A sensible Budget

Feb 28 : A sovereign default in Iceland, Greece also in financial trouble, the global economy still jittery and no one is quite clear if a recovery is on the horizon and few, if any, believe that the Bric (Brazil, Russia, India and China) countries are decoupled from the United States and the developed world.

In this uncertain scenario, and under intense media attention, finance minister Pranab Mukherjee presented a sensible and balanced Union Budget 2010 with a manageable deficit (5.5 per cent).
We are in a global economy and investment by Indian companies cuts across the globe. In the current situation we have to exercise caution and take one step at a time. I think that is exactly what the finance minister has tried to do. We have to work very hard to achieve our objectives for 2011, be it an eight to nine per cent gross domestic product (GDP) growth, reducing the fiscal deficit further to 4.8 per cent or achieving our targets on several economic and social schemes aimed at bridging the gap between various income groups.
Inflation and food security are serious problems and there are no magic tricks to fix these. The objective of a Budget, therefore, has to be to detail the finances and give direction for the future. In my opinion, given the constraints of the system, the finance minister and the United Progressive Alliance’s economic team have created an effective blueprint for the future. However, the success of these efforts depends on several factors related to good governance, both at the Centre and the states.
Mr Mukherjee has created a feel-good factor about the Budget with the proposed tax cuts which, to a great extent, would help neutralise the effects of inflation. But the hike in petrol and diesel prices and its knock-on effect, along with the cost increases that will result from the partial withdrawal of the economic stimulus, can lead to political agitations. This, in fact, was apparent when the entire Opposition staged a walkout at the mention of the hike.
Fiscal consolidation, a high rate of GDP growth and increased tax revenues in 2011, combined with good financial discipline, are “positives”. And if we calmly examine and debate the Budget we will find that the government has taken several innovative measures to better implement its existing social schemes.
But the timing and scale of the sudden hike in petroleum prices was a surprise. This decision may have to be reviewed as the issue threatens to erupt into a nationwide stir and may pave the way for greater consolidation of Opposition forces in the coming Assembly elections. Political confidence is generated by a series of events over a period of time and the aam aadmi’s support is critical for electoral victory — and in this, the price issue may prove to be a major negative. The ground reality is that food inflation has existed for well over six months and another upswing in prices would be difficult to comprehend. Also, whilst tax benefits exist for the middle class, there is little protection for the poor.
Mr Mukherjee looked relaxed and confident while presenting what is without doubt his best Budget in a political career spanning over three decades. Hopefully, the controversy surrounding the increase in fuel prices will soon be over. The good thing is that every political party is committed to reforms, but we must remember that it’s our balanced approach that has saved us from the global economic crisis. It would be a mistake to tilt heavily towards market forces in the name of reforms.
Much is being said in the media about Mamata Banerjee and her approach but, frankly, the Trinamul Congress leader and her 21 MPs are a good influence on the Congress. Ms Banerjee is focused on the Assembly elections in West Bengal, which she is almost certain to win. And her views on land acquisition, as she has implemented in the railway ministry, are fair and few will object to the measures she has devised to ensure that there is no exploitation.
WE HAVE Assemble elections in Bihar later this year, followed by elections next year in West Bengal and then in Uttar Pradesh. These elections may well determine the trends for the 2014 Lok Sabha elections. The Jharkhand election, after prolonged bouts of instability and very poor governance in the state, gave a split verdict, with both the Congress and the Bharatiya Janata Party (BJP) suffering a reverse and Shibu Soren’s Jharkhand Mukti Morcha — despite several criminal cases of murder and bribery pending against him — emerging as the single-largest party. What does this say about the public’s electoral verdict and what is the message in this for the national parties?
The Bihar election may well produce another surprise verdict which may not be based on the integrity and good governance of chief minister Nitesh Kumar but may be determined by caste divisions. And, like Jharkhand, we could see new power-sharing agreements between the main parties.
It is difficult to predict who will align with which party to get a majority. I see a very blurred picture in the future — Can the Janata Dal (United) combine with the Congress to cobble together a majority and will the Congress do in Bihar what it has done with the Trinamul Congress in West Bengal? The BJP is also in recovery mode and will put up a determined fight in Bihar and Uttar Pradesh.
 

By Arun Nehru
Arun Nehru is a former Union minister

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