Comment

“A single Budget speech cannot solve all our problems nor is the Union Budget the only instrument to do so. Yet it is an important means to share the vision of the government particularly as we begin a new term,” said finance minister Pranab Mukherjee while presenting the Budget on Monday.

Unfortunately, this very vision that was missing from Budget 2009-10. The Economic Survey presented the government’s ‘wish list’. However, the Budget overlooked the big-ticket reforms advocated by the Survey and chose to focus on the main poll plank of the Congress Party — ‘inclusive growth’.

Accordingly, the budgetary allocation of NREGS has been increased from Rs 16,000 crore in 2008-09 to Rs 39,100 crore in 2009-10 and for National Rural Health Mission from Rs 12,050 crore in 2008-09 to Rs 14,127 crore this fiscal.

Under a planned National Food Security Act, families below poverty line will be entitled to 25 kg of rice/wheat a month at Rs 3 per kg.
Another focus of the Budget is infrastructure. The gross budgetary support to flagship programmes such as the Jawaharlal Nehru Urban Renewal Mission, Accelerated Power Development and Reform Programme, National Highway Development Programme, and Bharat Nirman, has been increased.

While this increase in public expenditure on social and physical infrastructure may be in the right direction, it has pushed the fiscal deficit to an unprecedented level of 6.8% of GDP. Due to the increase in market borrowings, the interest cost alone is estimated to rise by 17% in 2009-10 over the previous fiscal. Therefore, the absence of any roadmap for fiscal correction in the Budget (apart from the statement that the government is awaiting the Thirteenth Finance Commission’s recommendation on this subject) was disappointing.

As was the lack of any concrete announcements about disinvestment. The FM mentioned it in his speech, but remained silent in terms of revenue that the disinvestment process would generate.

As for tax proposals , the abolition of FBT and CTT, increase in income tax exemption limit, abolition of surcharge on income tax are all welcome steps.

However, the surprise announcement was the adherence to the original deadline of April 2010 for the implementation of the goods and services tax (GST), with an indication that it will be a dual tax, levied and administered by both central and state governments.
While the GST will undoubtedly be among the biggest tax reforms in recent times, the Budget did not spell out any action plan for it.

Given the lack of enthusiasm in some states, the constitutional amendment required and the inadequate infrastructure, its introduction by April 2010 is a daunting task.

In conclusion, while Budget has some positives, it missed out on the opportunity to lay out the agenda for the next five years of the UPA government.

The author is the head and senior economist at CRISIL. Views are personal