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editorials

july 11, 2009 vol xliv no 28 EPW Economic & Political Weekly6

smk n M n h Unn Bug

Budget 2009 claims to use fscal expansion to prop up growth, but does it do enough on this score?

For one brie moment, Union Finance Minister Pranab

Mukherjee seemed willing to put the annual ritual in its

place. a single Budget Speech cannot solve all ourproblems he said, signalling his readiness to swim against

the once-a-year tide o media and market hysteria about The

Budget. But it was only a moment. Soon the nance minister

lapsed into the budget tradition o smoke and mirrors: compar-

ing like with unlike, going beyond the acts and trying to oer

a little bit or everybody.

It was in the end a strange exercise. At one level, Pranab

Mukherjee seemed to give expression to the eeling in a

section o the Congress Party that it owed its victory to its aam

aadmi programmes and should thereore ocus on them.

Hence the (promised) expansion o welare programmes, the

willingness to put growth over the needs o scal unda-

mentalism and the unwillingness to do what the stock market

expected rom the Union Budget or 2009-10.

But the rst budget o the second United Progressive Alliance

(UPA) government has two aces. It has budgeted or a larger

scal decit, but it does not reject scal undamentalism. It

only postpones the planned reduction o the scal decit to the

uture. It reiterates government majority ownership o banks,

but makes it clear that the broader process o disinvestment

(peoples participation) is on the agenda. It speaks about new

and expanded welare programmes, but makes inadequate

provision or them.I there is a central idea that marks Budget 2009 out rom its

more immediate predecessors, it is that it places an emphasis

on using government spending to sustain growth. This is a

logical ollow-up to the changes in the growth process that

took place during 2008-09 when the global crisis hit Indian

shores. TheEconomic Survey 2008-09has pointed out that the

usually large contribution o private consumption to growth

collapsed last year. I the economy yet grew by 6.7% it was

because government consumption compensated with a larger

than usual contribution to growth. Since the crisis is not yet

behind us, it makes perect economic sense that the budget

provides or increased government outlay preerably on

investment to boost demand. This is what the Budget 2009

tries to do, but does it do enough?

The nance minister claimed that gross budgetary support

or the Central Plan would go up by Rs 35,000 crore in

2009-10 (budget estimates or BE) when compared to the 2008-

09 revised estimates (RE). However, total Plan expenditure

on the Central Plan and on assistance to the State Plans,

which is the larger gure and thereore what matters is

budgeted to rise more slowly in the current scal year com-

pared to last year: 14.9% (2009-10 BE over 2008-09 RE)

versus as much as 36.3% (2008-09 RE over 2007-08 actuals).Pranab Mukherjee would be right in arguing that 2008-09 was

exceptional. He could also argue that just as the UPA-1

government went beyond the 2008-09 BE allocations it will

be able to do the same this year. The nance minister couldalso point out that the slowdown and the tax cuts have

aected the centres revenues and thereore limited the room

or scal expansion.

True, collection o all taxes other than on services were,

according to the 2008-09 RE, lower than budgeted and the

2009-10 BE are cautious in projecting growth only o

corporation tax revenue. The question then is why, in these

dicult times, has Budget 2009 given signicant tax

concessions? The surcharge on taxable incomes o more than

Rs 10 lakh a year (the cream o Indian society) will result

in an annual loss o Rs 10,000 crore. The abolition o

the Fringe Benets Tax which, it is claimed, will now all in

another orm on employees will mean the loss o another

Rs 7,000 crore. These are not small amounts. These decisions

perhaps symbolise another aspect o Budget 2009 that

in the end the UPA-2 government cannot quite hide where its

heart lies.

The unwillingness to tap all sources o tax revenue also

means that the government has to embark in 2009-10 on its

largest ever borrowing programme o Rs 4,00,996 crore. The

ears o the market about the impact o borrowing o this

magnitude may be misplaced. Yet the overall (sel-imposed)

constraint on resource mobilisation means that many o theso-called fagship programmes have been let under-unded.

The National Food Security Act is to be legislated, but the

budgeted increase o Rs 10,980 crore in the ood subsidy

this year is grossly inadequate or a programme that will

provide 25 kg o cereals to all amilies below the poverty line

at Rs 3 a kg. The wage rate paid under the National Rural

Employment Guarantee Scheme is to go up rom Rs 80 to

Rs 100 a day, but the budgeted increase in allocation is

only Rs 2,350 crore over the Rs 36,750 crore spent, according

to the 2008-09 RE. Likewise, the allocations or primary

education (or which the Right to Education Bill is to be nally

enacted shortly) and the Integrated Child Development

Services scheme are ar below what will be required or the

promised universalisation.

To be air to the Ministry o Finance, under-provision in the

budget has not stood in the way o a subsequent step-up in

allocation. Last year, or instance, Pranab Mukherjees

predecessor said the NREGS would be introduced in all

districts, but the budget provided or a mere Rs 180 crore

increase. Under political direction, unding rose during the

course o the year by Rs 22,350 crore. This may well be

repeated this year. A dierent question then arises: What

integrity does a budget have i allocations in importantareas are only one-third o what is required?