B U D G E T    S P E C I A L

PC’s hits and misses
Chidambaram displayed discipline in not succumbing to the demands of an election budget, and made a sincere effort to revive the economy while giving a boost to critical sectors. Questions, however, remain if he has the cash to back it all

Banking too heavily on growth
Manpreet Badal, Punjab ex-Finance Minister; president, People’s Party of Punjab

In the run-up to P. Chidambaram’s eighth budget, there was anticipation of “dream budget”, a la 1997. However, it was a rather down-to-earth affair as the Finance Minister tried to rid India Inc. of its worst nightmares! A GDP growth rate of 4.5% (last quarter of 2012) is hardly the stuff of dreams and throughout his speech the Finance Minister’s refrain was “All is well”.

India’s economic history over the past few decades reads like a black comedy. In 1991, we faced the balance of payment crisis, in 2001 institutional investment took flight in the meltdown of our dotcom dream, and now a decade later there is a clear danger of international rating agencies downgrading our credit worthiness, which could lead to exodus of foreign capital.

This is the reason Chidambaram has gone out of the way to show the government’s commitment to curtailing fiscal deficit. The deficit threatened to go beyond 6 per cent of the GDP, and by keeping it at 5.2 per cent, and promising to bring it down to 4.8 per cent in the next fiscal, Chidambaram has warded off the threat of rating downgrade.

I dare say he is being overly optimistic. His subsidy expenditure will still be Rs 2.31 lakh crore, and to assume this would not swell would be naiveté. The Food Security Bill would cost much more than the Rs 10,000 crore the Finance Minister has provided for, especially when it is billed to be the comeback talisman for the UPA.

The Finance Minister is hoping to garner handsomely from tax collections —19 per cent growth in revenues! As per the Economic Survey, the GDP growth for the next fiscal is going to be around 6 per cent. Let us make an optimistic assumption of 8 per cent rate of inflation. As per the budget document, our nominal GDP growth is 13.5 per cent. This means the actual GDP growth is going to be 5.5 per cent (13.5-8!) and even the 6 per cent target set by the Economic Survey would require an outstanding effort. To expect an economy growing at 5.5-6 per cent to generate a tax revenue growth of 19 per cent is asking for the moon. For the nation’s sake, I hope Chidambaram is able to achieve it.


Similarly, the FM has doubled the target for “other capital receipts”, a financial euphemism for disinvestment, spectrum sales, etc. This too is overly ambitious. Many companies, including Norway’s Telenor and Russia’s Sistema, are finding it difficult to sustain Indian operations. The leaderships of all groups have stated spectrum in India is highly overpriced. How does the FM expect them to pay more? Similarly, disinvestment in an election year would be extremely difficult.

All this, of course, can change if the economy does outperform even the most optimistic estimates, and for that the Finance Minister is looking to investments and savings. He is dissuading people from investing in gold and debt mutual funds and asking them to park their money in banks, which he hopes will increase credit to the industry. He also announced an allowance of 15 per cent of investments in excess of Rs100 crore. But again, there are far too many ‘ifs’ here. Will the industry invest in capacity expansion despite the tax, environment, land acquisition and other government issues? Will the RBI bring down the interest rates?

There are too many questions the budget has left unanswered. It was one of the shortest and least interrupted speeches by a Finance Minister. The most extreme reaction the budget evoked was, surprisingly, a smile from the Leader of the Opposition when the FM announced a bank for women. I hope there is a smile on the faces of all Indians.

Foodgrain storage given the miss
Dr Manjit S Kang, former VC, PAU, Ludhiana

Agricultural allocation has been enhanced by 22 per cent, which is less considering the inflation. Green Revolution for East India continues to be supported. This will lift some pressure off Punjab, Haryana and western UP that have been contributing up to 95 per cent to the Central pool.

There is no allocation for enhancing foodgrain storage. If the estimated 15-20 per cent of foodgrains rotting in open storage can be saved, it would constitute a “green revolution”.

Punjab did not get the requested Rs 5,000 crore for diversification; Rs 500 crore was announced for the purpose. The PAU should have got some support to boost research related to crops neglected during the Green Revolution era.

Equal focus on growth, equity
Malvinder Mohan Singh, Chairman, CII (Northern Region)

IT is balanced with equal priority to growth and equity. The theme of high growth and inclusive development has been maintained. There is focus on the social sector with a 30 per cent additional allocation, emphasising health and education. Outlay on rural development is up 46 per cent and infrastructure has been given a boost. The infusion of Rs 14,000 crore in PSU banks, commitment to the development of a pervasive ATM network and greater flexibility for banks in retailing financial products, including micro insurance, are welcome steps.

