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Millennium Post

High on words, low on substance

Finance Minister Palaniappan Chidambaram has kept his word. He did not present a typical pre-election soft budget and tried hard to strike a balance between giveaways and takeaways, leaving a large section of top-end tax-payers, including the corporate sector and individual assessees, as well as the common man unhappy. The fiscal tightrope which he has been forced to walk on did not allow him to take risky steps. The poor performance of economy in 2012-2013 has turned his hands even less flexible.

Chidambaram’s eighth national budget is able to serve only a fistful while looking forward to take away a bagful to correct the fiscal imbalance and meet the less productive expenditure on the so-called social sector. In an unprecedented action, the finance minister has in a single stroke slashed Rs 60,000 crore government expenditure in the current fiscal. The next year’s proposed budget expenditure of Rs 16,65,000 crore is only about 10 per cent higher than the 2012-2013 original estimate of Rs 14,90,000 crore, or 12 per cent above the downward revised (RE) government spending for the year. The inflation and selective expenditure on ‘vote-catcher’ programmes focused on women, children, minorities, scheduled castes and tribes, the rural poor and the farming community will eat away much of the modest increase in the proposed government expenditure in 2013-2014.

The budget has been surprisingly harsh on the corporate sector and middle-income group or the vocal section of the society which will be additionally burdened to shell out Rs 19,000 crore in direct and indirect taxes. In apparent appreciation of the wishes of billionaire Azim Premji of Wipro, the country’s second richest man after Mukesh Ambani of Reliance Industries, he has introduced ‘super-tax’ for the super-rich having taxable annual income of Rs 1 crore and above by way of levying 10 per cent surcharge on the existing tax on the highest slab. Once again, the proposal is meant to be more of a political campaign tool to impress the common man than of any major consequence to the government revenue. There are only 42,800 persons who admit having a taxable income exceeding Rs 1 crore per year.

However, the 100 per cent surcharge hike, from 5 per cent to 10 per cent on domestic companies with taxable income exceeding Rs 10 crore per year and the foreign companies, which pay the higher rate of corporate tax, from 2 per cent to 5 per cent, are expected to raise substantial government revenue. The stock market – the Sensex and Nifty – reacted strongly to the budget proposals. By 3.30 pm, the BSE index had shed 224 points (1.17 per cent) and NSE 103 points (1.79 per cent). Ironically, the Sensex had surged 163 points ahead of the Finance Minister’s budget announcement in keeping with the trends of leading global stock indices. Hong Kong's Hang Seng index was up by 1.10 percent, while Japan's Nikkei index gained 1.45 per cent in early trade Thursday. The US Dow Jones Industrial Average ended 1.26 per cent higher yesterday.

The union budget had suddenly dampened the local market sentiment and spirit. While the government revenue will mostly be utilized to fund ballot box linked programmes, the corporate sector, including the much talked about infrastructure field, has been asked to finance projects through borrowing despite the fact that this year’s projected tax-free infrastructure bond target of Rs 60,000 crore failed miserably. In the last two years, a number of institutions were allowed to issue tax free bonds. They raised Rs 30,000 crore in 2011-2012 and are expected to raise about Rs 25,000 crore in 2012-2013. The budget has downsized the next year’s target to Rs 50,000 crore.

In keeping with the tradition, the budget proposals happily fiddled with customs levies, excise duties and service tax, some logically, on a host of items to mop up additional Rs 4,700 crore in indirect taxes.

The babus at the central board of excise and customs (CBEC) are generally at their best when it comes to fiddling with the taxes and nomenclatures. It did not even spare imported steam coal and bituminous coal meant for power generation. They were clubbed under the same category for the customs levy and countervailing duty (CVD) charges.

The cost of generation of power plants using 100 per cent or near about domestic coal may go up substantially following the proposal of a unified import-linked coal price. The country is poised for a record volume of coal import this year with the April-December arrival figure put at 100 million tonnes. Electricity company scrips, including majority state-owned NTPC, were depressed and traded below their last closing, which serves hardly the right message to investors, domestic or foreign, in large core sector projects.

Whether his 2013-2014 budget measures yields the desired results through their reflection on the Congress party’s scheduled year-end vote counts will depend on several political factors and on how soon or late the party decides to seek another mandate to govern.

The well-calculated budget proposals give an impression that barring compelling circumstances the government would like to hang on to its full tenure to ensure better economic health of the nation and bring back the atmosphere of optimism for the public before it hangs up the boots and readies for the Lok Sabha election. However, in all fairness to Chidambaram, who is known for ability to take strong decisions, it must be the current political compulsions that have subdued his otherwise chosen path of aggression on the economic reform front without mincing words to accelerate growth.

The budget has, once again, let go the opportunity to curb the growth of black economy and conspicuous consumption which are at the root of the slow GDP growth, high current account deficit and large fiscal deficit.

There is no direction to end the impasse over the implementation of large number of core and infrastructure projects held up due to ministerial interference and poor centre-state relations. It also carries of the risk of being unpopular among its intended beneficiaries at the end of the year. (IPA)
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