The Hindu Business Line : Low on long-term vision for economy

The Economic Survey is thought to set the tone for the Budget. But this year the Budget has not quite addressed the concerns raised by the Survey such as pricing of petroleum products, fertiliser subsidy, postal subsidy and moving away from the system of quotas in public issues to a non-discretionary price discovery mechanism through a unified auction system. The Budget is not merely an accounting function but must lay down the economic vision of the government to achieve long-term growth.

Infrastructure

The budgetary emphasis has been on outlays for three specialised programmes — Bharat Nirman, the National Rural Employment Scheme and the National Urban Renewal Mission. There are also sectoral provisions. And, the bulk of the resources goes to the eight flagship programmes of the UPA Government.

Infrastructure in the country has reached a critical stage and it is time the Government thought pragmatically of leveraging private funds. There has been only a small reference to public-private partnership for toll roads between major cities. The capital expenditure of the Government has declined as a percentage of total expenditure over the years. In 2004-2005, it was 22.77 per cent (actual); in 2005-2006 at 13.45 per cent; and in 2006-2007, 13.43 per cent.

The budgetary allocation of Rs 75,999 crore is higher than in the previous Budget but still lower than the Rs 113,331 crore of 2004-2005. Soft infrastructures such as education and the skill development of the youth need more attention.

In this Budget, the Government has allocated Rs 97 crore for the Industrial Training Institutes and proposed an initial provision of Rs 10 crore for the Skills Development Initiative announced last year.

The US budget for 2007 makes an outlay on human resource at 65 per cent of the total outlay, while in India it is yet to reach double-digit figures. Labour law reforms have not been addressed and it is important for the Government to have labour reforms on the Chinese model so that there would not be much opposition from the Left. In his previous Budget, the Finance Minister, Mr P. Chidambaram, tried to distinguish between outlays and outcome. Unfortunately, the current Budget is silent on how the 2 per cent educational cess has been used. The Revised Budget estimates for 2005-06 pegs the fiscal deficit at 4.1 per cent of GDP. The Budget for 2006-2007 estimates fiscal deficit at 3.8 per cent.

Fiscal/revenue deficit

The Fiscal Responsibility and Budget Management Act (FRBM) has fixed a target of 3 per cent to be achieved by 2008-2009. While the fiscal deficit is in the rules, the revenue deficit is in the Act itself and must be targeted to become zero in the year 2008-09.

The revenue deficit is budgeted at 2.1 per cent and this will put pressure on the next two Budgets. Uncertain worldwide oil prices and the cost of salary and pension corrections of Sixth Pay Commission has caused a strain on the Government to remain within the FRBM framework.

Tax provisions

Under Section 80C of the Income-Tax, term deposits not less than five years with a scheduled bank has been included in the overall limit of Rs 1 lakh. Fixed deposits form about 20 per cent of the total bank deposits and is losing its popularity.

Overcrowding Section 80C with various options will not help mobilisation of this kind of deposit. Either the limit of Section 80C could be enhanced or Section 80L amended to include interest from fixed deposit having a term of five or more years. Section 115JB dealing with Minimum Alternate Tax has been amended to have the benchmark rate increased from 7.5 per cent to 10 per cent.

But the long-term capital gains from security transactions, which do not attract tax under normal computation, will be included under MAT calculations. To this extent there is an anomaly.

Fringe Benefit Tax

Before the Budget there was much talk of simplifying the FBT. What we have seen from the Budget is only small downward corrections in the rates on certain expenses. But it does not address the basic assurance of simplification of the FBT. Should there be four advance payments in a year? Instead cannot the FBT be determined at the time of final assessment?

Excise duty/CVD

While the excise duty on aerated water and ice cream has been reduced, the levy on handmade soap and umbrella has gone up and excise exemptions on locks, bricks, and biscuits have been withdrawn. The logic of such a measure is not known. And one is not sure whether CVD will attract 2 per cent educational cess.

FDI/FII

The Finance Minister has often stated that FDI is preferable to FII. But while increasing the securities transaction tax by 25 per cent to deter FIIs, the limit on FII investments in Government securities and corporate debt has been increased. The Budget has thus been more a balancing act ahead of a slew of Assembly elections.

(The author is a Chennai-based chartered accountant)