Investment allowance of 15 per cent to industries with investment of over Rs 100 crore in plant and machinery for 2013-15 will help in reviving the manufacturing sector. Extending non-tax benefits for three years to graduating MSMEs will encourage them to grow. Availability of finance, which is a bottleneck for MSMEs, has been addressed by enhancing the annual refinancing capability of SIDBI to Rs 10,000 crore and setting aside Rs 500 crore for Credit Guarantee Fund for factoring.

Measures to improve debt markets will help make long-term finance available to projects. The commitment towards rolling out the GST and DTC at the earliest, setting up of a tax administration and reforms commission to periodically review application of tax policies and laws, setting up of a road regulatory authority, constitution of a standing council of experts to analyse international competitiveness, clarification on GAAR, FDI and FII are measures in the right direction.

Diversification fund notional
SS Johl, agriculture economist

There is solace the government has woken up to the fact that Green Revolution areas, including Punjab and Haryana, are suffering from depleting ground-water table and poisoning of soil and water, along with declining productivity. With food grain stores bursting at the seams, the Centre is worried about losses, particularly when consuming states are progressing towards self-sufficiency. The allocations reflect the concern, with allocations for it enhanced second highest at 22 per cent, next to health health. Increase in the total budgeted expenditure this year is only 16.69 per cent higher than the estimated actual expenditure of last year. However, these allocations are tilted more towards the North-East. What comes to the share of Green Revolution states from other allocations such as farm credit is not clear. In spite of higher allocations, these states have been given a paltry sum of Rs 500 crore for diversification.

Diversification in Punjab alone will have no meaning unless 1 million hectare of area under paddy is replaced with higher value crops. In 2002, the cost of incentives for this purpose was estimated at Rs 1,650 crore. Moreover, diversification cannot take place with money alone. This requires policy framework that lays down firm parameters for change. Highly subsidised inputs, specially water and power, will never let it happen under the existing political dispensations. Unless input subsidies are converted to focused investment subsidies, no amount of funds will bring about perceptible change. It is hoped the empowered group of ministers will keep this in mind. The more productive way for Punjab to spend money will be on research to develop higher value alternative crops and other farm enterprises. That may take time, but the results will be satisfying.

No cover against crop damage
Dr SS Chahar, Senior Professor, Dept of Sociology, MDU, Rohtak

No scheme has been declared for Haryana. Women may benefit from the women’s bank and Nirbhaya Fund. Nothing is mentioned for the youth, except a scheme for skill development to help them get jobs.

The FM talks of textile industry rejuvenation by exempting excise duty, but the handloom industry in Panipat and Karnal has been ignored. Urban Haryanvis will benefit under the new health mission as it is combined with the rural mission by providing an additional Rs 1,000 crore. However, this would affect those in rural areas.

No package has been given to farmers in case of crop failure or damage. Input costs are up, but the MSP has not been enhanced.

Nothing for the salaried class
Dr Rajesh Gill, Senate member, Panjab University, Chandigarh

The Budget is far from exciting for a common citizen. It is cautious in view of the elections next year. The FM’s assurance that only the super rich shall pay a surcharge of 10 per cent is not encouraging as no changes have been made in tax slabs.

He spoke about the super rich and the poor, but what about the huge middle class, including the salaried class, whose tax is deducted at source? The realisation that this hard-earned money goes into expenditure on luxuries enjoyed by a privileged few having no connect with ordinary citizens is discomforting.

Talking of women banks and allocating funds to the Ministry of Women and Child Welfare and calling it Gender Budget is a mockery. Do we want to segregate them? How long shall we wait for involving them in the process of development and nation building, rather than granting candies to them?

One wonders where will the Rs 1,000 crore for Nirbhaya Fund go and where will Rs 200 crore meant for schemes for women and children be spent. The youth expected crisp schemes to make them employable. The continuation of the National Skill Development Corporation looks attractive, but what and how is it going to deliver? One is unsure how funds for the Direct Benefit Transfer Scheme are going to reach the poor. With food inflation continuing to be the greatest worry; subsidies for farmers getting discarded; and choking of the middle class, the masses shall have to be patient while the rich, powerful and corrupt continue to divert allocations to their benefit.

