October 21, 2020
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Budget 2008-2009

'Half-Hearted Attempts'

A disturbing aspect is its failure to provide an adequate fiscal stimulus to the Indian economy at a time when the world economy is poised for a downturn and the rupee has appreciated against the dollar, adversely affecting growth and employment gene

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'Half-Hearted Attempts'

The Polit Bureau of the Communist Party of India (Marxist) has issued the following statement: On Union Budget 2008-09

The Union Budget 2008-09 was expected to tackle the glaring problems faced by the people--agrarian distress, price rise and unemployment. While some positive steps have been taken in the Budget in this regard, they fall far short of what is required to address the concerns effectively.

The Finance Minister’s announcement of debt relief for farmers in the Budget is a welcome and long overdue step. But the debt relief measures proposed are deficient in some aspects, since they would exclude the bulk of the small and marginal farmers of dryland areas who typically own more than 2 hectares of land; the measures also do nothing to provide relief against the debt owed by the peasants to private money-lenders, which is estimated at more than two-thirds of total farm debt. Moreover, actual increases in plan outlays on agriculture have not matched the pro-farmer rhetoric with the allocation for irrigation actually witnessing a fall over last year’s Budget.

Budget 2008-09 has not addressed the inflationary trends in the economy adequately, especially with regard to food and fuel prices. The food subsidy is budgeted to increase by only about 3.5% over 2007-08 (RE), which actually entails a reduction in real food subsidy since the Budget assumes an over 6% inflation rate. It is clear that the Government does not envisage an expansion of the PDS in order to provide protection to the people against rising food prices. While the shift from the ad valorem to a specific rate on the excise duty on unbranded petroleum is a welcome measure, this would not have any impact on the high fuel prices. Petrol and diesel prices could have been brought down had there been similar restructuring of the customs duties on petro products.

Income tax relief for the middle class announced in the Budget is a positive step. Likewise, the increase in the rate of the short-term capital gains from 10% to 15% and the introduction of a commodity transactions tax on the lines of the STT are also welcome. But these have been offset by a series of concessions to big business such as an across-the-board decrease in the CENVAT rate from 16% to 14% (which would not benefit consumers) and other unwarranted concessions like tax holidays for private hotels.

A disturbing aspect of Budget 2008-09 is its failure to provide an adequate fiscal stimulus to the Indian economy at a time when the world economy is poised for a downturn and the rupee has appreciated against the dollar, adversely affecting growth and employment generation. This is evident from the fact that, although the Finance Minister has budgeted for a 17.5% increase in tax revenues over 2007-08 (RE), revenue expenditure net of interest is budgeted to increase by 12.2%, and capital expenditure (after adjusting for book transactions) by a mere 8.8%. Thus the opportunities provided by the rising tax revenues have not been properly utilized. Neither has sufficient impetus been provided for the Eleventh Plan. The Gross Budgetary Support for the Plan has been increased in Budget 2008-09 by Rs. 38286 crore over last year’s Budget, against Rs. 60000 crore suggested by the Left Parties in the pre-Budget memorandum. This is a reflection of fiscal conservatism in keeping with the retrograde economic philosophy of the FRBM Act.

Budget 2008-09 has made some increases in the outlays for the socially deprived sections like Scheduled Castes, Scheduled Tribes and women. The increased allocations for multi-sectoral development plans and branch expansions of public sector banks in minority concentrated districts as well as enhanced allocations for madrassa modernisation are in keeping with the recommendations of the Sachar Committee. These are welcome steps.

Some increases in the outlays for higher and technical education have been made in Budget 2008-09, but the increase in elementary education shows only a marginal increase. It is unfortunate, especially in the light of the latest Economic Survey noting that total public expenditure on education was only 2.84% of GDP in 2007-08. It is evident that the NCMP commitment of increasing education spending to 6% of GDP and universalizing school education will remain elusive. Some increase in the remuneration for anganwadi workers and helpers has been announced in the Budget, which is a welcome step. But the level of remuneration still remains below minimum wages. Moreover, the universalisation of the ICDS as mandated by the Supreme Court would require much more than the insignificant increase in allocation of Rs 880 crore made in Budget 2008-09. Similarly, the 12% increase in allocation for the National Rural Health Mission means that spending under this flagship programme will fall as a proportion of GDP. With the Economic Survey showing public expenditure on health to be 1.39% of the GDP in 2007-08, another crucial commitment of the NCMP to increase expenditure on health to 2-3% of GDP, has been given a go by.

It is estimated that there are over 35 crore workers in the unorganised sector. The Budget has helped only a fraction of them through the extension of the existing insurance schemes, which is a far cry from the recommendations of the National Commission for Enterprises in the Unorganised Sector. Moreover, while the Finance Minister has assured that the NREGS outlay would be increased in accordance with demand, the fact that the outlay has been increased by around 20% only in Budget 2008-09, when the number of districts covered under the scheme has almost doubled does not provide the appropriate signal.

Overall, given the half-hearted attempts made in Budget 2008-09, which is the last budget of the UPA Government, it does not seem likely that the crucial commitments for peoples’ welfare made in the NCMP can be met.

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