“The Finance Minister has done a fantastic job.” “Very good budget.” “See the takeaways.” “See the positives.” “Fiscal deficit controlled to 5.5 per cent.” “Government borrowings reduced to just Rs. 3.45 lakh crores.” “Road map laid for oil sector reform.” “Infrastructure boosted.” “Consumer demand to rise on tax cuts.” “Bonanza for the middle class.” “Yet an inclusive budget.” “ I would give 10 on 10 for the Budget” …
Thus went the comments even as this writer was browsing through the Budget papers running to hundreds of pages to see what the Finance Minister had left unsaid in his speech. Those who eulogised the Budget and the Finance Minister seemed to have nothing in their hands other than what he claimed in his speech, and most of them would not have had even a cursory glance at the Budget papers which were put on the website almost an hour after the speech concluded.
Thanks to the euphoria of the experts, the Sensex rose by 400 points by the time the speech ended. But as the facts contained in the Budget documents were slowly becoming known, the Sensex was moderated, with the rise being confined to 175 points by the close of the day. But the Budget and the Finance Minister had won approval thanks to the well-structured speech that was long on words — including quotes from Kautilya — and hugely short on numbers. By now, taking the Finance Minister's words as gospel truth, the opinion of ‘elite India' has been sealed in favour of the Budget. Of course, the ‘other India' has no instant opinion to express; already reeling under high inflation, to counter which there is no measure in the Finance Minister's speech, it has only to experience in the days to come what the Budget will actually do to them. Look at the facts and numbers that lie buried in the documents.
Examine the claim that it is an inclusive Budget. The additional provision for rural development is just Rs. 3,936 crore — a rise from Rs. 62,201 crore in the current year to Rs. 66,137 crore for the coming year. This translates to a rise of 6.3 per cent for the coming year over the current year. The estimated rise in GDP for the coming year over the current year is estimated at 12.5 per cent. It means the rural sector does not even get half the rise in the country's prosperity in the coming year. The rise in the allocation for the MGNREGS in the coming year is just 2.5 per cent. Contrast this with the rise by – believe it – 146 per cent in the MGNREGS for 2009-10 over 2008-9. The tax cut for the middle class amounts to some five times the extra provision for rural development. Still the Budget is claimed as being an aam aadmi effort.
Move on. The additional provision for agriculture is a pittance — Rs. 900 crore. So much for the Finance Minister's claim of inclusive growth. So, what was an inclusive agenda in budgets from 2004 onwards and until the last Budget seems to have become a mere slogan. The Finance Minister was unconcerned about how the stock markets reacted to his Budget last time. And he was the only Finance Minister who said he could not care less for what the stock markets felt about his Budget.
Now look at the sleight of hand involved in the Finance Minister's claims on infrastructure. See the provision for the road sector. It is an additional Rs. 2,374 crore — just a 13 per cent rise in the coming year over the current year, against a 23 per cent rise in the current year over the previous one. The additional provision for the Railways is Rs. 950 crore — the rise of a mere 6 per cent for the coming year over the current year against the rise of — believe it, 46.3 per cent — in the current year over the previous year. In 2009-10 the additional provision for urban infrastructure was 87 per cent.
There is more. The Finance Minister had claimed in his Budget speech for 2009-10 that India Infrastructure Finance Company Limited (IIFCL), along with the banks, was in a position to support infrastructure projects of — again believe it — Rs. 100,000 crore. Against that claim, he admits in his speech now that the disbursement and refinance by IIFCL so far has been to the extent of just Rs. 12,000 crore. It will rise to Rs. 25,000 crore in the next three years. How did the Finance Minister dare say one thing in his previous speech and another thing now? He was confident that the experts who would give instant opinions on his product would hardly have the time to check what he had claimed some eight months ago. The claim by the Finance Minister that the infrastructure provision of Rs. 172,552 crore is 40 per cent of the Plan allocation is definitely less than honest. Acting cleverly, here he does not give the comparative figures for the current year.
Indeed, there was no appreciable improvement in the coming year over the current year, and yet the experts continued to eulogise the infrastructure boost in the Budget.
What, then, is the secret of the reduction in deficit? The Finance Minister simply refused to spend this year. And that is perhaps correct. But he has concealed that fact and said something to the contrary. The income will increase in 2010-11, but the expenditure will not. The increase in non-Plan expenditure in 2009-10 over 2008-09 was 37 per cent; in 2010-11 over 2010-11 is just 6 per cent. The non-Plan expenditure was Rs. 6,42,000 crore in 2009-10, and in the coming year it will be just Rs. 6,44,000 crore. That is, there will be just no increase at all. If the Finance Minister had increased non-Plan expenditure for 2010-11 in proportion to the estimated GDP rise of 12.5 per cent, the deficit would have risen by Rs. 199,000 crore to Rs. 580,000 crore-plus. It would have meant that the deficit would have been up by — believe it — almost 2.9 per cent to some 8.4 per cent.
If this had happened, would the experts have gone gaga over the Budget? Would the stock market have risen? Obviously not.
See how faulty the comment that the Budget puts extra money in the hands of the consumers is. Non-Plan expenditure is a straight injection of money into the system. If that does not grow next year as it did in the previous year, how will the consumer get extra money over the last year? The Finance Minister's claim that he had cut taxes to put extra cash into the consumer's pocket is less than honest as the amount in the consumer's hands will be actually less by Rs. 180,000 crore as compared to the last year. It is not a bad thing that the Finance Minister has cut the non-development expenditure. But his claim that he was putting money into the hands of the people through tax cuts is only one side of the story.
The other side of the story, which is the biggest fact concealed in this budget, is the cut in non-Plan expenditure. See more. The biggest component of the rise in non-Plan expenditure in the current year was the Pay Commission dues, which was extra money straight into the pockets of the people to spend. That was the reason why, despite the downturn in the economy in 2009-10, private consumption, which was expected to fall according to the Economic Survey 2008-09, did not fall. Private consumption powered by the Pay Commission dues sustained the GDP growth in 2009-10, and that was the secret of the growth in 2009-10. This factor is absent in 2010-11. How will the aggregate demand rise more than last year when the amount of additional money in the hands of the people is far less in the coming year than in the year that is closing? So the claim that the tax cut will put huge money in consumers' hands and activate the domestic demand is less than honest.
In sum, the Finance Minister's speech intends to conceal more than it reveals – in fact it cheats. The Finance Minister has trusted of the propensity of the instant commentators of the TV channels to rely on ornamented words in the budget speech and won the day against the experts and the market.
The ninth paragraph of an article “How the experts have been fooled” (Op-Ed, February 27, 2010) was “….The increase in non-Plan expenditure in 2009-10 over 2008-09 was 37 per cent; in 2010-11 over 2010-11 is just 6 per cent. The non-Plan expenditure was Rs. 6,42,000 crore in 2009-10, and in the coming year it will be just Rs. 6,44,000 crore.” The non plan expenditure in the 2009-2010 budget was Rs. 6,95,689 crore which is enhanced to Rs. 7,35,657 crore. In the text of the 2010-2011 budget, point no. 113 states: “The total expenditure proposed in the Budget Estimates for 2010-11 is Rs.11,08,749 crore, which is an increase of 8.6 per cent over the total expenditure in BE 2009-10. The Plan and Non Plan expenditures in BE 2010-11 are estimated at Rs.3,73,092 crore and Rs.7,35,657 crore, respectively.”