For all, but belongs to none
Dr Pramod Kumar,  Director, IDC, Chandigarh

It is pro-people because it has taxed the super rich and informed the nation most of the wealth is with 40,000 persons, from whom Rs 13,000-crore tax shall be collected. It is pro-corporate as it has cut subsidies. It is pro-women because it has allocated resources to police and banking in the name of women. It is pro-youth as it promises to make them employable by imparting skills without giving impetus to economy for the generation of jobs. It is pro-urban because it promises efficient transport, and pro-rural as allocations have been increased manifold.

Agriculture has a higher outlay of 29.4 per cent for plan expenditure, but it has not addressed issues relating to availability of farm labourers in view of MNREGA, soil nutrition and mechanisation of post-harvest technologies.

It has allocated a mere Rs 500 crore for diversification without funds to increase productivity through research and technology inputs. The need is to diversify economy by a large inter-sectoral shift to high-productivity flexible agriculture. No efforts have been made to put in place institutional mechanisms to increase farmers' income. What does this add up to? Is there any focus? Does it reflect national priorities? The Budget reflects the great Indian dilemma whether to embrace global finance and Indian corporates; woo voters through direct transfer of money; or stand for the poor through institutionalised social development and empowerment. It is for the people to resolve this dilemma in the 2014 elections.

Bitter pill to swallow
Sakthivel Selvaraj, Sr Health Economist, Public Health Foundation of India

The slowing tax-GDP ratio, which is around 9 per cent, has been instrumental in expenditure compression in various sectors. This is true of the health sector as well. Despite good intentions of the government to shore up investment in this sector, as promised in the 12th Five Year Plan document, the story has been disappointing.

It has tried to window-dress numbers to show its commitment towards health. The real rise in the allocation is about 21 per cent from Rs 29,272 crore (revised estimates for 2012-13) to Rs 37,330 crore (budgeted estimate for 2013-14).

The amount budgeted for last year was Rs 34,488 crore against Rs 37,330 crore this year, a nominal increase of just about 8 per cent. This works out to just 1 per cent increase if inflation is netted out. The major share of the Health Ministry’s expenditure has been on the flagship National Rural Health Mission since 2005. The neglect of the urban component has been felt for long. The Budget has announced a unified National Health Mission. While it is a laudable initiative, the intention did not translate in allocation, with an allocation of Rs 2,224 crore.

While the 12th Five Year Plan document articulates the need for initiating steps in this plan to achieve universal health coverage, the meagre allocation and the absence of any clear roadmap, shows health is not a priority for this government. The promise to scale up government spending to 1.8 per cent of GDP at the end of the Plan is not only impossible to achieve, but also if the trend is any indicator, it may fall below 1 per cent.

Booster dose for medical colleges
Dr KK Talwar, Chairman, Medical Council of India

Strengthening nursing institutes and also medical colleges across the country will now come easier following the one-fifth increase in the healthcare allocation from last year. The increased allocation will encourage faster development. The state governments can make better use of their funds and upgrade medical colleges. The allocation to healthcare rose to Rs 37,330 crore from Rs 30,702 crore last year. The special allocation of Budget to six AIIMS-like institutions will make these fully functional by starting hospitals in the institutes.

These new institutions across six locations will be able to meet tertiary care needs of their regions. These institutions admitted their first batch of students in September 2012 and hospitals attached to colleges will be functional this year.

Taxing super rich not best idea
Sudha Sharma, former Chief Commissioner of Income Tax

The Budget speech oscillated between veiled populism and fixing the fiscal deficit target at 4.8 per cent, but the element of structural reform was lost. The investor friendly climate seemed hazy.

Fiscal deficit has been pegged by assuming 19 per cent buoyancy in revenue receipts plus high targets of disinvestment and 2G allocations at Rs 40,000 crore and Rs 20,000 crore. The increase is based on the presumption of 6.5 per cent growth. There are no structural fundamentals or reforms to raise the growth rate.

Crisis helps take bold decisions and it was a crisis situation as the current account deficit is the worst ever. If not handled now, it may shake the roots of the economy. The expenditure outlays look impressive, but only if they are well spent through good implementation and delivery systems. Promises on infrastructure development through PPP mode will only succeed if there is an investor friendly and a corruption free and transparent environment.

Taxing the super rich is not the best mode of raising revenues. Token outlays in food subsidy and other schemes of a recurring nature will bind successive governments due to electoral compulsions.

