Finance Minister Pranab Mukherjee today presented a budget that just about maintains the current slow pace of growth at 7.6 per cent for 2012-13,is hardly aggressive on reforms and,more importantly,raises questions about the seriousness of the governments intent to pursue fiscal consolidation in right earnest.
After overshooting the fiscal deficit target for the current financial year by 130 basis points to 5.9 per cent of gross domestic product (GDP),Mukherjee hopes to rein it in at 5.1 per cent in the coming year. While he has partly withdrawn the stimulus by hiking excise and service tax rates to 12 per cent from 10 per cent now,a large part of his consolidation drive rests on the success of two big non-tax receipt items: Rs 42,000 crore from spectrum auction and Rs 30,000 crore from stake sale in state-owned undertakings.
The deficit reduction plan is on shaky foundation since it is not really emanating from tight expenditure control. Without referring to even a phased deregulation of diesel prices,the budget has slashed the amount set aside for fuel subsidy by almost Rs 25,000 crore and of fertiliser subsidy by over Rs 6,000 crore. At a time when global crude oil prices are expected to stay at $115-120 a barrel level,if not more,providing less for such subsidies only threatens to derail the budget arithmetic.
Mukherjee did announce in the budget that he would try to limit central subsidies at 2 per cent of the GDP in 2012-13. The budget estimate suggests that this number would be less than 2 per cent or 1.9 per cent next year. In 2011-12,it was at 2.4 per cent of GDP. While finance ministry officials said it was a political decision,Prime Minister Manmohan Singh told Doordarshan that the government will have to bite the bullet in seeing through the Budget plan.
Despite providing less for subsidies,Mukherjee has projected a 13 per cent increase in total expenditure. He also estimates the total tax receipts to increase over 22 per cent,largely on the hope that corporates will start investing and growth will pick momentum next year.
But there was nothing much for the corporate sector to cheer. All that the finance minister could promise was to continue pursuing reforms such as FDI in multi-brand retail or liberalising the financial sector by introducing Bills in Parliament. But these have remained stuck for over two years now with the Congress showing little or no effort in convincing its own allies or reaching out to the Opposition.