For the first time ever, a Congress Party Finance Minister has taken the main Opposition BJP completely off-guard by giving a new twist to the jargon ‘inclusiveness'. As he began reading out his much-expected tax proposal, it is clear within seconds that the Finance Minister, Pranab Mukherjee, is out to fix the BJP in a way the latter could lose its perceived exclusive ownership right over this particular constituency.
Bonanza
By showering an unexpected bonanza on the middle-class through changes in the income-tax slabs, Mr. Mukherjee has in a single stroke sought to include this ever-grieving constituency as part of his overall plan to push the economy into a higher growth trajectory.
More than anything else, the move is bound to have greater ramification beyond just putting more money into the pockets of the salaried middle-income people. This is indeed a significant class act by the seasoned politician in Mr. Mukherjee.
The Budget 2010-11 also appears to be an exercise in setting the house in order. Given the global financial meltdown and its consequent negative fallouts on the economies of the world, Mr. Mukherjee had no leeway but to react to the fast unfolding events while presenting his budget for 2009-10.
Fiscal deficit
The main macro number was quite scary. At 6.8 per cent of gross domestic product (GDP), the fiscal deficit in the Budget Estimate (BE) of 2009-10 set the alarm bell ringing all around.
The Budget 2010-11 estimates the fiscal deficit number to go down to 5.5 per cent by the end of the next financial year.
This is sought to be achieved by a reduction in total expenditure by 0.6 per cent of GDP (from 16.6 per cent in BE 2009-10 to 16 per cent in BE 2010-11), increase in gross tax revenue by 0.4 per cent of GDP (from 10.4 per cent in BE 2009-10 to 10.8 per cent in BE 2010-11) and increase in non-debt capital receipt by 0.6 per cent of GDP (from 0.1 per cent in BE 2009-10 to 0.7 per cent in BE 2010-11).
The Finance Minister has also given a guidance to bring the fiscal deficit down to 4.8 per cent of GDP in 2011-12 and further to 4.4 per cent by 2012-13. What does it mean? It means that the government will borrow less from the market. The gross and net market borrowings of the government during 2010-11 is estimated to be Rs. 4,57,143 crore and Rs. 3,45,010 crore (4.98 per cent of GDP), respectively, as against Rs. 4,51,000 crore and Rs. 3,98,411 crore (6.46 per cent of GDP) during 2009-10.
The government has also chalked out a disinvestment programme to rake in around Rs. 40,000 crore.
The proposed auction of 3G spectrum may bring in another Rs. 35,000 crore or so. These, in effect, will put the private sector players in some sort of a comfort zone as they need not fear crowding out by the government, when they step into markets to borrow.
Transparency
The Budget 2010-11 is also significant for Mr. Mukherjee's blinkered-horse like approach in pursuit of his fiscal consolidation task. He has made it amply clear that he would avoid issuing government securities in lieu of cash subsidies to oil and fertilizer companies.
He asserted that the government subsidies would be delivered in cash and not by way of bonds. This is clearly the right way. It will introduce greater transparency by bringing in all subsidy-related liabilities into government's fiscal accounting.
In absolute number terms, provisions for rural development, NREGS, agriculture, road et al are significantly huge.
Given the absolute size of spending and given also the fact that more money is now available with the people (due to rationalising of personal income tax slabs), the Finance Minister is confident that a reduction in the overall expenditure would not have any adverse fallout on demand creation. Mr. Mukherjee had a tough task in 2009-10 in the backdrop of gloomy global environment. Things have changed since then. Given the robust predictions on the GDP growth front, Mr. Mukherjee has taken the right step to quickly set the country's finances in order. Since the UPA Government has four more years to go for the present term, it gives him that much leeway to adhere to the task on hand rather than worrying about fine-tuning his measure to suit any poll-related compulsions.
