Working within constraints, Mr Singh has produced a budget that is low on reforms but high on compromises
Mr Jaswant Singh has not done a bad job, given the constraints. There are no big reform announcements in this budget. Nor are they desirable, especially if announcements are not implemented. Barring the desired de-reservation of 75 small-scale industry items, of which leather and chemicals are particularly significant, announcements are limited to Central government revenue and expenditure. The five-pronged emphasis on health, housing, infrastructure, tax simplification, agriculture and manufacturing needs viewing in this context. There is little the budget can do to push these, and some are state subjects. But on agriculture, the price stabilization fund (with possibly a minimum support price) for tea, coffee and rubber should be flagged. Without restoring the fiscal health of the state governments, public expenditure on social sectors like education and health is impossible. The finance minister does talk of tackling Central debt through pre-paying external debt and buying back high-interest debt already contracted. But a crucial reform component is only mentioned in the speech and will have to be handled outside. This is the issue of debt restructuring for state governments, something the twelfth finance commission will examine. Nor has the finance minister dwelt much on privatization and using proceeds to retire government debt, both at the Centre and the states. This, too, will happen outside the budget. However, the interest burden is also a function of interest rates on small savings, and contrary to Mr Rajnath Singh’s desires, Mr Jaswant Singh has reduced the rate by 1 per cent. Since the market expected a rate cut of 0.5 per cent, this is more than expectations, and one hopes there is no rollback.
If interest rates on small savings are reduced, there is an issue of social security. The budget’s answer is community-based health insurance, private pension funds (with regulation) and a scheme for senior citizens with a guaranteed rate of return of 9 per cent. The word “guarantee” is worrying, as is the lack of a clear roadmap linking interest rates on small savings to market-determined rates. There is also an emphasis in the budget directing investors towards the stock market. Contrary to Kelkar and in consonance with Mr Rajnath Singh, such concessions continue for housing and have now been extended to education. Since these concessions are only available to urban middle-class income taxpayers, the finance minister has electoral objectives in mind and this explains the restoration of leave travel allowance.
A message of switching from public to private education and health services is also being conveyed. There should be no objection to the cess on diesel to push road infrastructure, or the expected implementation of procedural reform components of the Kelkar task forces. There has also been some acceptance of the indirect tax recommendations of standardizing excise, reducing peak manufactured customs duty to 25 per cent and increasing service tax to 8 per cent. It is on direct taxes that the finance minister has done little, increasing the standard deduction, retaining the threshold, removing the surcharge for low-income brackets and imposing a higher one for the highest income bracket. Overall, not a bad compromise.