Month: March 2011

The Union Budget 2011-2012 according to the economic advisor to the Government of India and the architect of budget document, Kaushik Basu, is admittedly not a game changer. But he also said, because it is not a game changer as many other previous budgets were thought to be, it will in a paradoxical way prove to be more or a game changer than past budgets. Today’s budget did not indeed have any spectacular pronouncements to make. On the other hand, Basu explains that this is a professional budget, implying it is not populist in nature, and one which is meant to keep the nation firmly on the beaten track and ensure a win in the end. He says that budgets should not be a sensational document attracting banner headlines every year for this can raise expectations to unrealistic levels. By way of an alibi he says budget of the rich industrialised nations are never exciting. There are others who disagree. They are of the opinion that for a rapidly expanding and growing economy like India, it is essential for it to be constantly reforming and exploring new possibilities so that it can sustain the growth and also absorb its shocks such as inflationary tendencies. They cite the example of China which has been doing precisely this and very successfully too.

Understandably the new tax and excise levy structures have pleased the industries. This mood of the industries was passed on to small investors as reflected in the sudden jump in the sensex value in the morning, although the value dropped considerably by the time the substance of the budget became clearer. However, a caveat needs to be thrown in here. The sensex reflects the mood of small investors and not exactly that of the industries as such. Initially these small investors probably thought there would be a jump in the stock prices hence the spurt of investment, but later realised there was nothing much to be had from it therefore the deflation of the initially mood. It was not in any way a critical commentary on the health of the companies they invested in, or for that matter the budget which made them do what they did, in any substantive way.
The budget also seeks to protect the salaried class by raising the ceiling for income tax exemption. What it did not do is to spell out similar measures to protect the non-salaried classes. This has grave implications for small impoverished states like Manipur. The money saved by the salaried classes, which in the state are virtually only government employees, would lead to inflationary tendencies in the local market. While the government employees who already have reasonably decent salaries can absorb this, it is the non-government employees whose earnings are generally pitiable, who will be put under considerable difficulties by such price rises. Such consequences are what this budget is accused of not giving enough thought to. The Communist parties for instance call it a budget that robs the poor and pays the rich.

There is another scathing criticism of the budget which those behind the budget philosophy this time would find difficult to dodge. It has continued with the heavy subsidies given to diesel oil under the pretext that this is in view of boosting the agriculture sector. It may very well be, but commerce being what it is, there are others waiting to take advantage. Car makers are increasingly turning to diesel to fuel their vehicles. The low diesel price is also encouraging these car makers to make bigger cars with bigger and more powerful engines that guzzle fuel, increasing harmful emission thus causing long term health hazards to all. While diesel subsidies may indeed be targeted at the agricultural sector and deservedly so, what the budget has not done alongside is to also make any effort to make sure that this subsidy is not taken advantage of by rich consumers of luxury sport utility vehicles, SUVs, and other fancy diesel motorcars. Since the subsidies cannot be done away with, what the government could have and should have also done is to hike up the taxes on SUVs and other diesel luxury vehicles, these critics point out. All in all, this Union Budget 2011-2012 was average in vision. But it remains to be seen if, as Kaushik Basu defended it, it is a budget although not exciting is professional and because and thus would prove to be a highly implementable and professionally executable.

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