16th February saw the unveiling of the much awaited Interim Budget presented by the outgoing UPA government. An interim budget which basically comprises of temporary fiscal guidelines given by the outgoing government for the proper conductance of the economy was being awaited with bated breath as the general elections are just round the corner. As the elections are expected to result in a tough fight between the UPA and BJP, the budget focussed more on garnering its vote bank rather than any major policy changes. The man of the moment Pranab Mukherjee (officiating Finance Minister) kick-started the event with his budget speech. However, the event turned out to be quite a non event and highly boasted of election propaganda on part of the UPA government.
Expectations of investors who were hoping for the announcement of some growth stimulating policies were dashed as the proposals were devoid of a stimulus package. As expected before, the fiscal deficit surged to a rocketing 6 % of GDP as against a target of 2.2%.Also the revenue deficit stands at a 4.9 % against the budgeted value of 2.5%.The government borrowing has also jumped to two and a half times of the budget estimates of Rs 1.3 lakh crore to touch Rs 3.3 lakh crores.
If the surge in fiscal deficit was not enough, the budget did not bring any good news to the individual tax players either. Despite of being no constitutional restraints on the announcement of tax rate changes, the Finance Minister didn’t give any fiscal concessions.Infact, he said, “Constitutional propriety requires that the new government formulates the tax and expenditure policies for the year 2009-10.’It was quite a low key budget with no major exemptions or enhanced expenditures being introduced to revive the sluggish state of economy. Disappointed by the interim budget, the markets fell with the benchmark sensex losing 3.42 % in trade on the D-day.
To make a sector wise distinction, the budget allocated thousand crores for alleviating minority welfare which is a repeat from last year. Seeing the fact that Congress created the minority ministry and cashes on the minority issue every time, this funding seems inevitable. In case of Defence, there was a 23.65% hike with 1, 41,703 crores being allocated in contrast to 1, 05,600 crores provided last year. This significant rise of funds seems influenced by the recent Mumbai terror attacks and the need for better security and technological measures.Also, a major hike has been experienced due to the 6th Pay Commission coming into picture.
A lot of emphasis was laid on rural development in the interim budget with the Congress govt. stressing on the importance of the Aam Admi.Projects like Bharat Nirman and NREGA were on the top of the list which will help in the upliftment of the rural sectors. A budget of 30,100 crores has been granted to these rural welfare schemes which extend to 615 districts of the country and will guarantee jobs to about four crore households by end of March as claimed by the Finance Minister.Also, India’s flagship health programme National Rural health mission was allocated 12,656 crores out of the total grant of 15,580 crore proposed for the medical and public health schemes in both rural and urban areas. Keeping in mind the chunk of votes contributed by the rural areas, Congress played the right move of empowering the ‘Aam Admi’i.e the ‘Real India of the villages’.
In wake of the stumbling infrastructure,Pranab Mukherjee announced the allocation of 11,842 crores in comparison to 10,447 crore last year for the Jawaharlal Nehru Urban Renewal Mission which targets at cities with more than 1 million population. Many more IIT’s,IIM’s and Schools Of Architecture will be opened all over the country which is a welcome measure. Compared to last year, there has been a 16% hike in higher education, 10% in elementary education, 13% in technical and 52% hike in secondary education.The power sector was given a 43% increase in the interim budget. These funds will be beneficial in achieving an adequate power supply however the government says that the blackouts will not be completely blacked out!
However, the fuel prices are going to remain constant and no cuts in the excise duty of automobiles seem to be materializing presently.Also,the real estate industry will suffer enormously. Despite the discontent expressed by the market on the interim budget, the Finance Minister remains positive. He noted that India is still the second fastest growing economy in the world with an impressive 7.1% growth rate in a scenario when the major economies are struggling to survive. The Finance Minister didn’t shy away from admitting that the year ahead will face some rough waters in managing growth and deficits. With the tax revenue pressures mounting up, the next government is sure to face the heat. The question remains whether the newly elected government will incorporate measures to sustain the growth momentum and propel exports and consumption levels in its budget or not.
Talks are circulating as to why the interim budget was such a low key affair as far as policy changes or major cuts were concerned. It seems that due to the vote on account, the current budget was more of a political statement and Congress demagoguery. It might also be the case that the government plans to introduce a third stimulus. It should be noted that similar tactics with a different slogan of ‘India Shinning’ was employed by BJP in the year 2004 which saw a vote on account.
Whatever be the case, Parnab Mukherjee’s concluding statement surely makes things clearer. “I have no doubt when the time comes, people will recognize the hand that made it all possible,” he said in the Budget session. Invoking the ‘Hand’ further, he remarked that the hand can alone help our nation on the road to peace and prosperity. Whether the interim budget is memorable or not, the UPA government ensured that we are reminded of the Congress ‘Hand’ just before we use ours in the approaching general elections.