Between the Lines of Budget 2009

How Pranab Mukherjee managed to strike a fine balance between economic compulsions and political astuteness in Union Budget 2009...

Akrita Reyar

Pranab Mukherjee is a real veteran. It is no surprise then that he pulled something out of his hat for everyone in his FM act of presenting Union Budget 2009. Alongside, he managed to strike a fine balance between economic compulsions and political astuteness. Here is how: Cautious fiscal risk For one, he has taken the calculated risk of not checking the huge fiscal deficit projected at 6.8%. Ordinarily, this would have set the alarm bells ringing. But there are two special circumstances this time that could spell a different story. In times of recession like these, increased government spending may actually act as a trigger to stimulate the slackening economic growth rate. Moreover, Pranab has an eye firmly on the inflation figure. The economy had witnessed negative inflation or deflation for three weeks in the run up to the budget. So too much money running loose in the market would not mean high inflation rates and, instead, may act as a corrective measure to bring inflation to a figure of around 3-4% by year-end. So clearly, he was not running a risk here. He, however, has put in a word of caution admitting that retaining high fiscal deficit is not a prudent thing to do and institutional reforms would be initiated soon enough to rein in the figure at about 5.5%. Wooing Rural India Agriculture, which has been losing sheen in the last so many years now, has been given attention and a growth rate of 4% is being targeted. This, again, has been done for more than one reason. Revival of farm sector would help the rural population which voted massively for the Congress in this election. Therefore, improving the standard of living of the people in the countryside would automatically help consolidate the party’s vote bank. It only helps that most of India`s economic growth has come from increased rural spending. More money in their pockets would undoubtedly help the economy further. So a bag of goodies for them: Interest rates down to 6% on loans. An injection of additional Rs 38,000 crore of credit flow. Another Rs 1,000 crore added for irrigation. Subsidized scheme on crop loan to continue plus repayment date of debt extended. A Taskforce to look at debt waiver for farmers in Maharashtra who have taken loan from private lenders… it is a matter of small detail that the state goes to polls later this year. There is more for the country folk. For those who are not engaged in agriculture, there is the record-setting NREGA scheme that guarantees Rs 100 a day for 100 days of employment per annum to at least one member of the family. Many psephologists attribute the UPA’s electoral success to this ingenious programme. Hence, allocation to NREGA goes up 144% at Rs 39,000 crore. The scheme not just plants rural India firmly in Congress’ camp, it also helps pull people above Below Poverty Line level. The Finance Minister also kept the focus on social schemes and rural infrastructure; hence Bharat Nirman gets additional 45% funds and National Rural Health programmes get additional Rs 2,057 crore at Rs 12,070 crore. Consolidating Minority, Dalit and Urban votebanks Besides, Pranab, sensing the resurrection of his party in Uttar Pradesh, is clearly trying to improve its prospects further. The Dalit community that shifted preferences from the BSP to the Grand Old Party has been duly rewarded. A new scheme is being launched for integrated development of villages which have 55% or more population comprising SCs. Each of these villages will be allocated Rs 10 lakh over and above what is given under other rural development and poverty alleviation programmes. Congress, which has been busy wooing Muslims back into its fold, has something for them in the form of scholarships which will help improve education levels in the minority community which is in step with what has been recommended by the Sachar Committee. The Ministry of Minority Affairs also gets a 74% increase in allocation at Rs 1,740 crore. Now, the urban poor voted hands down in favour of the Congress in Delhi. Can a similar victory be scripted nationwide... JNNURM allocation is up 87% at Rs 12,887 crore and another Rs 3,973 crore have been allocated for housing and provision of basic amenities for the urban poor. This may also drive urban poor of Mumbai to come out and vote, especially as a campaign is on to shift slum dwellers out of shanties into LIG flats. Plus, Mumbai gets additional Monsoon relief funds of Rs 200 crore, which will go a long way in upgrading the commercial capital’s infrastructure. There is more in Santa’s bag for the poor. While Sharad Pawar has said that the National Food Security Act is under active consideration for implementation, the government plans to provide rice/wheat for BPL families at Rs 3/kilo for 25 kgs. This is also in keeping with the UPA’s aim to keep its policies Aam Admi friendly. Storming Left bastion and stealing BJP agenda West Bengal, which goes to polls in 2011, has got a Railway Minister who is planning a coach factory there and is ensuring that a healthy chunk of just about everything that the Railways can provide goes to the eastern state, especially to constituencies where Trinamool Congress’ hold is still precarious. So Pranab da gives her an additional Rs 5,000 crore to dole out. Just recently, Cyclone Aila wreaked havoc in the coastal regions of the state, so another lollipop goes in the form of rehabilitation-relief worth Rs 1,000 crore. Pranab has also managed to take the wind out of the BJP sails. One of the main promises the saffron party made in its manifesto was to implement `One Rank, One Pension`. Now the Congress has brought the goal closer at the cost of Rs 2,100 crore to the exchequer. This will delight at least 12 lakh jawans and JCOs. Pension benefits to war-wounded and other disabled are also being liberalised. Pranab also stole the BJP thunder by announcing one lakh dwelling units for paramilitary forces. Industry and Infrastructure At another level, Pranab sought to ease the infrastructure bottlenecks by huge allocations for the area. This made perfect economic sense and is an absolute must for achieving a higher growth rate and attracting foreign investors. The National Highways get additional 23% funds, while power development gets a whopping 160% hike. Keeping with the inclusive tag, Pranab initiated some new practices. He met the Finance Ministers of all states before drafting his budget. Plus, he held a post budget session with the industry. It was killing two birds with the same stone. A number of measures he announced, especially in taxation, show that the Finance Minister took into cognizance a major structural change in our economy in the last 10 years: that of the service sector now contributing over 50% to the GDP. In its favour, the Fringe Benefit Tax has been abolished. As the industry also needs to be kept happy, Commodity Transaction Tax goes too. Tax holidays continue for the export driven industries. Goods and Services Tax will be introduced in 2010 and a new Direct Taxes Code will come within the next 45 days. Besides, he also took notes about what more could be done for specific industries. This would keep the big businessmen on the Congress’ side. Something for everyone… and his party On personal income tax front, the high earners (with annual earning of over Rs 10 lakh) don’t have to pay a 10% surcharge. Exemptions are up for everyone by Rs 10,000 and by Rs 15,000 for senior citizens. Deduction under 80-DD has also been enhanced to Rs 1 lakh from Rs 75,000. The New Pension System (NPS) will be exempt from income tax and any dividend paid to this Trust from Dividend Distribution Tax. Similarly, all purchase and sale of equity shares and derivatives by the NPS Trust will be exempt from the Securities Transaction Tax. And guess what, Pranab is fully prepared to reap rich benefits from all the above declared provisions. Because, best of all, he has made political funding tax free!