The budget is a reflection of economic policy. Corporate, FIIs, FIs, foreign governments wait eagerly for this mega statement. It is also a harbinger of hope or despair for individuals and industry. The Finance Minister has portrayed the budget as "fully faithful to the CMP" and tried to balance the CMP objectives with the budget proposal. This article tries to read the fine print as to how much of the CMP proposals articulated in the budget are achievable.
The initial lines of the Union Budget reads "CMP the guiding light of ........" Truly speaking, the budget might have been inspired by the CMP, but how far the promises have been met, is the unanswered question. Let us see some of the issues relating to the same. Digging a little deeper, the budget can be taken to be a blend of CMP provisions and pro-reform measures of the FM. The presence of the Left Front ensured Keynesian policies to be incorporated while the neo-liberal mindset of the Congress and particularly that of P Chidambaram, ensured fiscal responsibility. The thrust has been on going back to the basics i.e., agriculture, rural economy and employment with resources being deployed to these sectors. The employment schemes launched may take a toll on the central exchequer heavily though the full impact may not be so severe as to create a panic.
The CMP promised to eliminate the revenue deficit of the Center by 2009 so as to release more resources for investments in social and physical infrastructure. Subsidies would be targeted sharply at the poor and the truly needy. It also reiterated its commitment to VAT after all the necessary homework has been completed. The draft of the CMP also read that it would try to increase the tax to GDP ratio by undertaking major tax reforms that expand the base of taxpayers, increase tax compliance and make the tax administration more efficient. At the same time, it wanted the tax rates to be stable and conducive to growth, compliance and investment. The Fiscal Responsibility and Budget Management Act (FRBM) has been used in the budget. The budget has pledged to wipe out revenue deficit by 2008-09. The budget has announced quite a few schemes whose fund requirements are substantial. The source of these funds have been assumed to come from increased tax revenue collections under different heads. Corporation taxes are estimated to rise by 41%, excise duties by 18%, income taxes by 27% which by themselves are highly optimistic. Even after these, the gross tax revenue to GDP ratio is expected to rise by only 1% from 9.3% to 10.3%. It is no big deal in predicting safely that the target of eliminating revenue deficit would not be achieved. In this scenario, the FM should have tried to implement expansionary policies that would lay down the required infrastructure for developing quickly. He has not done so; in fact, a surprising thing that has come to light is that the Total Central budgetary expenditure to the GDP has fallen by two percentage points from 17.23% in 2003-04 to 15.30% in 2004-05. This points to fiscal conservatism on the part of the budget, given that the Indian economy is clearly demand and not supply, constrained. The objectives of the National Common Minimum Program are by themselves faulty as, on the one hand, it wants to invest and spend more on the rural sector, given the extremely long gestation period and, on the other hand, it wants to eliminate revenue deficit. The budget by trying to emulate the CMP has thus become faulty.
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