Rarely does one get to witness reforms or departures from the old order, and that too in a democracy where economic institutions are otherwise flooded with sycophants or indifferent ministers, who despise the very thought of questioning their financial regime or its efficiency. Many a time these reforms have been rubbished as fantastic blips. But, the Finance Minister sought to pan out a different grammar to the government’s annual financial venture this time round.
While most of the budget commentary has centered around the GST (goods and services tax), the direct tax code (which advocates doing away with most of the tax exemptions) and the reiteration of the role of The Financial Commission; an analysis of the same (budget) on fiscal deficit, the hurdles that GST faces and accountability of public services and its distribution need critical assessment.
The 2010 budget sought to gradually withdraw the fiscal stimulus (when compared to the 2007, 2008 and 2009 data on government spending). However, the government should concern itself with the long-term benefits of its spending rather than being shortsighted like the banks were during the crisis. Emphasis on reducing the fiscal deficit at this juncture of the economic progression might be nothing but perilous idealism.
Investments on infrastructure, education and health would lead to lower long-term deficits. If the recovery trajectory turns out to be weak the cut back in government spending might push the economy back to a slowdown. Even an increase in the tax revenue by 7%, brought by the investments in public institutions or services is enough to offset the fiscal burden that the spending would create. Sectors like agriculture, healthcare need extensive judicious spending.
Agriculture has especially been a drag on the economy. Handling of food stockpiles and the PDS needs to undergo a holistic makeover. The grain stockpile is infested by rodents in the name of food security while prices continue to rise. The government needs to deftly handle its huge food stockpile to control the fluctuating grain prices. It should cannily price the surplus grains in such a manner, that the prices are lower than the market price but slightly higher than the procurement price.
Agriculture turned out to be a disappointment as far as the budget was concerned. The primary sector is at a growth rate of minus .2 percent. The ministry needs to review its import policy concerning food imports. For example, the shortfall in oilseeds production is not due to the inability of the farmers to increase productivity, but because of the government’s deliberate efforts to reduce import tariffs on edible oils.
Overall, the budget compliments the Ministry’s vision of economically empowering the common-man. The de-regulation of petroleum might vilify the finance ministry in the short run, but the tangible long-term gains should set the balance in favor of the government. The budget sought an excision from the financial lives of the populace, empowering free markets and self-regulatory mechanisms. The economists prophesied that with the current impetus of reforms, India might never need a budget in a decade from now. But are we ready to give up on central welfare altogether?