Inclusive in name only

What Pranab Mukherjee has doled out with one hand, he has taken away with the other. The middle classes would feel happy that income tax rates have come down. But a year down the line, these gains may get frittered away as real incomes shrink on account of no respite in inflationary pressures, especially higher food prices. 

The salaried sections (whose taxes are deducted at source) could feel smug about the Bengali-babu’s benevolence. But the proverbial aam aadmi has no reason to be exultant. Far from dampening inflationary expectations, Friday’s budget would in fact further fuel inflationary fires. Higher excise duties on diesel (and petrol) have already got translated into higher retail prices that would increase transportation costs which, in turn, would lead to higher prices of all items of mass consumption.

Wait, that’s not all. When excise duties were pared by 6 per cent in late-2008 and early-2009, prices of products on which such taxes are levied did not come down. But the reverse will not hold good. Manufacturers of items on which excise tariffs have been upped by 2% now are almost certainly going to pass on the higher tax burden on to consumers.

There is every possibility that the apprehensions expressed in the
Economic Survey released on Thursday would come true — that “there have been signs of these high food prices, together with the gradual hardening of non-administered fuel product prices, getting transmitted to other non-food items, thus creating concerns about higher-than-anticipated generalised inflation over the next few months.”

The 74-year-old finance minister has certainly not paid much heed to the advice given by his chief economic adviser Kaushik Basu. What does this mean? Simply put, just don’t believe prime minister Manmohan Singh or agriculture minister Sharad Pawar when they claim food prices are going to come down soon.

Despite a lot of tall talk about “inclusive development” being an “article of faith” for the government and the budget’s alleged emphasis on infrastructure and rural development, the truth tucked in the fine print tells a somewhat different story. The revised estimates of the Central Plan outlays for the ministry of human resource development, consumer affairs, food and public distribution, health and family welfare and labour and employment are all below revised estimates by varying proportions.

In other words, merely stating that budget outlays have been increased is meaningless since funds that were allotted last year have not been spent. Yet Mukherjee chose to highlight how the plan outlay for social justice and empowerment has been increased by a whopping 80%. Good rhetoric? Or is it really?

On page 59 of the first volume Expenditure Budget, the figures provided indicate that the direct transfer of Central Plan assistance for the Mahatma Gandhi National Rural Employment Guarantee Scheme has gone up from under Rs38,000 crore to just below Rs40,000 crore — not a particularly impressive increase on a scheme that the government proudly proclaims is the “world’s largest social security programme”.

One can be selective with statistics but there are important omissions from the budget speech. Consider the budget estimates as well as the revise estimate for expenditure incurred on the Pradhan Mantri Gram Sadak Yojana. The budget estimates for 2009-10 was Rs8,609 crore, the revise estimate Rs8,535 crore and the new budget estimates for 2010-11 is Rs7,850 crore. Talk about rural development!

The document entitled “Statement of Revenue Foregone” indicates that revenue foregone (on account of exemptions and concessions) jumped from Rs4,58,516 crore in 2008-09 to Rs5,40,269 crore in 2009-10 — as a proportion of aggregate tax collection, this number went up from 68.6% to 79.6%. Not surprisingly, the corporate sector is not particularly disappointed with the budget despite the hike in the minimum alternate tax on company profits. The stock-markets too have reacted favourably to the budget.

The budget calculations assume that in the coming fiscal year, India’s gross domestic product in nominal terms will rise by 12.5%. If one believes the government’s claims and GDP growth during 2010-11 is in the region of 8.5%, this would imply a low average annual inflation rate of 4% next fiscal year. One would like to be proved wrong, but there are few indications at present that the inflation rate would come down to such an extent.

We know the next general elections are more than four years down the line. And assembly elections in Bihar don’t really matter that much in New Delhi. For sake of the FM, one wishes the good news has not been spread too thinly. In trying to please everybody, we sometimes end up pleasing nobody. Best of luck.

Pranab-babu. You will certainly need it.