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FM takes a calculated risk

CHENNAI: What is pleasing to a common man may not necessarily be so to an economist. The Budget 2009-10, presented to Parliament by the Union Finance Minister Pranab Mukherjee on Monday, however, is a well-crafted exercise in consolidating and expanding the constituency of the UPA (United Progressive Alliance), in general, and Congress Party, in particular. Mr. Mukherjee has gone a few steps forward to woo the urban middle class. The raising of income-tax exemption limit, albeit marginally, the scrapping of surcharge on income tax and the abolition of the fringe benefit tax have all been intended at winning over this usually unhappy (especially post-budget) class. Yet, Mr. Mukherjee’s budget sops may not really leave this class a happier lot. For, these ‘sweeteners’ could at best be viewed too small for any real comfort given the tough times the economy is going through at the moment. The budget has stepped up substantially the allocation under the National Rural Employment Guarantee Scheme (NREGS). Considering the UPA Government’s much-touted thrust on inclusive growth, this was very much on the expected lines. The move to provide 25 kg of rice/wheat a month at Rs. 3 a kg for the BPL (below poverty line) families underscored the keenness to bridge the urban-rural divide, which was accentuated by the lopsided focus in the post-liberalisation era.

Mr. Mukherjee, it appears from his budget proposals, is convinced that this is not the time to worry about fiscal deficit, which is projected at 6.8 per cent of the gross domestic product (GDP). Indeed, the current inflation rate gives him that much leeway to indulge in spending binge to give a big push to the demand. The budget provides for a total expenditure of Rs. 10,20,838 crore, up by 36 per cent over the budget estimate of 2008-09. Non-Plan expenditure is projected to rise by 37 per cent. A significant component, around Rs. 2,25,5111 crore, is in the form of interest payments. Significantly enough, the tax measures announced by Mr. Mukherjee are not likely to add substantially to the revenue. While his proposals on the direct tax front are revenue neutral, his measures on the indirect tax front are unlikely to add much even for a full year.

The budget has indeed projected a huge increase in borrowings and other liabilities to Rs. 4,06,341 crore, up substantially from Rs. 1,33,287 crore in 2009-09. This nearly over three-fold increase in Government borrowing is a real concern. Will it not crowd out the private players (like corporates) who too are seeking to raise funds from the marketplace? This crowding, it is felt, will keep the interest rates uncomfortably higher. In a slowdown situation, a rising interest rate is the last thing that anybody would want. Perhaps, Mr. Mukherjee feels that public spending through borrowing is the right pill to remedy the economy. And, he has shown willingness to take a calculated risk.

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