Do women need a separate bank? The fine print of the finance Bill is yet to be analysed, which may throw up more issues. It is a populist Budget from the back door, with few sharp pricks for some. The saving grace is, so far, there is no downgrade in rating as the fiscal deficit is projected as promised.

A letdown for women
TN Seema, National Vice-President, All India Democratic Women’s Association

The allocations for gender budget remains static at 16.4 per cent of the total Budget. Allocations for the Ministry of Women and Child Development have gone up by a paltry Rs 971.45 crore. Allocations for women-specific schemes have declined from Rs 1,673.98 crore to Rs 1,553.98 crore.

The scope of expenditure of Nirbhaya Fund, with a Rs 1,000-crore corpus, is unclear. It has not been accounted for in the gender budget and may not materialise. Allocations for food security are miniscule.

Job generation efforts for women under MGNREGS, which has been given a decreased allocation of Rs 33,000 crore, with the gender component going up by a mere Rs 12 crore, are a casualty. The gender component of National Rural Livelihood Mission or Ajeevika scheme has managed a hike of just 13.8 per cent. Allocations for comprehensive welfare scheme for women handloom weavers have been reduced from Rs 48 crore to Rs 28.50 crore.

The health sector has been shortchanged as allocations for the NRHM have come down from Rs 30,000 crore to Rs 21,239 crore.

ICDS allocations have gone up by 11.9 per cent, which is not enough to take care of the rising costs of delivery. There is no commitment for its universalisation to tackle malnutrition. Though the Budget extends Rashtriya Bima Yojana scheme to rickshaw-pullers, ragpickers and anganwadi workers, it provides no social security measures for women in the unorganised sector.

Who’s accountable to soldiers?
Gen VP Malik (retd),  former Army Chief

Most defence analysts have stopped taking interest in India’s annual defence budget. The reasons: it tends to hide more than it reveals, and neither reflects linkage to the existing voids nor to modernisation.

Defence budget has been ‘hiked’ by 5.2 per cent. From Rs 1,93,407 crore allocated in 2012-13, it has been increased to Rs 2,03,672 crore. What is not stated is that over Rs 10,000 crore was deducted in the revised estimate in January 2013. And if you take into account the prevailing inflation rate, the real value will be about 10 per cent less than last year’s budget.

Nor does the allocation reflect the ‘hollowness’ pointed out in March 2012 by the then Army Chief VK Singh in a letter to the Prime Minister. He had indicated critical deficiencies in tank ammunition, air defence weaponry, weapons for Special Forces, and essential surveillance and night-fighting capabilities.

The Army’s modernisation schemes from the 11th Five Year Plan (2007-12), worth over Rs 70,000 crore, stand encumbered with bureaucratic procurement processes and fear of scams. If one adds the planned expenditure for its modernisation in the 12th Five Year Plan, it amounts to nearly Rs 1,50,000 crore. One does not see that and similar programmes of the Navy and Air Force reflected in the new Budget.

The Finance Minister assured Parliament that should there be any urgent need in future, the same would be provided. When will our political leaders realise defence capabilities are not purchasable off the shelf? It is a time-consuming process to translate ‘money’ into ‘capability’. Equipment has to be made or purchased, then absorbed; tactics and procedures revised and honed, personnel trained, and maintenance capabilities built up. The cost and time to build combat capabilities grows exponentially with every year of neglect.

In February 1998, I gave a presentation of the Army’s preparedness and total budgetary requirements to the Finance, Defence and Expenditure secretaries and others. I told them keeping in view our shortages, we do not get adequate budgetary allocation. When we do get something, our procurement procedures are such we can seldom spend it. This trend continues. There is no incentive to save on ‘maintenance’ for ‘modernisation’ under the capital head.

It is an exercise in accountancy and has less to do with foresight and planning. Who is accountable to our young officers and jawans sitting in bunkers along the LoC and borders to get them weapons and equipment which can enable them to fight better and have a better chance of survival?

Enough for defence spending
Yogendra Narain, former Defence Secretary

Defence budget is adequate considering fiscal constraints. The budget of Rs 2,03,672 crore will be a 14 per cent hike over the revised budget of this fiscal, which was Rs 1,78,504 crore. The original budget of Rs 1,93,407 crore was slashed mid-year. There is needless stress to link the budget to percentage share in the GDP. We have to see our capacity to spend existing budgets. We need not get into GDP figures and the share of defence in that. Fear regarding the drop in the share of defence from 1.93 per cent of the GDP to 1.70 per cent for the next fiscal is unfounded. It has even been debated by a parliamentary standing committee, which suggested a 3 per cent share of defence spending in GDP.

