Although Union Finance Minister Pranab Mukherjee considers his budget to be growth oriented; however a close look at the budget indicates that he seems to have missed an opportunity towards sustaining and improving the growth momentum. A significant fall in growth rate to 6.9% from previous year’s 8.4% called for a bold approach in order to lift growth back to 8%-9%.However, Budget 2012 presented by Pranab Mukherjee seems to be conservative in his approach towards the higher growth need for the economy. He aims to raise GDP Growth rate from 6.9% to 7.6%. The targeted growth rate is not only low; however more disturbing aspect of this budget is that based on other provisions in the budget, even this low target of growth rate doesn’t seem to be achievable.
If the Budget were to be solely assessed on the basis of intention, Budget 2012 would score fairly well. It intends to enhance growth target from 6.9% to 7.6%. It intends to reduce fiscal deficit from 5.9% to 5.1% of GDP. It intends to cut subsidies from 2.4% to 2 %of GDP. However, the Budget 2012 seems to be failing in backing up the intent with an agenda for action.
Containing fiscal deficit target to 5.1% of GDP may seem to be an uphill task. The budget doesn’t provide for any clear roadmap for containing the fiscal deficit to 5.1% of GDP. Considering the gap between estimated fiscal deficit and actual fiscal deficit in the recent past coupled with uncertain global economic environment, Fiscal deficit target at 5.1% doesn’t seem to be tenable. In fact, various economists feel that as the projected revenue increase and subsidy cuts may not materialize,
, the deficit target most likely may overshoot by 20-40 bps to 5.3-5.5 per cent. Fiscal slippages are most likely to be on non-tax revenues and subsidies front, increasing indirect taxes, divestment target and spectrum receipts mayn’t be sufficient.
Also, cutting subsidy bill may also be difficult to achieve, if oil prices remain high and inflation proves sticky. The budget promises to bring down subsidy bill by around Rs 60,000 crore but it doesn’t provide any clear roadmap for achieving the same. The budget doesn’t really provide the answer, how are we going to reduce subsidies by such a huge amount in one year?
In fact, the indications are negative. Petrol price increase has been held in abeyance for quite some time for populist reasons. Now if you can’t even hike petrol prices, how are we going to raise diesel prices, which are much more vulnerable to populist pressures? If we don’t fix diesel pricing, it can wreck the economy. We have no roadmap here, too.
Inflation seems to be again on rise. Inflation rose for the first time in five months to 6.95 per cent in february.And now with the measures viz. increasing rates of excise and service tax by 2%,Service tax being extended to all the services, Import duty being raised on precious metals including gold, there might be further increase in inflation. Petrol price increases, which have been held in abeyance for quite some time, can’t be postponed for long and whenever they are done, are likely to stoke inflation. This may cause RBI to go slow on monetary rate Cuts, so essential for boosting investors’ confidence.
The other thing wrong with this budget is that it intends to erode the confidence of foreign investors in the independence of our judiciary. Vodafone is a case in point. Having lost the case in the Supreme Court, the government is now trying to legislate a retrospective amendment to the laws – like it did in the case of ITC years ago. What message is this going to send to foreign investors – who earlier were extolling the independence of our judiciary with this single judgement. The budget has proposed legislation to overturn a landmark Supreme Court ruling in favour of UK-based Vodafone Plc, a move that could bring in more than $2 billion (Rs 10,000 crore) of revenues but shock foreign investors who have been vociferously complaining about lack of certainty in the way rules are applied.
Although, FM announced various fiscal reforms, the timing of the implementation of key reform measures such as GST, DTC, etc remain uncertain. Proposal of speeding key economic reforms, cutting of government’s subsidy burden seem to be uncertain in the face of games of brinkmanship and coalition compulsions in UPA.
In a nutshell,FM has been low on ambition in the budget and has refrained from advancing any bold economic reforms that could unclog flagging growth. Also, even though FM has shown the right intention to achieve the various fiscal/economic targets for the economy in the budget, he has failed to chart out a clear road map towards achievement of the same. However, considering the Global economic Crisis viz crisis in euro zone, the second-half slowdown in the US and high oil prices, cited as the principal factors for India’s growth declining to an expected 6.9% in 2011-12 from the previous year’s 8.4% coupled with political uncertainty for the UPA Govt in the backdrop of its battering in recent assembly polls, political brinkmanship and compulsions of coalition politics may have induced him to be less ambitious, less enterprising and live to fight another day.
No comments:
Post a Comment