Indian budget 2008-09 analysis

On 29th February, Indian Finance Minister Mr P. Chidambaram presented the fifth and the last budget of the present government. It has been a trend in India to give a tone to every budget. On this context, only the first and last budget of this government can be given theme. The last three budget of Chidambram didn’t fit any template. I feel Chidambaram is only one of the two FMs around this time, who really deserved the job. Inspite of this, I disagree with many of his policies. (Moment of truth: It seems my disagreements are more sincere than agreements).

The limitations of coalition government and the imperative of next election very clearly reflect on the policies of these budgets. This budget has been all for spending on social sectors – education, health, employment, etc.

The biggest of the policies was the farm loan waiver of the magnitude never ever made before in India. I don’t think it is going to help Indian growth story in any manner. In the current five year plan, agriculture growth rate is envisaged to be 4.1% but it never ever reached that mark. It has been languishing between 2 to 3%. It needed huge investment for technology, industry participation, processing, etc, but where did the money go ? It went for waiving the debts of the famers. Agreed, suicide of deb-ridden farmers had increased but these are not the farmers who borrow from banks. They borrow from money lenders and their debts are not waived. This generosity of Finance Minister is not going to benefit anyone in long run except encouraging farmers to keep defaulting on loans.

Secondly he increased investment in health, education, employment, social security. I have been reiteration that investment or putting the money is not the problem. The malaise is the corruption that siphons the money even before it reaches for whom it was intended. So some strong policies were needed in the implementation part, in the micro management. Sadly no government ever thinks in this direction. There has been a slight mention in this regard about two states agreeing to use technology but nothing more than that. All the money provisioned for the benefit of common man is never going to reach them.

The changes on taxation front were cleverly timed for this year. Despite the surge in income tax collection there was no major benefit given to tax payers all these years. It was overdue and it is good. On the other hand the short term capital gan tax rate was increased. The majority of those who pay this tax are the stock market community and it is not going to go well with them. Our communist parties see this class as ‘Bourgeoisie’ as such they had to be taxed. Also I don’t understand the cess on tax concept. Provision of cess is like giving extra life to schemes which can’t utlilise the money already apportioned to them. It actually encourages poor micro management. If more money for education is needed, then it could be given from the general spending. Why cess?

The dampner was that nothing was done for the benefit of the export sector. It is currently reeling under the appreciation of Indian currency and yet nothing for them. Likewise, there was no extension of the provision of STPI scheme, which gives tax concessions to the IT companies. Though FM says we still have time to look into it, but I don’t think anything is going to come this way.

To summarise this has been a good political budget, some cheers for middle class, keeping the growth story intact with attempts to limit revenue and fiscal deficit.

Let’s see how the next budget of India would be?