The Central Budget placed on 6th July has reaffirmed the policy direction of the UPA Government. Behind all the misleading rhetoric of aam aadmi, is an enduring commitment to pro-corporate liberalisation and privatisation.

Speculative expectations of the liberalizers were rekindled by the Economic Survey which was presented immediately before the Budget. The Survey had recommended a rapid return to fiscal rectitude mandated by the Fiscal Responsibility and Budget Management (FRBM) Act, which was subverted ostensibly due to the evil effects of the global economic downturn. It even advocated a new FRBM Act that would target a zero fiscal deficit, earlier set out to be achieved by 31st March this year under the old Act. Apparently freed from the Left shackles, it had also suggested disinvestment of public sector undertakings (PSUs) to fetch a yearly revenue of Rs.25,000 crore in order to bring down the fiscal deficit. A comprehensive agenda for financial liberalization and deregulation of real sectors of the economy was also laid out in bold letters in the Survey to re-assure its core constituency of the government’s cardinal committment to the beaten track of ‘reforms’.

Similarly, the govt.’s decision to raise the prices of petrol and diesel by Rs.4 and 2 respectively immediately before the budget itself, unambiguously demonstrated that the key anti-people economic decisions of the government would be taken outside the budget in future to protect them from too much of public glare.

No Substantial Measures against Recession

The FM has acknowledged that, “the world is struggling with an unprecedented financial crisis and economic slowdown that has also affected India…During the year 2008-09, there has been a dip in growth rate of GDP from an average of over 9 per cent in the previous three fiscal years to 6.7 per cent. It has affected the pace of job creation in certain sectors of the economy and investment sentiments of the business community. It has also resulted in considerably lower revenue growth for the government.”

Government has so far responded by providing three focused fiscal ‘stimulus’ packages in the form of tax relief and increased expenditure on public projects along with RBI taking a number of monetary easing and liquidity enhancing measures in the form of fiscal stimulus, the cumulative value of which amounted to Rs.1,86,000 crore during the financial year 2008-09 constituting 3.5% of GDP. This fiscal accommodation had the effect of raising the fiscal deficit from 2.7% of GDP in 2007-08 to 6.2% in 2008-09, the target for which according to the FRBM Act was nil.

But was there any real recovery in the economy engendered by these fiscal stimuli? It does not appear so, as is manifested by the negative growth of industrial index by 2.3% in March, 2009 with corresponding figure of -3.3% in manufacturing. The budget speech acknowledged that the structure of India’s economy changed over the last ten years with contribution of the services sector to GDP at well over 50 per cent and external trade and external capital flows have become important part of the economy with the share of merchandise trade doubling to 38.9 per cent of GDP in 2008-09. India’s growing integration to the world economy as an essential fall out of her globalizing policies has posed serious challenges and brought serious distortions in the economy. During 2008-09, country’s exports grew by only 3.9% in dollar terms compared to 29% in 2007-08 and the balance of external trade alarmingly increased from $88.522 billion in 2007-08 to $119.055 billion in 2008-09.

The situation on the agricultural front is all the more alarming. The agrarian crisis triggered by the pro-imperialist agricultural strategy is still haunting the economy in a big way. The Centre for Monitoring Indian Economy (CMIE) has reported that the agricultural growth of the country during 2008-09 was only 0.7% and the same for the year 2009-10 has been projected at 1.3%. The Budget informs us that under the one-time loan waiver scheme announced in the last year’s budget, Rs.71,000 crore has been disbursed in 2008-09 to 40 million farmers and to look into the matter of private loans taken by a large number of farmers, a task-force will be set up. This must have paid the UPA rich electoral dividend, but the main malady of investment crunch in agriculture remains as ignored as ever. The increment in the total Central Plan outlay on “Agriculture & Allied Activities”, “Rural Development” and “Irrigation and Flood Control” between the years 2008-09 and 2009-10 was measly, as shown below in Table 1:

Table-I

Agriculture & Allied Activities : 2008-09 (RE) (Rs.Crore)- 9969 ## 2009-10 (BE) (Rs.Crore)- 10629

Rural Development : 2008-09 (RE) (Rs.Crore)- 48884 ## 2009-10 (BE) (Rs.Crore)- 51769

Irrigation and Flood Control : 2008-09 (RE) (Rs.Crore)- 367 ## 2009-10 (BE) (Rs.Crore)- 439

Total : 2008-09 (RE) (Rs.Crore)- 59220 ## 2009-10 (BE) (Rs.Crore)- 62837

The total increment is only Rs.3617 crore, which is meager 6.1% only.

