Millennium Post

AAP shadow over the Union Budget

The Aam Aadmi Party’s (AAP) stupendous victory in Delhi seems to have put pressure on the Bharatiya Janata Party (BJP)-led Centre’s first annual Budget. As per reports, the Budget has sought to cut subsidies meant for the poor, lower taxes for the middle class and corporates and provide a whole lot of incentives to entrepreneurs. The AAP’s promises of free water supply and cheaper electricity, meanwhile, were directed to the poorer sections of society.

The discomfort for the current dispensation at the Centre stems from the AAP’s offer of cheaper food, lower electricity costs, and better access to education, besides lower health expenses to the poor and acting against those officials who made them dearer in consonance with the previous government. Admittedly, the AAP’s area of control is small and its problems are limited. Revenue is large. Corruption is big. A cut in corrupt practices by officials, however, may produce enough additional revenue to fund policies for the poor.

The Centre’s upcoming Budget has none of the AAP’s agenda on its table. Its performance parameters are different. Most of the problems are acute and delivery needs are urgent, since the earlier dispensation did not perform for full three years before the BJP-led NDA government took charge in May 2014. The previous government almost worked on autopilot. Massive theft of important natural resources – from coal, iron ore, bauxite, airwaves to energy – poor defence preparedness, falling domestic production, rising gold imports and a weakening monetary system put the government on the defensive. There was no easy way out. The Narendra Modi government, which has already spent almost 15 per cent of its 60-month tenure, is yet to take any major step towards changing the scenario.

The first full Budget of 2015-16 has been billed to bring about a rapid change in the economy, alter its foreign policy focus and strengthen India’s defence. AAP leader Arvind Kejriwal’s massive victory in Delhi, where his party won over 95 per cent of the Assembly seats on the simple promise to lift the life of the ordinary citizen and tackle corruption, however, has shaken the Modi-led government’s confidence for now. The Modi-led government’s first full-Budget exercise will therefore focus more on its macro agenda rather than micro issues. The BJP had won all the seven Lok Sabha seats from Delhi last May. Earlier this month, it managed just three out of Delhi’s 70 Assembly seats. The Congress was totally wiped out. In truth, the BJP suffered a massive loss of credibility in Delhi.

In fact, Modi is not known to be sitting on piles of extra money to subsidise food, electricity, healthcare, education, and the social sector. The Centre is trying to cut costs on them, since it is running a huge Budget deficit. The mid-year international oil price crash, which has begun to rise again, lower inflation increase, higher tax collection and cut in government expenditure, had little impact on the current year’s Budget deficit. The massive capital market surge over the past several months did not improve the government’s disinvestment sale of PSU stocks. The proposed sale of airwaves may incur further delays because some service providers are planning to move the court and secure stay orders against the auction after the government raised base prices. The sale was meant to bring close to Rs 1 lakh crore and reduce the Budget deficit. A move by the industry, although unlikely, is not impossible.

The new series of GDP figures suggest rising growth but only in the statistical sense. Absolute figures have changed a little although; some of them look a little lower than previous numbers. The substantial fall in global crude oil prices was good news. This had a positive impact on the wholesale price index, though the retail consumer price index is moving up. As we near February 28, various sectors are lobbying hard to lower taxes and duties, while others want the government to ensure a stable taxation regime.

Various groups and consultants, lobbying for multinational companies want the government to establish clarity on taxation, in the event of sale or indirect transfer of Indian operations. There also exists a solid case for further incentivizing financial savings for individual taxpayers. The Finance Minister’s immediate concern is to stick to the Budgeted fiscal deficit figure for this year. At the same time he is under pressure to cut down inflation and reduce subsidies. The linkage of auto fuels with international prices by the previous government has helped the government. Funds for defence, environment, improvement, and the overhauling of the infrastructure, however, will substantially raise the government’s expenditure.

Better management of India’s external trade, big push towards foreign direct investment in many areas, including electronics, defence, and infrastructure, funds for ongoing Swacch Bharat, cleaning the Ganga, e-governance and investment in the social sector will substantially boost the government’s expenditure. The gross Budget expenditure could go up to Rs 20 lakh crore, with over 30 per cent of the sum for debt servicing in 2015-16. The government has been advised to spend less on subsidies to present a more productive Budget. Such a stance, however, stands in total opposition to AAP leader Arvind Kejriwal’s pro-poor policies.  The government is keen to see the economy grow by around 8 per cent in 2015-16. At the same time, the government is trying its best, by blocking DGS&D purchases and working on other cuts in expenditure of around Rs 91 billion, to achieve the fiscal deficit target at 4.1 per cent of GDP.     IPA
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