On the Budget - Budge It !!

The more things change, the more they remain the same...

India watchers could well make this conclusion going by the budget that Mr. Pranab Mukerjee presented.

Going by the finance ministry’s own Economic Survey, published a few days prior by its economic advisers there is a lot that has been left ‘not done’. The survey had presented a bold wish-list of reforms, including divestment of minority stakes in PSUs, easing restrictions on foreign direct investment (FDI); and even rethinking of labour laws.

What was seen was good old ‘tinkering’. No FDI caps were lifted, not in retail, not in civil aviation, not in Insurance.

What was of universal concern was the outcome that the central government’s deficit would widen to 6.8% of GDP in the year to March 2010. Add to it the state Government indebtedness and we will see the deficit in low double digits.

With the communists gone, the situation is similar to that of a recovering patient who has been in a cast for a long time. When the cast is cut off, lo and behold, it discovers it has forgotten to walk. It then needs to relearn walking. When it looks around, it discovers that many of the celebrated sprinters are suffering from multiple fractures. By all accounts India has weathered the global recession better than most. Our GDP grew by 5.8% in the last quarter of 2008, and in MQ of 2009. Much of it spurred by Government directed spending. It won rich dividends in terms of a electoral victory. The government wants to dole out more.

Our finances are precarious; debt approaches 80-85% of GDP. Are we recognizing that?

Handing out generous terms to Govt employees and enhancing the ear marked funds for disbursal under the National Rural Employment Guarantee Scheme will exacerbate the situation. Why are we convinced this is so required ?

Only the promise to introduce a nationwide goods and services tax (GST) by April 2010 is the bright spot. Unfortunately, the GST requires the all states to be on-board, and they guard their revenue-raising powers jealously. India’s tax regime on spirits is one case in point. Currently center-state powers are thus allocated that it bars states from taxing services, and prevents the central government taxing goods beyond the point of manufacture.

We need 'artha' to be the 'mool' of 'rajasya' not the other way around !!