Burgeoning deficit-inflationary push to escalating food prices

The country is at present facing a veritable food scarcity and the prices of food articles are skyrocketing across the country. The years 2007–2008 saw dramatic rises in world food prices, creating a global crisis and causing political and economical instability and social unrest in both poor and developed nations. Between 2006 and 2008, the average world price for rice rose by 217%, wheat by 136%, maize by 125% and soybeans by 107%. In India, foodgrain prices have also been pushed upward by the fall in domestic production of foodgrains, rampant forward/futures trading of food articles and the unscrupulous hoarding going on as a consequence thereof. The government has so far remained a mute spectator to this speculative practice and the free-for-all situation is going on undeterred. In fact, the FM only sent out a green signal to speculation by abolishing the Commodities Transaction Tax which had never really been notified and enforced.

The significant thing about the present inflationary trend is that, while the rate of inflation measured in terms of Wholesale Price Index (WPI) is shown to have nosedived from around 13% last year to zero per cent in March, 2009 and to 0.6% now, the same in terms of Cost of Living Index for Industrial Workers (CLI-IW) for 2008-09 was 8.0% and was 9.3% and 9.6% respectively in terms of CLI for urban non-manual employees and agricultural labourers. The wide disparity between the WPI and the CLIs is due to the fact that food articles and various other essential items of mass consumption carries less weightage compared to the white goods in the total basket of goods considered for working out WPI. The other reason behind the low rate of increase in WPI is the high base in the last year, which has helped the inflation rate look low. Another peculiar aspect of the present inflation is that, only the prices of food and other essential articles are rising, whereas those of the white and luxury goods like consumer durables, FMCG etc. are on a downturn. Thus the present inflation is mostly food specific and hence, is affecting the poor and BPL population most.

With high liquidity already prevailing in the market, the fiscal deficit projected in the budget is alarmingly high at 6.8% of GDP, amounting to Rs.400996 crore. It is important to note that this deficit is largely an outcome of pre-committed expenditure on account of sixth pay commission implementation, steep rise in defence and police expenditure and interest payments on loans already taken as well as due to huge tax concessions and consequent revenue forgone in the name of fiscal stimulus to industry rather than due to fresh investments and social welfare schemes. It is this composition rather than the size of expenditure that increases the inflationary potential of the deficit. This gap between the receipts and expenditure of the government is sought to be bridged primarily by resorting to borrowings from the market. Such a huge borrowing by the government itself would definitely starve the other sectors of the economy of the necessary credit and would push up the rate of interest, which would have the cascading effect of pulling down demand for credit and consequential slump in investment and production. The other alternative before the government is to direct the RBI to print money. These measures would give rise to huge credit or money supply into the market and is bound to trigger an inflationary trend back again.

Prices of Petrol and Diesel have been increased immediately before the budget and the FM has proposed to do away with the Administered Price Mechanism (APM) for petro products very soon. This will pave the way for removing subsidies on essential petro products like, Diesel, Kerosene and Cooking Gas and leave them exposed to the vagaries of the market. When the price of crude oil in the international market is on a moderately downward trend, the rationale behind increasing the prices of Petrol and Diesel just before the budget is not understandable. The only plausible reason must be to achieve the twin objectives of bringing down the subsidy level in the budget and simultaneously to raise the collection from enhanced ad valorem duties from these products.

The burgeoning fiscal deficit coupled with the pre-budget price hike in petro products will inevitably aggravate the price situation in the country and will contribute adversely to the already soaring food prices, affecting the aam admi very badly.

