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India budgets for common man
after years of neo-liberal roller coaster
WSN Network
 NEW
DELHI: Tough economic conditions and recent victory in Lok Sabha
elections seem to have convinced India's ruling UPA government to
come up with a budget that sticks to a line that provides for lower
middle classes and teeming poor, and pumps more resources into
uplifting vast masses out of abject poverty. But there was also
relief for middle class in the form of higher tax exemption limits,
and many benefits to industry.
High drama was
absent, and an industry noe having become habitual to witnessing a
no holds barred neo-liberal charter on the day of the budget had
only a mixed reaction, though stock market tanked badly.
With an expenditure
of more than Rs 10 trillion (Rs 10 lakh crore), this was India’s
biggest-ever budget focussing on 4 per cent farm growth, interest
subsidy for farmers and housing and basic amenities for the urban
poor.
Token tax breaks
for middle class did not make many happy but Indian story seems to
ne continuing despite the global downturn. At current levels, India
remains the world’s second fastest growing significant economy.
For the corporate
sector, the removal of fringe benefit tax (a tax on perks that has
been gnawing the insides of the sector ever since Mukherjee’s
predecessor P Chidambaram introduced it in February 2005) provided
some respite. The budget’s thrust on infrastructure that will help
finance projects in roads, airports, telecom and power through
public-private partnerships was worth Rs 100,000 crore.
The corporate
sector is by and large quite contented with the budget but the
financial sector which was demanding and getting a stimulus package
in the form of lower duties did not react positively. The market’s
barometer BSE Sensex fell 870 points because India’s fiscal deficit
will almost touch 7 per cent, an 18-year high.
But what investors
are blatantly overlooking is the fact that 3.5 percentage points of
this rise has come on account of fiscal stimuli worth Rs 1,86,000
crore — much of which has been pocketed by the same participants.
Yes, the danger of
a high fiscal deficit is clear and present --- as the government
begins to borrow in huge numbers, private companies get squeezed out
of the market, and increase their cost of doing business. In a
double whammy, rating agencies could lower India's sovereign
rating, thereby raising the interest rates in the system. On a
pragmatic front, a higher fiscal deficit is something the whole
world is beginning to live with.
India seems to be
banking on growth by financially repairing the agricultural and
rural economy, the urban slums by increasing allocation for housing
for urban poor, exports and investing much of that in sectors like
roads, airports, telecom and so on that provide growth multipliers
to the economy.
8
July 2009
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