The Indian Constitution does not use the term ‘Budget'. Instead, it only refers to an ‘Annual Financial Statement', which refers to income and expenditure of the Government for a particular year.

So how is the term ‘Budget' different from the Annual Financial Statement? Perhaps the difference lies in the Government's response to demands from political, lobbying, and other groups. This becomes quite evident when the fine print of the Budget is read. A few examples are given below.

“To address the immediate financing concerns of the civil aviation sector, I propose to permit ECB for working capital requirements of the airline industry for a period of one year, subject to a total ceiling of $1 billion,” said the Finance Minister, Mr Pranab Mukherjee.

Hava-havai

All airlines are facing difficulties but one particular airline is in bigger trouble. Banks are not willing to give further loans to this airline.

So with no domestic sources left, a new window was needed. Finance Ministry officials admit, off the record, that the move to permit ECB was taken simply to help one particular airline.

The limit has been kept low so that it will benefit mainly this airline.

But will any foreigner lend to this airline?

It may be noted that hectic lobbying by the same airline is all set to liberalise the foreign direct investment rules for scheduled domestic airline by allowing foreign airline to pick up equity in domestic airline.

Subsidy Capping

“The Government has decided that from 2012-13 subsidies related to food and for administering the Food Security Act will be fully provided for. All other subsidies would be funded to the extent that they can be borne by the economy without any adverse implications. It would be my endeavour to restrict the expenditure on Central subsidies to under 2 per cent of GDP in 2012-13. Over the next three years, it would be further brought down to 1.75 per cent of GDP,” said Mr Mukherjee in his Budget speech.

The first line is a dead giveaway. The Food Security Act is very close to a VVIP's heart. A scheme which is designed to provide subsidised foodgrains to over 60 per cent of population will further inflate the subsidy balloon. After all, this Government raises the minimum support price every year. So any increase will certainly increase the subsidy Bill.

Silent assistance

But often, the Budget helps friends silently. There was a pre-Budget proposal to levy an import duty on power generation equipment for projects of more than 1000 MW.

The Finance, the Heavy Industries and the Power Ministries all agreed to it. But it was withdrawn before being brought to the Cabinet.

Reason: it did not suit one particular industrial group. The Heavy Industries and Power Ministries had argued that Indian companies are fully capable of producing such equipment, but to no avail. Imports from China are cheaper. Last year, it will be recalled, the Government had allowed borrowings in yuan.

Commodities transactions tax

Share trading attracts the securities transaction tax but commodities trading does not attract such a tax.

The argument is that equity is mainly for investment while commodities are for hedging. The Government did make a provision for such a tax few years ago but did not notify it and finally withdrew it.

Prior to this Budget, this proposal was mooted again, but one particular group worked hard against it. Executives from this group went from one media house to another and finally succeeded in persuading the Government from re-introducing the tax.

One Finance Ministry official said, off the record, that there was indeed intense pressure.

Cycle politics

Pleasing the cycle-wallahs is clearly the order of the day.

The Budget announced a hike in customs duty on imported cycles and components. The Opposition thought this would make the common man's best friend more costly. It was left to the Finance Minister himself to clarify that the duty has been imposed to protect domestic industry. From China, one presumes?

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Published on March 19, 2012