Promises and performance: Deceiving the aam admi

The election manifesto of the Congress promised many things for the aam admi. It also listed a set of priorities, broadly based on the NCMP principles, under the title “The Work Programme: 2009-2014”. As many as 30 subjects, including public health, education, infrastructure, food security, social and economic empowerment of marginalized sections, internal security and national defence made up the list. In terms of allocation, the Budget figures point to a lukewarm response to health, education and infrastructure development. In many other key segments, including the social and economic empowerment of marginalized sections, it displays indifference. Let us examine below the allocation made in the budget in areas that constituted some of the key promises in the Congress Election Manifesto:

• 100 days’ work at Rs.100 per day under NREGS : Allocation under NREGS is being trumpeted to have “increased by 144% to Rs.39,100 crore in BE for 2009-10 over BE for 2008-09”. But the fact remains, the allocation for 2008-09 was revised to Rs.36,750 crore in the Revised Estimate (RE) and the real increase in this year’s BE over the RE for the last year is only Rs.2,350, which is a meagre 6.4%, and comes nowhere near meeting the proposed target

• National Food Security Act and universal ICDS by 2012 to ensure for BPL families 25 kilos of rice or wheat a month at Rs.3 a kilo : The Budget reiterates the commitment to this programme, but with no funds being allocated under this head it could end up as mere lip-service. The allocation under ICDS has increased by only Rs.361 crore. The majority of the children of the country do not get the benefit of this scheme. Hence the target to bring all children below 12 years under ICDS by 2012 appears too optimistic.

• Two model schools in every block and free education for dalits and adivasis : Allocation under Sarva Shiksha Abhiyan (SSA) has been increased by only Rs.200 crore. A scheme has been launched to set up 6000 model schools. The promise of providing free education to the dalits and adivasis has not been addressed at all.

• Right to Education Act : Implementing the Right to Education Act to provide free and compulsory education for the 6-14 age groups would require an expenditure of over Rs.10,000 crore a year. But the Budget only allocates an additional Rs.1,200 crore to elementary and secondary education.

• Health insurance cover across all BPL families and quality health services at all district hospitals : Allocation for Rashtriya Swasthya Bima Yojna (RSBY) has been increased by 40% to Rs.350 crore only. The other issue has not been addressed except for increasing the allocation under the National Rural Health Mission (NRHM) by only Rs.1,730 crore over the Interim BE of Rs.12,070 crore.

• Crop insurance and the usage of Information Technology (IT) for rural transformation : Remains unaddressed in the Budget.

• Further strengthening the rights of the tribal people and other forest-dwelling communities through administrative and legal measures : The Budget gives no indication of any progress in that direction.

• Increasing investment in agricultural sector : Target for credit flow in agriculture is kept at Rs.3,25,000 crore for 2009-10 as against Rs.2,87,000 crore in 2008-09. But the entire amount will be provided by the banks and the government will not spend a single paisa. Farm loans will continue to attract 7% rate of interest as opposed to the popular demand for a 4% rate.

All said and done, whatever increase in allocations was there, was largely uneven across sectors and schemes. In sectors such as education, the flagship schemes themselves experienced a fall in allocation. In SSA, there was an absolute fall in expenditure after 2007. The Budget outlay for SSA, which was Rs.12,020 crore in 2007-08 (RE), fell to Rs.11,940 crore in 2008-09 (RE) and Rs.11,934 crore in 2009-10 (Interim BE). While social services allocations on the revenue account have risen in absolute terms between 2008-09 and 2009-10, the rate of increase in allocations has fallen compared with the previous year. While the allocation for social services increased by 35.7% between 2007-08 and 2008-09, it grew by only 19.7% between 2008-09 (RE) and 2009-10 (BE). Between 2008-09 and 2009-10, allocation to social services as a share of GDP is slated to rise from 1.54% to 1.68%, a mere 0.14% only.

