Embracing aam aadmi

Focus on the Sarva Siksha Abhiyan and the National Highways Development Programme, both flagship schemes of the earlier government, continues with additional allocations. Bharat Nirman Yojana, to provide irrigation, roads, water supply, housing, rural electrification and rural telecom connectivity, is a holistic attempt to address the gaps in basic needs at the rural level.

Micro Finance institutions have emerged as a strong vehicle for social and economic change in the villages. The initiative to allow them to intermediate between banks and their lenders is a novel attempt to enable them to access organised credit without exposing individual members to the rigors of bank-lending. Co-operative banks are an Aegean stable, and the task of cleaning up has been referred to a committee. The sugar industry, going through difficult times two years back and just turning around, should welcome the initiatives for restructuring and moratorium on interest and principal repayment for two years, though this would impact the balance-sheets of several banks and lending institutions.

Reforms in taxation, particularly in customs duties, are welcome and are the correct, though not bold, steps. There is balance in the income tax proposals and corporate India should be pleased that they have got a good deal. Initiatives to make Mumbai a regional hub for finance, creation of a world-class university at IISc, Bangalore and gold-traded mutual funds are all interesting initiatives.

At the same time, there are several areas of concern. Firstly, several initiatives are very much in the formulation stage. Cooperative banks would wait for the task force, sugar factories for NABARD to prepare a restructuring scheme, rural health initiatives to wait for the next fiscal, and most importantly, the agricultural initiatives would have to wait for the roadmap under preparation. This last is an area of concern, for reforms in agriculture are urgently required to produce balanced growth and value addition. Rural poverty cannot be removed without addressing incomes from agriculture; and it is surprising that the government does not seem to have accorded it the priority it deserves. The FDI initiatives are unclear and still remain in the realm of promises. The infrastructure initiative and the viability gap-funding concept are two years old, but have not yet been converted into an actionable plan. In short, several promises are promises for the future, not for action in the present.

Second, in the balancing act, fiscal control is being given the go-by. Taking advantage of the recommendations of the 12th Finance Commission, the States are being allowed the flexibility to borrow for Plan schemes from the market. Thus, while the Plan size for 2005-2006 is Rs 1,72,500 crores, only Rs 1,43,497 crores are reflected in the Budget 8212; in fact, the Plan Capital outlay for next year is less than that this year. While this has enabled the Centre to project a large Plan size, the borrowing has been left to the States. Quite apart from this being a clever way to reduce the fiscal stress at the Centre, it is not clear whether the States will be able to access markets for these amounts, and in view of their own fiscal stress, the interest rates they would command. In short, total borrowing as a result of this Budget is likely to be the fiscal deficit figure of Rs 15,1,144 crores plus the States borrowing of Rs 29,003 crores. There would be crowding out and interest rate concerns arising out of this.

Third, there is a sense of deja vu in the proposals. No new schemes, but a rehash of old ones; several under new nomenclature. It is worrying that there is so much reliance on planned project implementation yet again in spite of several decades of experience about its difficulties. The first part of the speech seems as though out of a Budget of the 8217;80s 8212; much more difficult to implement now, with a weakened administrative machinery. The worry that the benefits may not reach the people will continue unless one sees evidence to the contrary.

In taxation, there is still evidence of tinkering, particularly in excise duties. Earlier Budgets had normalised duties, by and large to a single figure of 16: this Budget sees the numbers of 4, 8, and 12 on the increase, which is a pity, since it gives opportunities for lobbying. Evidence of selective benefits abounds, and one would have wished that it had been otherwise.

Finally, and as it happened last year, there seems to be an overestimation about the ability to collect taxes. The expectations for net tax revenue growth to the Centre are 23, which, if one takes into account the additional devolutions to the State, seem to be on the high side. Corporation taxes are expected to grow by 30, income tax by 32 and excise duties by 21. Surprising estimates, since the Finance Minister has claimed that indirect taxes are revenue neutral. Past experience shows that decadal trend rates of growth in tax realisations seldom exceed 16 to 17.

In all, a balanced budget, taking into account the political compulsions, but, as I said last year also, the Finance Minister could have done better.

The writer is former revenue and finance secretary, and former secretary in the PMO