Union Budget 2010-11 - A few observations
The Budget 2010 - 2011 is not comprehensive in its vision or statement. It shows concern about the rising prices, essentially of food items, but has not indicated any specific measures to control it. A lot better was expected.
THE BUDGETS in India only address the short-run marginal issues relating to income and expenditure accounts, and the expansion and liberalization of the private sector in the context of globalization. They do not focus on basic long-run issues with seriousness. The Budget shows no link between the past and the future in the sense that it has not focused on the long-run objectives and issues of economic and social importance for the country as a whole. Long-run ‘demand-side’ issues like high inflation or unsustainable current account or fiscal deficits, and imbalances in the balance of payments work against macro economic stability, which, in fact, is a highly serious matter for the whole economy and works against the whole ethos of growth and development in a serious way.
Let us make some specific observations on the Budget:
• The issue of Deficits in all its connotations: The most serious problem is that of Fiscal Deficit (Budget Deficit + borrowings + other liabilities), which as per the Economic Survey for the Financial Year 2009-2010 has touched the 6.5% mark. According to the announced Budget the Fiscal Deficit is predicted to be 5.5%. The Budget has indicated no ways to control this high fiscal deficit. In fact, it should not be more than 3% or so. Fiscal deficit is a concealed ailment and, if not controlled, it is highly dangerous for the economy in the sense that it is anti-growth and it eventually get converted into a crucial vicious circle. I wonder how exactly the Finance Minister has predicted a rate of economic growth at the 10 % level? Apart from many other reasons, the basic reason behind the high Fiscal Deficit is the enormous amount of non-plan development.
• The 13th Finance Commission has recently recommended that “tweaking tax and duty rates annually” should be stopped and they should switch to a “three-year rolling budget”. Even if this recommendation is accepted it would take two to three years to introduce the new system. A rolling budget means that tax and duty rates would remain unchanged for a longer period. This would help the companies and individual to plan their financial strategies better. It would also improve the quality of government expenditure.
• The Budget has focused on the infrastructural development of rural development. It has proposed about 46% of total plan on rural development; 13% on road allocations;
• The Budget has also focused on urban development, especially of the poorer people and slum dwellers in terms of poverty alleviation and housing; good amount of money would be allocated to the railways too;
• According to the Budget the Food Security Bill would soon be placed in the parliament;
• The Budget has also announced creating new assets for social sector reforms in including provision of health facilities to the poor, and also support to micro, small, and medium units including those of Khadi Udyog. It has also focused on the delivery of social justice;
• It has announced credit support to the farmers; there will be a four-part strategy in agriculture; for eastern region it would initiate green revolution in various ways;
• The Budget will also give priority to pollution management by initiating the clean energy plan fund;
• The FDI regime would be simplified to attract more foreign investors;
• The Budget has also announced to help the private banks in various ways;
• In terms of tax reforms, the tax regime would be simplified;
• The stimulus package will be withdrawn gradually.
Besides the above points, a few other points are mentioned below:
• The Budget has allocated enormous amount to defence without providing much external security to the country.
• Talking of the Tax Reforms no one would refute the fact that one of the most serious problems of central finances has been the declining Tax-GDP ratio.
• The Budget has been quiet on this tax-GDP ratio. In fact, it should have proposed to mobilize higher tax revenues like (a) Imposing a highly progressive consumption tax on the so called ‘undeserving’ rich/super rich, who amass a lot of wealth because of an economic system of subsidies, protectionism, privileges, and ‘undesirable’ government support and laxity. Such rich people believe in status and highly conspicuous consumption (b) Extending the tax net to the agricultural sector, where most of the urban income gets invested by the richer people with a view to avoid taxation. In fact, the Government should strike a trade off between the Tax Reforms and their short-run fall-outs on the common man. This will best be achieved by assuring that the benefits of growth reach the masses through percolation in terms of say, low prices of things of daily use, low taxes for the common man, and reasonably attractive interest rates (within the present day policy of low interest-rates-regime), and also in non-monetary terms like, basic social provisions, day-to-day security, effective law and order situation, public discipline and responsibility, and elimination of ‘rent-seeking’ nefarious activities. In case such a trade off is not worked out, the forthcoming Budget would be really hard for the people in various ways.
