The Union budget was presented on the back of high expectations. It was expected to be populist; at the same time, it was expected to revive growth that has bottomed out. In such circumstances, the budget has tried to maintain a fine balance between the two objectives. However, it intrinsically realises that reviving growth is a foremost and immediate challenge as it can help to address and overcome most of the ills of the macro-economy such as twin deficits and high inflation.
The good news from the budget is that achieving the fiscal deficit of 5.2 per cent in 2011-13 and sticking to the target of 4.8 per cent for 2013-14. This indicates the government is serious in achieving the revised fiscal consolidation road map. With the introduction of a 10 per cent surcharge on the “super-rich”, the finance minister has sent a strong message to the markets that the government is keen to revive investor sentiments.
The main approach of this budget is that of rationalisation of expenditures and encouraging investments, particularly in infrastructure and medium-sized industries. With this, indirectly, it is depending heavily on two new institutions: the cabinet committee on investments (CCI) and the direct benefit transfer (DBT) mechanism. With the initial performance of these institutions, it is only fair to depend on them.
On the expenditure side, it perhaps assumes, though rightly, that many of the centrally sponsored schemes are overlapping and, hence, converging those schemes and bringing them down from 170 and odd to 70 could reduce expenditure demands. We have been arguing that the fact that many of the schemes, including the relatively successful MGNREGA, have huge unspent balances, which mean that there could be large wasteful expenditures and also the assessments made by the line ministries are not scientific.
The proposed independent evaluation office within the Planning Commission was supposed to look at such critical issues. Unfortunately, the office is yet to start functioning and the differences between the MoF and the Planning Commission on the expenditure needs projections remain and widen. In that sense, the DBT could be a very crucial institution in ending such anomalies in expenditure projections as well as allocations and, hence, could help in reducing fiscal deficit.
The budget talks about reviving investments in infrastructure. However, as many of the stalled projects as well as the new ones are holed up because of various constraints such as clearances on land and environment approvals, a lot needs to be done outside the budget. Here the role of the CCI will be crucial.
Two issues that were expected in the budget speech but were missing were on subsidy and the tax proposals. On the subsidy target, unlike last year, the budget speech was silent. The numbers in the budget document suggest there would be a reduction in overall subsidy and that would be across items such as oil, food and fertiliser. While the diesel subsidy reduction policy is already introduced, it is not clear what the government plans to do about fertiliser and food.
On the tax proposals, one would have expected more concrete policies to address the long pending issues. As the government aims to bring in some clarity on the tax proposals, the delay in implementing such long-pending measures will only result in ambiguity among the investors. However, the decision to introduce Tax Administration Reforms Commission could help in smoothening the future tax proposal.
Overall, this budget balances the growth aspirations, investors’ sentiments and the populist pressures.
Bhanumurthy is professor, National Institute of Public Finance and Policy