If we shift our attention from outlays to outcome, a further bitter truth would be revealed. One of the most hyped flagship schemes has been the NREGS. The performance on NREGS as per the latest figures supplied by the ‘NREGA’ website has been very disappointing. The total number of job cards issued under NREGS up to 2008-09 is 7,40,85,603, out of which only 14,65,562 families, i.e. 1.9% were provided the full 100 days’ employment promised under the NREGS. During 2008-09, a total of 2,38,18,161 families applied for jobs and 2,35,41,103 families got work for a total of 88,15,09,639 mandays. So on an average, each job seeker (only one per family is provided work) got only 37.44 days of work during the entire year as against the promised 100 days. Nearly one-third of those who got work (70,36,241 families), got less than 14 days’ employment during that year.

Bonanza to corporate India

While the aam admi contimues to be taken for a deceitful ride, the corporates and the rich are showered with fabulous concessions. Despite the need to finance a burgeoning fiscal deficit, the FM imposed no additional taxation on the corporate sector other than raising the Minimum Alternate Tax (MAT) from 10 to 15 per cent. This hurts only a few firms falling in the 0-15 per cent effective tax rate range. If we exclude MAT, the corporate sector has indeed obtained a bonanza. The budget bonanza for the corporates are summarized below:

• The FM has chosen to extend for one more year (until 2010-11) the exemption from taxable income of the export profits of the Software Technology Parks of India (STPI) units, and units in the Special Economic Zones (SEZs), the Export Processing Zones (EPZs) and the Free Trade Zones (FTZs). This tax holiday was originally available until 2008-09 and has now been extended to cover 2009-10. The major beneficiaries of this concession are the Software Development Agencies and the IT-Enabled Services Providers/Business Process Outsourcing units, in whose case the effective tax rates are as low as 12 and 15 per cent respectively. Revenue forgone under this head in 2008-09 was Rs.20,366 crore.

• Another major tax concession offered to firms in this Budget is the abolition of the Fringe Benefit Tax (FBT), which was a major burden on them. The tax foregone on this account in 2008-09 terms is Rs.6,553 crore.

• The FM has chosen to continue with the temporary excise duty exemptions granted in the stimulus packages announced in December 2008 and February 2009. The effective excise duty rates were cut across the board by 4 percentage points on December 7, 2008. On February 24, 2009, the mean excise duty rate of 10 per cent was further reduced by 2 percentage points from 10 per cent to 8 per cent.

• Benefits have been given to industry through measures such as tax concession on investments made by the National Pension Scheme Trust in equity.

• Commodities Transaction Tax has been abolished whereby the government has provided support to stock and commodity trading, which would benefit financial capital operating in these markets.

• Various surcharges imposed on direct taxes would be phased out and as a beginning, 10% surcharge on taxes on personal income above Rs.10 lakh has been withdrawn.

• Scope of provisions relating to weighted deductions of 150% incurred on in-house R&D has been extended except for a small negative list.

• Businesses to be incentivised by providing investment linked tax exemptions rather than profit linked tax exemptions hitherto given.

• Contributions to election funds will get 100% tax exemption.

• Although proposal for disinvestment of a meager amount of Rs.1,120 crore has been declared in the budget, the Economic Survey and subsequent announcements made by the FM have promised much more after the budget.

• India Infrastructure Finance Company Limited (IIFCL) has been proposed to be set up as a Special Purpose Vehicle (SPV) to stimulate public investment in infrastructure in the Public Private Partnership (PPP) mode.

• Rs.35,000 crore of revenue would be garnered by selling 3G spectrum to private telecom players.

• Administered Price Mechanism (APM) for petro products would be done away with to link the prices of these products directly to the international market and thereby reduce the government subsidy on the same.,

The concessions provided in the budget has cost the exchequer a whopping Rs.4,18,095 crore, the break-up of which has been furnished in the Revenue Foregone Statement submitted along with the Budget in terms of the FRBM Act (see Table-II).

