By S. Sethuraman
The Finance Minister Mr Pranab Mukherjee has preferred to strike a middle path between boldness and populism in order to gain a broad acceptance of his Budget for 2012-13, fashioned on predictable lines — a course warranted by the political challenges for his Government and an economy still in a recovery mode from the sharp slowdown of 2011-12. Therefore his budget is less ambitious in its reach whether in regard to fiscal consolidation or reforms.
It is through revenue augmentation that the Finance Minister has tried to maintain a semblance of fiscal consolidation at 5.1 per cent of GDP after the fiscal over-run at 5.9 per cent in the current year against the budgeted 4.6 per cent. And Mr Mukherjee has not lowered the level of borrowings for the next year from the over Rs.510,000 crores in the current year, which was in excess of the original budget estimate by over one lakh crore with an under-performing economy hit by inflation and manufacturing slowdown.
Nor is there much effort visible to lower the expenditure levels in the Budget and thus the process of fiscal consolidation would be an uphill task over the next three years with fiscal deficit projected at 3.9 per cent of GDP in 2014-15. On the plan side there is an increase of the order of Rs. 90,000 crores distributed across ‘inclusive growth” sectors.
Mr Mukherjee called for hard decisions and accelerating the reform process. But there is an air of tentativeness about the Budget inasmuch he expects to work for political consensus with States on FDI in multi-brand retail and for finalising other reforms under “active” consideration like allowing foreign airlines to acquire 49 per cent in domestic aviation and giving a push to financial sector legislation. He has, however, announced some initiatives to give a boost to infrastructure both by way of facilitating a higher level of tax-free investment in bonds, extending the scope of viability funds for a variety of infrastructural projects and customs duty concessions for imports for power projects.
For additional resource mobilisation, Mr Mukherjee has relied mainly by revising the excise and service tax rates back to 12 per cent from the 10 per cent to which it was lowered as part of fiscal stimulus in 2009/10. He has had to mount an indirect tax effort, which net of reliefs in personal income tax, would yield Rs. 41,440 crores in the new fiscal year. He has raised the income tax exemption limit for individuals from Rs.180,000 to Rs.2 lakh and readjusted the slabs to 10 per cent for incomes between Rs. two to five lakh, 20 per cent in the 5-10 lakh slab and 30 per cent for incomes above Rs. 10 lakh. The corporate tax structure has been left untouched.
The Finance Minister assumes that he would be able to get the Direct Tax Code enacted and implemented during the new fiscal year while the expectation is also that the Goods and Service Tax, which has passed through several stages of consultation with States, could be operationalised in August 2012. The budget estimates for next year are based on stronger recovery than seen so far of the economy which is expected to register a growth of around 7.6 per cent in 2012/13 after the dismal 6.9 per cent in the current year while the budget had targeted 8,5 per cent.
Subsidy reform is again confined to fertilisers where it is planned to effect direct transfer of subsidy to retailer and the farmer. The present subsidy under food and for the food security bill would be fully protected. There was no reference to policy on deregulation of diesel prices. The Finance Minister, however, announced direct cash subsidy for LPG and kerosene users. While some subsidies are unavoidable, efforts would be made to limit the level of subsidy expenditure within 2 per cent of GDP. “It would be our endeavour to roll out other experiments in the next six months” he said. IPA