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 A Far-Fetched Budget

Omkar Goswami


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 drums.

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 day!

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 for 2012-13?

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 2012


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