Table-II

Corporate IT : Amount of tax foregone(Rs Crore)-- 68,914 ## Tax foregone as a % of tax collected-- 11.38

Personal IT : Amount of tax foregone(Rs Crore)-- 39,553 ## Tax foregone as a % of tax collected-- 6.52

Excise Duty : Amount of tax foregone(Rs Crore)-- 1,28,293 Tax foregone as a % of tax collected-- 21.16

Customs Duty : Amount of tax foregone(Rs Crore)-- 4,62,512 Tax foregone as a % of tax collected-- 76.28

Less: Export Credit : Amount of tax foregone(Rs Crore)-- 44,417 Tax foregone as a % of tax collected-- 7.32

Total : Amount of tax foregone(Rs Crore)-- 4,18,095 Tax foregone as a % of tax collected-- 68.95

As the figures in Table-II show, 68.95% of the taxes proposed to be collected by the government has been foregone in distributing concessions to the industry and still the industry is not happy!

Another interesting phenomenon which came to light in the budget is the special favours doled out to certain choicest sectors by the FM, which inter alia include the petro-chem sector. The decision to raise the prices of petrol and diesel before the budget and to discontinue the APM for petro products would certainly benefit the Reliance Industries Limited, which is the only private sector company in the oil and gas sector. An allegation has been raised that the exemptions proposed in the new Section 35AD introduced in the Income Tax Act would bring in more than Rs.20,000 crore of tax concessions to the RGTIL owned by Mukesh Ambani.

Alarming signals for workers

Data from a few sample surveys, including one conducted by the Labour Bureau during October-December 2008, show a decrease of about half a million workers across 2,581 units surveyed. Some other surveys showed that around one lakh jobs were lost in January 2009 alone. The Department of Commerce, too, in its own study of 402 export units, found that more than a lakh jobs had been lost during August 2008 and January 2009. Many in the trade union circles believe that the actual job loss is underestimated in those surveys. It is an irony that financial stimulus was provided to the industry to help them tide over the crisis, but no such stimulus was given to the job-losers or the unemployed of the country. No fiscal stimulus has been granted for the unorganized sector enterprises either. While 200 days of employment at Rs.200 per day under the NREGS is the need of the day, not even 40 days of employment is available to the job-seekers at present, and non-payment or under-payment of wages remains rampant.

On the other hand, the Economic Survey proposes that employers should have the right to reduce their manpower without seeking govt. permission and move towards 12 hour workday. There is concern about the government’s moves in the areas of foreign direct investment (FDI) in the retail sector, insurance and banking. According to latest Census figures, there were about four lakh people employed in the retail sector, and their interests would be severely compromised if the sector were further opened up.

Militarization and strong state

Though the FM was miserly towards the aam admi, he did not forget to be generous to the police and defence machinery. The following declarations have been made in the Budget Speech indicating how the police/para-military/military establishment would be strengthened further:

• Additional amount of Rs.430 crore provided over Interim B.E. 2009-10 to modernize police machinery in the States.

• Additional amount of Rs.2,284 crore proposed over Interim B.E. 2009-10 for construction of fences, roads, flood lights on the international borders.

• Programme for housing to create 1 lakh dwelling units for Central Para-military Forces personnel to be launched through innovative financing model.

• The allocation under the Defence head was most adventurous. 26/11 providing the convenient backdrop, the FM lost no opportunity to enhance allocation on defence by more than one-third of last year’s BE. In monetary terms, the increase was Rs.36,103 crore (almost equal to the outlay on NREGS) to a whopping Rs.1,41,703 crore.

When the country is badly in need of money to finance its deficit, such a huge hike in defence and police spending has once again underlined how UPA puts a premium on the repressive apparatuses of the state rather than to its developmental commitments.

Box

Govt. Fiddles as Fields Lie Parched

In the face of a delayed monsoon and drought-like situation, which are bound to aggravate the existing agrarian crisis and fragile food security, the Budget displays total callousness. The FM spoke of streamlining fertiliser subsidies, but his Budget showed a reduction of fertiliser subsidies by over Rs 25,000 crores when compared to the revised estimates of 2008-09. Substantial increase in budgetary allocations for irrigation, provision of electricity and cheap credit for farmers, and loan waiver for agricultural labour, as well as urgent and comprehensive food security measures for the poor are called for.