Beyond The Realm Of Reality | Value Research Given that Pranab Mukherjee has seen economic policies change for decades, this budget is an even bigger surprise…
Economic Viewpoint

Beyond The Realm Of Reality

Given that Pranab Mukherjee has seen economic policies change for decades, this budget is an even bigger surprise…

It is surprising that Pranab Mukherjee, the most seasoned politician in the government, should have allowed his optimism to prevail over realism while presenting the Union Budget for 2011-12. Quite a few of the assumptions that he has made framing the Budget proposals are so unrealistic that one is almost certain that these cannot be fulfilled.

Did he then make these overly rosy prognostications in the hope of refurbishing the image of the Manmohan Singh government that has been (and is being) battered day in and day out by its political opponents as allegations of corruption and malfeasance fly thick and fast? Towards the beginning of his Budget speech, the Finance Minister stated: “Certain events in the past few months may have created an impression of a drift in governance and a gap in public accountability…such an impression is misplaced.”

Consider just three predictions contained in the Budget. First, Mukherjee has implicitly assumed that the average rate of inflation during the coming fiscal year starting April 1 would be contained at 5 per cent. He has assumed that gross domestic product (GDP) in nominal terms will grow by 14 per cent in the coming fiscal year while GDP growth in real terms (after adjusting for inflation) will be 9 per cent.

The Finance Minister has also proposed a cut in the subsidy outgo by Rs 20,000 crore, of which as much as three-fourth, or Rs 15,000 crore, would be the reduction in subsidies on petroleum products. Given the fact that oil prices have been boiling since the political crises in North Africa and West Asia and that India imports 80 per cent of the country’s requirement of crude oil, a set of hikes in prices of petroleum products has clearly been factored into the Budget calculations. How then would inflation be kept at 5 per cent, especially since the government has not proposed any cut in duties on crude oil or petroleum products?

The second optimistic assumption is that while there would be a revenue loss of Rs 11,500 crore on account of direct tax concessions, indirect tax collections would rise by Rs 11,300 crore on account of better compliance and industrial growth. The Finance Minister hopes to raise more revenues through indirect taxes that are essentially regressive in nature in the sense that such taxes do not discriminate between the rich and the poor.

The third assumption he has made is that the Union government’s expenditure will go up by around 3 per cent in the next fiscal year against an expected 30-odd per cent in the current year. ven as the minimum wages given to beneficiaries of the government’s much-touted “world’s largest social security scheme”, namely, the Mahatma Gandhi National Rural Employment programme, have been increased. And now this is being linked to the Consumer Price Index, but still the Budget outlay on the programme has been kept unchanged at Rs 40,000 crore. So much for the aam admi!

Mr Mukherjee has assured the country that “corruption is a problem which we have to fight collectively”. But he has not revealed any specific measure that would tackle the issue of money-laundering through tax havens per cent. Nor has he answered charges of crony capitalism made against the regime. He has referred to a Group of Ministers — that he heads — that will come out with suggestions on how to institute a “competitive system for exploiting natural resources”. GoM will also look into state funding of elections, speedy processing of corruption cases against public servants, transparency in public procurement and contracts and discretionary powers of Union ministers. None of which is expected to be easy or expeditious.

But more than making statements of intent, by making assumptions that are far removed from ground realities, Pranab-babu has hardly helped his cause or that of the government he serves — after all, he is no ordinary politician. He was Finance Minister more than a quarter-century ago when Manmohan Singh was the Governor of the Reserve Bank of India. He has seen economic policy in the country change over the decades. All of which makes it particularly surprising why he has presented the kind of Budget he has.

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