Even if the Ministry of Defence is given more money, how will it spend it? Internal processes at the ministry need to be changed if we want to spend more money on defence during any fiscal. Each successive Finance Minister has promised money as and when needed for national security.

Defence pays for deficit
Laxman Behera, Institute of Defence Studies and Analyses

Defence budget is imbalanced. The overall allocation over this year’s Budget has grown by 12 per cent while, out of this, defence budget has grown only by 5.21 per cent. The allocation just restores the mid-year cut imposed this fiscal, but it does not cover the rising inflation or the risen rupee-dollar conversion over the present allocation. Calculating the increase from the revised budget — works out a hike of 14 per cent — would not be an accurate assessment. The year-on-year growth is just 5.21 per cent.

The hike should have matched the overall increase in outlay. Savings from defence have been used to cover fiscal deficit elsewhere and to fund other government schemes. The budget is not futuristic. The Ministry of Defence will find it very hard. The share of defence budget in the GDP is slowly dipping towards the Budget of the early 1960s. It is not adequate even in the case of modernisation (under capital budget of Rs 86.740 crore). The Army will get an increase of only 3. 5 per cent while the Navy will get a hike of 3 per cent. How will this cover for inflation? The Air Force is a bit better off with a hike of 30 per cent for modernisation.

Education allocation a joke
Vinod Raina, member, Central Advisory Board of Education

THE government is talks about empowering the youth to reap demographic dividend, but it has made no provision to realise it. Allocations for the RTE are abysmally low. The Union Cabinet had, in 2010, approved allocations of Rs 2.31 lakh crore for Sarva Shiksha Abhiyan (SSA) to implement the RTE over five years. That means Rs 34,000 crore annually. Not even in one Budget since 2010, has the SSA received that much money. This Budget allocated only Rs 27,258 crore. The RTE goal will be severely compromised.

When students reach secondary level after 14 years, they will need schools. But the government has allocated a dismal Rs 3,983 crore for secondary education. That’s hardly any money if you want to bring 50 per cent children into school. The Current Gross Enrolment Ratio between classes IX and XII is 50 per cent only.

The Rs 16,210 crore meant for higher education is equally ridiculous. The Centre has talked about achieving Gross Enrolment Ratio of 30 per cent by 2020, but its contribution to higher education is only 3 per cent. The state share is 27 per cent and the rest is private. Seekers of higher education must pay fee to enter colleges. So, where is the effort at inclusiveness in education? The policies are pushing us towards an in-egalitarian society in which those who can pay for education will benefit.

Where are funds for schemes?
Prof Upinder Sawhney, Department of Economics, Panjab University

THE Budget is inclusive. It focuses on the poor, women, children, disabled, etc. and also makes higher allocations for agriculture and rural development as also social overhead capital. Some capital market reforms may increase the flow of capital. Increased investment in infrastructure will generate demand for inputs, encouraging their supply.

However, there are concerns. Where is the money for social welfare schemes going to come from? The allocation of Rs 500 crore for crop diversification is inadequate. Higher tax on royalties and fees for technical services and lack of initiatives to woo foreign capital will dampen investment sentiment. There is no clear roadmap for GST rollout. This uncertainty does not augur well for businesses. No concrete measures have been suggested for disinvestment. A clear-cut policy on moving the workforce from farm to non-farm activities is imperative, but is missing, even though skill development has been cursorily mentioned.

With limited scope for raising resources, the reduction of fiscal deficit will remain a challenge. Also with the present global situation, exports may not get a boost, thereby limiting the scope of reduction of capital account deficit. The success of the FM’s prudent exercise depends on the outcomes rather than outlays and that will determine whether growth will be enhanced.

Level playing field for investors
Sanjiv Bajaj, Managing Director, Bajaj Capital

The rich were hit the most by way of a 10 per cent surcharge on incomes above Rs 1 crore, higher excise duty on SUVs, higher customs duty on cars, etc. While the FM tried compensating for inflation, it was restricted to those earning up to Rs 5 lakh per annum. A tax credit of Rs 2,000 was provided instead of a hike in exemption limit, which would have benefited all.

To ensure a level playing field for investors, the dividend distribution tax rate on income distribution to individuals and HUFs by debt mutual fund schemes was doubled to 25 per cent. This will discourage a section from investing in debt schemes that were a mainstay.







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