Budget 2012: Failed nerves of a failing regime

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Rijul Singh Uppal 20 Mar 2012

With all the compulsions of a coalition Government with difficult partners and various pulls and pressures to cope with, there were nevertheless some expectations from the budget which Mr. Pranab Mukherjee has failed abysmally to deliver. The poor and the middle class, groaning under unprecedented price rises over the past two years, not to mention runaway inflation, hoped for a decent respite from the budget, particularly after the humiliation the Congress party faced in the recent assembly elections, which triggered speculation over mid-term polls. The inspiring railway budget raised hopes of a remarkable financial plan, but it was all a mirage.

De-regulation of diesel prices and reduction of the subsidy burden

The Finance Minister did not even attempt to check the misuse of diesel subsidies. Originally meant for Transport (trucks, buses), Agriculture, and Industry, today, upper segment passenger cars and fuel-guzzling utility vehicles have emerged as the second largest consumer of subsidised diesel.

In 2009, the government pointed to the need to reduce the subsidy burden on the exchequer while de-regulating petrol prices. But it failed to consider that the Indian middle class relies heavily on petrol cars, while diesel cars are the choice of the One Percent. The de-regulation of petrol prices created a spiral increase in the number of diesel cars in the country, and of course, led to windfall profits for automobile manufacturers.

Not only did the Finance Minister fail to set up a mechanism for eventual reduction of diesel subsidies, he failed to bring in an alternate mechanism to ensure recovery from private passenger cars and reduce losses of the oil marketing companies.

He did say that subsidies would be capped at 2% of the GDP, but he also said that the Food Security Bill, whenever ushered in, would be fully funded. This would leave a very small fund for fuel and other subsidies, and as the government is in no mood to de-regulate diesel prices, the burden of lower fuel subsidies would be passed on to the petrol-dependent ordinary middle class.

The fiscal deficit, in fact, could be partly abridged by reducing the diesel subsidy. The increase in service tax and excise duty to reduce the deficit would not have been required, and this is in a sense now going to further sponsor these subsidies.

Aadhaar

The finance minister has allocated Rs. 14,232 crores for the Nandan Nilekani led Aadhaar Project, emphasising the use of Aadhaar for receiving Government subsidies: “The Aadhaar platform is now ready to support the payments of MGNREGA; old age, widow and disability pensions; and scholarships directly to the beneficiary accounts in selected areas”.

But the Aadhaar project is till date un-constitutional and does not have legislative consent. Even the Parliamentary Standing Committee rejected the Bill proposed by the government. Is it wise of Mr. Mukherjee to invest such a huge amount in Aadhaar, which might fail to get parliamentary support when reintroduced, probably only in the monsoon session. As of now, there is grave uncertainly over the survival and longevity of the government. (For the writers’ views on Aadhaar, see links below).

Doomed social welfare schemes: MGNREGA and NRHM

It is now well established that the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and National Rural Health Mission (NRHM) are plagued with corruption and have proved useless as welfare schemes. These schemes have grabbed the headlines only for the lack of any achievement and for deep-rooted corruption.

The finance minister, in budget 2012, granted 33,000 crores to MGNREGA, down 17.5% from the previous allocation of 40,000 crores. This reduction is an admission that this scheme has performed poorly. Indeed, there has been a fall in the number of days of employment guaranteed under the scheme. There are also complaints of irregularities, under-payments, lack of transparency… The flagship scheme has proved useless and has not generated any real employment in rural India.

The finance minister also allotted Rs. 20,822 crores for NRHM, up from the previous 18,115 crores. Both schemes are in crisis and need to be replaced by viable ones. So why are the schemes still being funded so heavily? Just to keep some supremos happy?

Increase in Indirect taxes

As services account for nearly 60% of all economic activity in the country, hikes naturally trigger a price rise. This means we may face a situation worse than the raging inflation of 2011. With oil prices rising, and food prices spurting, this new ‘bold’ move of the Finance Minister will erode the savings of the aam-aadmi. The niggardly increase in the tax exemption limit is like salt on an open wound when compared to the additional expenses that people will have to shoulder.

Trinamool’s dubious role

The views of the UPA’s key ally, the Trinamool Congress, are conflicting and have led to a steep decline in the party’s popularity. Trinamool Congress found the railway budget intolerable – when the budget was welcomed by all the rail-going janata – and created a national hungama to demand a rollback in the proposed fare hikes. Then, as the nation as a whole reeled under the shock of Budget 2012, an MP from the party deemed the budget “tolerable”.

Conclusion

A document released with the budget papers, “Revenue forgone under the Central Tax System: Financial Years 2010-11 and 2011-12”, reveals that the benefit to private companies from taxes and duties not collected stands at around Rs. 5,00,000 crores (that’s five lakh crores). It’s a freebie.

Collection of these taxes and duties could alone have taken care of the fiscal deficit. It is time to trim many corporate tax-cuts and concessions as they aren’t necessary anymore. If corporate India can’t function without continuous concessions on running businesses, then we must end all talk of further privatisation and FDI. Foregoing revenue from the One Percent and putting unbearable financial burden on the aam-aadmi to bridge the fiscal gap is shameful! It’s bad economics, and bad politics.

Regarding the problems faced by the Indian middle class and the need to provide more for the middle class, the government and its many “experts” keep harping on the rise in India’s per capita income. Many are of the opinion that the middle class should be happy with what it has and should stop complaining.

How can the Finance Minister ignore reports about the stark decline in savings of the Indian Middle Class due to poor policy making?

There is no assurance of improvement of livelihood conditions. Even with the GDP growth, there is no real inclusive growth due to the policies of the government.

All the pet projects of UPA-I and UPA-II are failing; some are colossal failures. Yet the government repeatedly comes up with policies favouring only the One Percent. That is why it is time for this government to go. BJP would do well to bring the government down, rather than let the sinking ship take it down.


The author is a student

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