Nothing more than an accounting statement

The only way that the UPA government could have avoided committing a mistake in this Budget was to waste the opportunity and do nothing at all. And that's what it did. It decided to treat this budget not as an exercise which changes the direction of policy but to convert it into a mere accounting statement. Admittedly, the sentiment in relation to the economy is low. There is a dip in investment. Foreign investment has gradually reduced. Even domestic investors are looking for better investment destinations outside the country. Any Finance Minister would have wanted to reverse this sentiment. The government is beleaguered after the recent Assembly elections. The morale of the leadership is low. The budget was a historic opportunity to take some positive steps and boost the morale of its own cadres. However, the Finance Minister chose not to utilise this opportunity. He wanted to save the government from any adverse comment and therefore decided not to take any important steps.

Two ways out

There were two courses open to him. The post-1991 course would have been to make the economy more efficient and competitive. More rational taxation, investment in roads, better infrastructure, more reforms, more investment attraction were certainly an important course open to the Finance Minister. He decided not to use this well-tried and tested course. He went back to the pre-1991 experiment of higher taxation and higher governmental expenditure — a step which may make the economy more sluggish and non-competitive.

He increased exercise duty by two per cent across the board. He expanded the net of service tax and increased the taxation slab by two per cent. He tinkered with several other entries and imposed one of the highest tax burdens in recent budgeting history.

The impact of this higher taxation would indeed be adverse on the economy. The only boost to infrastructure comes from external commercial borrowings or tax-free bonds. The most alarming figure in the budget is the 5.9 per cent fiscal deficit. This appears to be understated because the full import of the subsidy burden is not reflected in this figure. After a huge dose of higher taxation and a hope that the expanded economy will give him higher collections, the Finance Minister has accounted for a higher corporate taxation amounting to Rs.45,547 crore, a higher income tax of Rs.23,907 crore, a higher custom duty of Rs.33,964 crore, a higher central excise of Rs.43,655 crore and a higher service tax of Rs.29,000 crore.

Despite this monstrous burden on the common man, he pegs the fiscal deficit at 5.1 per cent on the unrealistic assumption that the subsidies in the next year would reduce. In reality, the actual subsidy burden for 2011-12 overshot the budget 2011 estimates by a whopping Rs.73,000 crore. Even if the additional impact of Food Security Bill is omitted, the actual burden of fiscal deficit in the coming year could be much higher.

Defence continues to be a neglected sector. The marginal increase in the allocation for defence equipment would be subsumed by inflation during the course of the year.

Once the government goes to the market for borrowings, amounting to Rs.4,79,000 crore the private sector runs the risk of being crowded out of the market itself.

The government's flagship scheme Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) had a dismal performance this year. Needless to say that the government has reduced the allocation of NREGA by Rs. 7,000 crore in the coming year. The economic policy formulation and its implementation require clarity, leadership and a larger consensus. This government appears to have attempted neither of them.

If the government wants to live and fight, it has to discard its do-nothing approach.

(The writer is Leader of the Opposition, Rajya Sabha.)