Circus time again!. Review on Ministry Of Finance

“This is a Budget for consolidating, widening and deepening the reform process. This is a budget devoted to development. This is a budget to further promote partnership with the states for a better tomorrow for the people of India”. Those words form the preamble to the Annual Budget presented by our Hon. Mr. Finmin on February 28, 2002.

The budget used to be previously presented by Finance Ministers on March 31st every year but was preponed by a month thereafter because people often treated it as an April Fool joke and shook off the after-effects of the budget with a hearty laugh. These words like Reforms, Development, Progress, Disinvestment, Better standard of living, etc. have become as clichéd as our despicable Bollywood movies. They are all words alone, often uttered without the intention of translating them into action and this year was no exception. The budget comprises many policy announcements but I’ll limit the scope of this review to analyzing where exactly we lost out over the years.

Infrastructure Development

For long this has been touted as the only sure-fire solution to India’s economic woes. Considering the huge size of our country, successive Governments at the center are guilty of having neglected this panacea. More than 50 years and nine or ten 5-year plans later, nearly than 30% of the country lacks basic road travel facilities and more than 40% of the rural areas are deprived of electricity. We unfailingly come across fancy schemes like “PM’s Rozgar Yojana”, “Accelerated Power Development Programs”, and “Gram Sadak Yojanas”, in every budget and clap heartily when huge grants are announced for them. Whatever happens at the end of the year? The policy announcements remain hanging in the air and we have new schemes replacing them, this time with more exotic and unpronounceable names.

The funda behind Infrastructure Development is simple…better transport and electricity facilities play a major role in connecting the rural and urban locations. There will be a smooth flow of agricultural produce and other allied products without wastage of time and at the same time without risking pilferage or spoilage of the food grains. When goods/products are available on time and in abundance, their prices will naturally come down and they would become more affordable even to the BPL (Below Poverty Line) class. On one hand, the lot of the farmers would improve in the rural areas and the easy availability of essential commodities would lead to lower levels of inflation in general. Apart from this, infrastructure projects are labour-intensive and create tremendous employment opportunities, especially to the rural class where seasonal unemployment is rampant. More employment leads to more income and more income leads to a higher propensity to spend. Higher propensity to spend leads to more demand for products leading to higher industrial growth – as simple as that!

Fiscal Consolidation

In brief, this refers to some kind of control over the non-plan expenditure of the Government, mainly on salaries, pensions, etc. A task force setup by the Govt. recently identified more than 42,000 surplus staff across 36 ministries. What was the need to recruit such a huge staff in the first place? Even assuming a minimum of Rs. 10,000 on each of these blokes by way of salaries and perks makes a hole in the treasury to the extent of Rs. 504 crores in an year…more than sufficient to setup 1000 schools in our villages at a cost of Rs. 50 lakhs each! Is this not a criminal waste of resources?

Tax Proposals

A lot of hue and cry was raised when the Finmin proposed to impose a small surcharge of 3% while doing away with half the benefit under Section 88, all with the “noble” intention of sucking out as much as possible out of the poor middle class chap! Mr. Sinha has managed to softly package with the deftness of a magician, the burden of the increased tax incidence with the cloak of reviving demand, promoting investment and accelerating economic growth. Why don’t you face it Sir, it’s a lose-lose situation either way. If the tax rates are low, tax flows are naturally low. If they are high, people resort to tax avoidance. Why take the trouble of taxing them more then? How about gunning your sights on more lucrative pastures like the service industries instead?

On one hand, we end up paying higher taxes and on the other we don’t even have adequate avenues to invest whatever balance can be saved. Whoever hit upon the brainwave of imposing distribution tax in the hands of the recipients and reducing the interest rates on small savings anyway? Whatever next? Can we expect you to increase the TDS on deposits and reduce the tax exemption for interest income earned next year?

Final Thoughts

Of all the factors, the above three hold the key to India’s economic growth and development. The sooner we get down to business in an earnest manner, the better it is for the country. All that is needed is a long-term look at them and framing and implementation of policies accordingly. Harsh and hasty short-term solutions can only do so much as protecting the soles of your feet on a rainy day. The need of the hour is more co-ordination between the Finance Ministry, The Planning Commission (if it’s still surviving) and the RBI. Dichotomy and ambivalence between various the central level departments/ministries never did anything beneficial…it’s high time we realize that after 50 years.

The middle class has one alternative though – since Mr. Sinha has been kind enough to reduce the excise duty on foreign liquor quite substantially, may be we could drown our taxing worries in a peg or two. Anyone joining me for a round of Jack Daniels, folks?