Budget 2012: Good, not great
What does it take to go from good to great? Corporate leaders pay good money to find out the secret. Union finance minister Pranab Mukherjee would not have added much to the fiscal deficit if he had hired someone to help him turn a good Budget speech into a great one.
Little wonder then that so many analysts have given him an “average” to “bad” score despite what he must regard as a heroic attempt at boosting growth while reducing the deficit. A decade from now if someone were to ask what Mr Mukherjee said this Friday presenting his seventh Budget speech in Parliament, few would remember.
Not all finance ministers make it to the history books. Morarji Desai, who presented the maximum number of Budgets, 10, is best remembered for opposing bank nationalisation, not for proposing anything significant. Two decades later Manmohan Singh is still remembered for his 1991 speech that ended with the Victor Hugo quote — “No power on Earth can stop an idea whose time has come, and the emergence of India as an economic powerhouse is one such idea!”
Former finance minister P. Chidambaram is remembered for his “dream Budget” that slashed direct tax rates and customs duties. What will Mr Mukherjee be remembered by?
He got off to a good start, like the Ganga in the Himalayas, but meandered through 220 paragraphs and, like a river running dry in the plains so did he, sipping a glass of water every few minutes to clear a throat that ran dry from his spelling out too much detail. A new project here, a new programme there and, listen all, an allocation of Rs 15 crore to the National Council for Applied Economic Research and Rs 10 crore to the Siddharth Vihar Trust in Gulbarga. The list went on.
The speech listed five laudable objectives — to promote domestic demand-driven growth, create conditions for rapid revival of high growth in private investment; ease supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation; eliminate malnutrition; improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life. It then went on to list a range of spending proposals aimed at meeting many of these objectives.
In presenting this year’s Budget, Mr Mukherjee had two challenges to address: first, he had to get his fisc in order through credible fiscal management; and, second, he had to stimulate the “animal spirits” of enterprise and thereby accelerate growth.
To be fair, this he has earnestly tried. He has raised revenues to the tune of Rs 41,400 crore, giving away Rs 4,500 crore in direct tax concessions and mopping up Rs 49,940 crore through excise duty, customs duty and service taxes. The salaried middle class, alienated by inflation and concerns about corruption, would benefit from the direct tax concessions, but before it can smile it will discover that what the right hand hath given the left hand has taken away!
Fiscal experts will denounce this strategy of depending less on direct taxes and raising more through indirect taxes. Moreover, if producers and retailers pass these taxes down to consumers, it would add to inflationary pressures. But then, this is not the year for a finance minister to be too kind. This is the year when he had to manage his books and that is what he has tried to do, even if in a wrong way.
A second concern pertains to external economic management. The deficit on India’s current account has shot up to 3.6 per cent of national income. While Mr Mukherjee hopes that a revival of growth will bring this down, his liberal policy with respect to external commercial borrowing is only going to encourage Indian companies to borrow abroad, escaping the high interest rates regime at home.
But, will Mr Mukherjee’s budgetary strategy and policy effort revive the “animal spirits” of Indian enterprise? The jury’s out. What would truly worry the reformers is that return of the ancien regime. The world of exemptions and caveats is back. Saying one thing in the speech and doing another in the Finance Bill, like the “removal of doubts” in Section 9 of the Income-Tax Act, that seeks to retrospectively enable the government to mop up some revenues from cross-border deals, is not going to please anyone.
But one thing is for sure, Mr Mukherjee has not ruffled any feathers with his Budget speech. As the senior-most politician in the ruling alliance, someone who has been around for so long, Mr Mukherjee knows a thing or two about avoiding the kind of pitfalls and potholes that green horns like Dinesh Trivedi have to deal with. Having pressed all the right buttons, Mr Mukherjee made sure no one demanded his sacking by the day’s end.
Therein lies the politics of this Budget. It aims to address some key concerns facing the economy, without ruffling too many feathers. However, if the Budget’s fiscal objectives have to be met, feathers and more will be ruffled. Cutting subsidies is not going to be easy. How successful Mr Mukherjee will be depends on how well the UPA alliance is managed in coming months.
A bolder vision for the economy and the nation, and a more honest statement of the challenges India faces in an increasingly difficult regional and global economic and political environment, would have helped contextualise the importance of the difficult choices that have to be made.
A Budget speech can be a laundry list of how a government intends to spend money and raise money. There is an audience for such stuff. But this year Mr Mukherjee’s speech ought to have been about how the government hopes to regain credibility and restore confidence, at home and abroad. In picking the quote from Hamlet about “being cruel to be kind”, Mr Mukherjee should have remembered that other famous quote from Hamlet: brevity is the soul of wit!
The writer, a senior journalist, is an honorary senior fellow at the Centre for Policy Research, New Delhi