In my last article, urgently penned
in the afternoon of Budget Day, I described it as an
unambitious and possibly do-able budget, with some
utterly horrible retrospective tax amendments. My
upset with those amendments remain. And the more I
go through the minutiae of the Union Budget 2012-13,
the less I think of it.
My objections aren’t about “Why didn’t Pranab
Mukherjee announce a slew of major reforms?” — a
common sentiment that has been making the rounds
since 16 March. I didn’t expect a man seriously
hamstrung by the worst of coalition politics and
belonging to a party that got drubbed in UP, Punjab
and Goa to announce a budget unfurling long-awaited
reforms with the flourish of trumpets and roll of
My overpowering disenchantment has to do with a
single word, ‘credibility’. Credible means
convincing, believable, dependable and reliable.
This budget is not credible. Not by far.
Let’s start with the record for 2011-12, and compare
the budget estimates (BE) with the revised estimates
(RE). Take disinvestment. Pranab-babu had set a
modest target of Rs.40,000 crore. Easily achievable
if the machinery had got into motion in time. But it
didn’t. The people that matter suddenly woke up
towards the end of the third quarter of fiscal year
with an “OMG, we got to get 40,000! What do we do?”
In an utterly hasty, unplanned, unconvincing way,
the babus corralled ONGC for a 5 per cent stake
sale. They also told the lead managers how to run
their business, and at what price point to make the
offer. Then, at the eleventh hour and fifty-ninth
minute, as the issue was failing miserably, they
bullied the Ministry of Finance’s cashier of last
resort, the Life Insurance Corporation, to
subscribe. So, versus a BE of Rs.40,000 crore, the
RE was Rs.15,493 crore. No credibility.
Now look at the major subsidies. The BE on account
of food subsidies was Rs.60,573 crore. The RE was 20
per cent more, at Rs.72,823 crore. The BE on
fertiliser subsidies was Rs.49,998. It was overshot
by 34 per cent to Rs.67,199 crore. The petroleum
subsidy was budgeted at Rs.23,640 crore —Lord knows
why, because by the second half of February 2011,
crude was reigning at above $100 per barrel. The RE
was almost three times that amount at Rs.68,481
crore. Where is the credibility?
On to the fiscal deficit. The BE was Rs.4,12,817
crore or 4.6 per cent of GDP. It was overshot by a
hefty 26 per cent, or an additional Rs.1,09,163
crore. To put it in perspective, the extra fiscal
deficit alone could have given almost 91 million
poor people cash for 100 days of work at Rs.120 per
Has this huge deficit helped to raise public sector
or public-private investment? The answer is an
emphatic no. Total capital expenditure under plan
and non-plan has, in fact, fallen by 2 per cent —
from a BE of Rs.1,60,567 crore to an RE of
Rs.1,56,780 crore. Instead, it has gone to finance
consumption: food, fertiliser and petroleum
subsidies; interest subsidies; wage and salary
payments; and grants to state governments and union
territories. Consequently, India’s gross fixed
capital formation has fallen from 35 per cent of GDP
— itself inadequate to support 9 per cent growth —
to 30 per cent. No credibility worth the name.
Given this scenario for RE 2011-12, why should we
believe the BE for 2012-13? Consider some numbers.
The food subsidy is budgeted at Rs.75,000 crore — a
mere Rs.2,177 crore above the RE of 2011-12. When
the Food Security Bill is enacted soon enough this
year, it will raise the subsidy by at least 0.3 per
cent of GDP if not 0.4 per cent in its first year.
That is an additional burden of Rs.30,000 crore to
Rs.40,000 crore. Where does that figure in the BE
Consider petroleum subsidy. Crude oil is now ruling
at $122 per barrel. There is a high probability of
an international crisis conflagrating in Iran. How,
then, does Pranab-babu budget for the petroleum
subsidy to come down from the RE of Rs.68,481 crore
in 2011-12 to a BE of Rs,43,580 crore? He can’t cut
either the diesel or the kerosene subsidy in any
significant way. How then can he meet this target?
Similarly, fertilisers, where the subsidy is bound
to rise with an increase in the price of naphtha. To
say that the Aadhar scheme will fix this is wishful
thinking. It won’t, because this government cannot
stomach the politics of cutting subsidies.
No credibility. So, I don’t believe the fiscal
deficit numbers projected by Pranab-babu. It will
overshoot the 2012-13 BE of Rs.5,13,590 crore by at
least 10 per cent — or by over Rs.51,000 crore.
Maybe more. It doesn’t matter. For nothing is
believable in this government. Least of all a Union
budget. Incredible, isn’t it?
Published: Business World, April