Passing the buck

Union finance minister P Chidambaram, presenting the last interim budget of the UPA-2 government, has made a desperate attempt to woo the electorate with a swathe of concessions before the April-May Lok Sabha elections, but whether people are swayed by such gimmicks is a moot point. While indirectly criticising the Aam Aadmi Party for indulging in populism, Chidambaram has tried to please the armed forces by accepting their long-standing demand for One Rank, One Pension and a moratorium on payment of interest by over 9 lakh students who had availed education loans -- the burden on both of which will fall on the incoming government. He has also announced a slew of excise duty cuts in automobile sector and certain consumer goods categories in a frantic bid to revive demand. An earlier bid in 2008 to cut excise duties did not really help the automobile sector, though the capital goods sector where demand has shown some revival will benefit from the move.

Implicit in the increase in non-Plan expenditure is the fact that the pains involved in achieving the projected revenues will increase concomitantly. Hence, the pressure on meeting tax targets will be higher in the next financial year. Moreover, it is not so much the fuel subsidy, but food subsidy which could inflate despite the FM’s budgeting mastery. For, the government has no clear plan on removing the bottlenecks at the mandi level to target protein and vegetable inflation.The finance minister has striven to lend a measure of sanctity to the fiscal discipline roadmap by achieving a 4.6 per cent fiscal deficit which should help restore a degree of investor confidence, though the budget has no realistic blueprint to revive private sector investments. This year’s target is being achieved by squeezing higher dividends from cash-rich PSUs and deferring Rs 35,000 crore of oil subsidies into next year’s accounts.

While the finance minister has made an important allocation of Rs 11,300 crore to the banking sector, this is inadequate to revive credit demand. Critical tax reforms like GST and DTC have been passed along to the next government. A lot of the imponderables have to do with Chidambaram’s optimism in growth and revenue projections, especially when quality of fiscal co-ordination remains a concern. There is no substantial plan in the budget to ensure that expenditure on the non-Plan side is curtailed. In such a situation, mathematical assumptions of growth do not come off as too credible.

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