budget papers show it to be ordinary,  lacking vision and the necessary punch. It clearly shows that our current Finance Minister have been wrongly allotted this department, where his too much presence or sojourn could pose problems not only for the economy but also to the country as a whole. 

Also, the stamp of Coalition-politics was clearly visible in the budget document and which might make India lose its name as Investment destination. 

Rather than taking the opportunity of becoming a reformer, the Finance Minister played the roll of "Santa Claus", doling out gifts here and there, (though, not in Vodafone case) and sometimes medicines having no or very little efficacy (remember, incoherent thinking in the matters relating to the equity market reforms). 

FM, offering incentives to small investors to buy equities while effectively sounding the death knell to mutual funds is a stark reminder, that he and his team is out of sync with the realities of the market dynamics. The budget does not address the basic issue of reviving the sentiments of Indian Capital Markets, which is so essential for a growing economy like India. 

It is to be understood that after the current Finance Minister took office, the things only worsened, but still instead of relinquishing the post, he only wants to stick to it, like a leech on the back of a buffalo. Very interesting. Isn't it?

It is confusing because it has no clear direction as how to plug the fiscal deficit. Mere saying that fiscal deficit will reduce without spelling out a proper road-map does not hold good. It only shows how puerile the thinking of finance minister of a country can be!!

In this context the Economic Times writes,  "But this will require draconian price increases for petroleum products and urea, and it is far from clear if allies like Mamata will agree. So, the projected fiscal deficit of 5.1% looks as unconvincing as last year's projected 4.6%, which ended up at a dismal 5.9% of GDP".  

He also had an optimistic projection as far as the GDP growth is concerned for FY13, when he said, "The economy will grow by 7.6% next fiscal", though a far dwarfer value than last year’s 9% (India will end this year below 7%). 

Therefore, when some of the known India Inc Psychopaths like Uday Kotak says, "This is a realistic budget", I fail to the find the reels of reality here. But then Mr. Uday Kotak is  known to give these kinds of buffoonish comments though he holds a Post-graduate degree in Business Administration from Jamnalal Bajaj Institute of Management Studies of Mumbai University. These days, every Tom, Dick and Harry has an MBA degree....Huh!!

Now coming to the tax front, though there was marginal hike in the tax exemption slabs, but then at the same breadth an increase in the service tax to 12% (though the list of exemptions runs to the dozens), and also an increase in the duties on large cars to 24 per cent, will only remind us of inflation. 

However, some of the steps of the FM, which needs a little pat on the back are: 

(i) an increase of the basic duty on standard gold, to 4 per cent from 2 per cent, and on non-standard gold, to 10 per cent from 5 per cent, in order to suppress demand and close India’s gaping current account deficit is reformist step.

(ii) Proposals of giving some relief to Coal, Gas and Power companies could help the country shore up its energy deficit. 

(iii)  Allowing India’s ailing aviation sector to raise a total of $1bn, to help it shore up its earnings deficit is also seen as a step in the right direction

(iv) Opening up of the venture capital sector could make the investments in the Media and Entertainment (M & E) sector look attractive. Currently, VCs are allowed to invest only in nine specified sectors. Also, proposals to exempt the M & E  sector, from service tax on copyright on cinematographic films is also seen as a step to be appreciated. With this move the exhibitors would be exempted from levy of service tax on payments made by them to distributors for exploitation of cinematographic rights.

But then when there are genuine efforts to plug the inflation monster, by the RBI, the FM took steps which looks highly inflammatory.  This shows that there is a gap of communication between the FMO and the RBI, in the matters relating to fiscal consolidation. 

There was in fact a shopping list of spending proposals: $1 tr on infrastructure; 6,000 new schools; 8,800km in new highways; $17bn in funding for rural roads; programmes for lower castes, school meals and rural sanitation! 

But then in the cash tight economy, how that money will be sourced, allocated, spent or implemented, remained conveniently unsaid and unhinged. Besides, how such spending will help to close up the gaping hole of fiscal deficit without stoking in inflation fears is really confusing.  

Now there is proposal for food security bill too!! Santa Claus is coming to town and inflation is here to stay.