• The budget is not Pareto- Optimal in the sense that it would surely distort the household budgets of the majority of Indians in the country. It should is also not transparent in the sense that it is absolutely quiet on the issue of rent-seeking activities, corruption, and black money. The reason is that the budget is framed by political entrepreneurs, who just aim at their selfish motives. It is also not transparent in terms of a number of non-friendly barriers that inhibit the functioning of the percolation effect.
• The issue of Deficits in all its connotations: The most serious problem is that of Fiscal Deficit (Budget Deficit + borrowings + other liabilities), which as per the Economic Survey for the Financial Year 2009-2010 has touched the 6.5% mark. According to the announced Budget the Fiscal Deficit is predicted to be 5.5%. The Budget has indicated no ways to control this high fiscal deficit. In fact, it should not be more than 3% or so. Fiscal deficit is a concealed ailment and, if not controlled, it is highly dangerous for the economy in the sense that it is anti-growth and it eventually get converted into a crucial vicious circle. I wonder how exactly the Finance Minister has predicted a rate of economic growth at the 10 % level? Apart from many other reasons, the basic reason behind the high Fiscal Deficit is the enormous amount of non-plan development.
• The 13th Finance Commission has recently recommended that “tweaking tax and duty rates annually” should be stopped and they should switch to a “three-year rolling budget”. Even if this recommendation is accepted it would take two to three years to introduce the new system. A rolling budget means that tax and duty rates would remain unchanged for a longer period. This would help the companies and individual to plan their financial strategies better. It would also improve the quality of government expenditure.
• The Budget has focused on the infrastructural development of rural development. It has proposed about 46% of total plan on rural development; 13% on road allocations;
• The Budget has also focused on urban development, especially of the poorer people and slum dwellers in terms of poverty alleviation and housing; good amount of money would be allocated to the railways too;
• According to the Budget the Food Security Bill would soon be placed in the parliament;
• The Budget has also announced creating new assets for social sector reforms in including provision of health facilities to the poor, and also support to micro, small, and medium units including those of Khadi Udyog. It has also focused on the delivery of social justice;
• It has announced credit support to the farmers; there will be a four-part strategy in agriculture; for eastern region it would initiate green revolution in various ways;
• The Budget will also give priority to pollution management by initiating the clean energy plan fund;
• The FDI regime would be simplified to attract more foreign investors;
• The Budget has also announced to help the private banks in various ways;
• In terms of tax reforms, the tax regime would be simplified;
• The stimulus package will be withdrawn gradually.
Besides the above points, a few other points are mentioned below:
• The Budget has allocated enormous amount to defence without providing much external security to the country.
• Talking of the Tax Reforms no one would refute the fact that one of the most serious problems of central finances has been the declining Tax-GDP ratio.
• The Budget has been quiet on this tax-GDP ratio. In fact, it should have proposed to mobilize higher tax revenues like (a) Imposing a highly progressive consumption tax on the so called ‘undeserving’ rich/super rich, who amass a lot of wealth because of an economic system of subsidies, protectionism, privileges, and ‘undesirable’ government support and laxity. Such rich people believe in status and highly conspicuous consumption (b) Extending the tax net to the agricultural sector, where most of the urban income gets invested by the richer people with a view to avoid taxation. In fact, the Government should strike a trade off between the Tax Reforms and their short-run fall-outs on the common man. This will best be achieved by assuring that the benefits of growth reach the masses through percolation in terms of say, low prices of things of daily use, low taxes for the common man, and reasonably attractive interest rates (within the present day policy of low interest-rates-regime), and also in non-monetary terms like, basic social provisions, day-to-day security, effective law and order situation, public discipline and responsibility, and elimination of ‘rent-seeking’ nefarious activities. In case such a trade off is not worked out, the forthcoming Budget would be really hard for the people in various ways.
• The budget is not Pareto- Optimal in the sense that it would surely distort the household budgets of the majority of Indians in the country. It should is also not transparent in the sense that it is absolutely quiet on the issue of rent-seeking activities, corruption, and black money. The reason is that the budget is framed by political entrepreneurs, who just aim at their selfish motives. It is also not transparent in terms of a number of non-friendly barriers that inhibit the functioning of the percolation effect.
 | Previous Post |
Login
 Login through Social ID
|
Not finding what you are looking for? Search here.
