Budget Blues

A government budget is a legal document that is often passed by the legislature and approved by the chief executive. It consists of two basic elements i.e. revenues and expenses. In the case of the government, revenues are derived primarily from taxes. Government expenses include spending on current goods and services, which economists call government consumption; government investment expenditures such as infrastructure investment or research expenditure; and transfer payments like unemployment or retirement benefits. Budgets have an economic, political and technical basis. Unlike a pure economic budget, they are not entirely designed to allocate scarce resources for the best economic use. They also have a political basis wherein different interests push and pull in an attempt to obtain benefits and avoid burdens.


The analysts maintain that the rural economy has remained the focus of the Indian budget of 2009-2010 presented by the UPA government. The government promised help for the rural sector and with the forthcoming elections, trying to contain the unemployment aggravated by the global economic melt-down. Acting Finance Minister Pranab Mukherjee presented his budget, showing spending plans for the 2009-10 fiscal year from April to July, to take care of essential spending during and in the immediate after the general elections. He announced an extension of interest subsidies to debt-hit farmers along with two stimulus packages in the face of faltering growth, which include extra spending of $4 billion.


“There is a significant effort to give stimulus on expenditure side, especially on what expenditure in infrastructure is possible this year”, said Ahluwalia, soon after the unveiling of the package.


“In addition to these, there is a very strong effort, especially to see that the expenditure that is budgeted for actually takes place. Expenditure tends to be under-utilised. Many other incentives are underway,” he said, adding: “Growth in the Indian economy will be lower. But we will ensure that every step is taken to minimise the impact of the global crisis. The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year,” the statement said.


The measures for exporters, who saw a decline in shipments in October for the first time in five years, include interest support of two percent for labour intensive sectors like textiles, handicrafts and handlooms. This apart, additional allocation has been made towards various incentives for exporters, guarantee of export credit, full refund of service tax to foreign agents and refund of service tax under the duty drawback scheme. “Housing is a potentially very important source of employment and demand for critical sectors, and there is a large unmet need for housing in the country, especially for middle and low income groups”, the statement said further.


The interim budget has received mixed reaction despite its primarily populist nature. It has left the industry sector, neglected, bitter and disappointed. It has been considered as a non-event and more of a political statement. Parsvnath Developers Chairman Pradeep Jain said there was nothing for any sector, forget about real estate. Even Kotak Mahindra Bank Managing Director Uday Kotak said, “Acting Finance Minister Pranab Mukherjee has stuck to what is good convention.” CS ED and CFO S. Mahalingam was very disappointed. He said that there were two stimulus packages given in the past couple of months and they were going to stay as they were. Hinduja Group CFO Prabal Banerjee said that the government did they could do best as it did not have much of a choice.


The growth in Asia’s third-largest economy will slip to 7.1% from 9% or more this fiscal year. There was a healthy 7.1% rate of GDP growth inspite of economic slowdown. The global slowdown is hurting key sectors like housing, exports and manufacturing. Analysts say anything less than 6 % growth is perceived as a recession by many Indians, with investments curtailed and jobs were lost. The Prime Minister’s Economic Advisory Council expects growth to hold around similar levels in 2009 and 2010. In its five Budgets since 2004, the UPA Government has raised spending on health, education and rural employment but as per analysts view point the economy has suffered due to a lack of economic reforms.


There are several challenges that are facing the UPA government like stock market plunge, increasing unemployment, real estate blues, interest rates and decreasing industrial output. And with general elections just approaching, the economic crisis will give the UPA enough reason to turn this interim budget into a very popular budget. We can call it a small budget with high hopes.


Saumya Saxena

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