I asked Mrs. Krishna recently about how she would make a budget and her answer was she would make a list of what she wanted, phone up the provision store and ask him to get whatever she wanted. I said that is the situation when we have money, and Thank God we do. But what if we did not? She said she would review the list and strike out all that we can do without, for the moment. Common sense for sure! But a sense that eludes our esteemed ministers and other grey eminences that prepare our National Budget and spend the taxpayers’ monies.
So what exactly is this Union Budget and how is it made? To be sure it is not made the way Mrs. Krishna, not a PhD in Economics but educated with an M.A. in French Literature makes it. She has understood that with the erratic kind of earnings her husband has, she has to balance her wants and needs with a sense of the monies on hand during the month. She ensures that her work related expenses are taken care of by her earnings and the household expenses come mostly from my earnings. She has been with me through thick and thin, whether it was with the not so substantial salary at SBI or my rather more abundant earnings as an NRI consultant, or even my days of very meager earnings. Her budgeting is based entirely on the money available at her disposal for the month.
The reason for mentioning Mrs. K is that she is not unlike other homemakers in India, or even elsewhere in the World, who balance their budgets by cutting this item here or that item there and adding a little extra here or there depending on the earnings available at their disposal. Common sense it would seem, at the risk of repetition. Unlike people who earn an honest living and ensure that they spend only what they earn, the Government thinks it can get away with spending money it does not have and borrowing to make up the deficit, which incidentally, is what deficit financing is all about. Part of it is issuing currency and lowering the value of your hard earned Rupee. How does this impact you? When you see the Rupee eroding in value, it does so both within and outside India. Hence, you end up paying more for goods and services. This is one more tax on you that benefits nobody. Having given this background, let us see what are the supposed objectives of the budget are and whether they are even remotely fulfilled.
Main objectives are to: –
• Focus on domestic demand driven growth recovery
• Create conditions for rapid revival of high growth in private investment;
• Address supply bottlenecks in agriculture, energy and transport sectors, particularly in coal, power, national highways, railways and civil aviation
• Intervene decisively to address the problem of malnutrition especially in the 200 high-burden districts
• Expedite coordinated implementation of decisions being taken to improve delivery systems, governance, and transparency; and address the problem of black money and corruption in public life.
If one were to focus on domestic driven high growth and to revive the climate of investment, what would you do? Would you not try to balance your budget by reducing taxes, especially corporate taxation, to ensure that there is more money in the hands of corporate for investment? Would you not try to put more money in the hands of people who earn it legitimately and spend it well? Would you not try to reduce the incidence of black money by making creation of the same unnecessary? It is axiomatic that the lower the rates of taxes on individuals and corporate, the higher the collections. It is a sad fact of life that the people who make the budget for the most part are curd rice eating Tam Brahms! These worthies are somehow averse to the idea of putting money in the hands of people as, Heaven forbid, they may actually spend it! But when the World Economy is turning turtle and every country is looking to find a way to create demand and make people spend money, the Indian Govt. is content with measures that are the financial equivalent of rearranging the deck chairs on the Titanic! So they do nothing on the Corporate Tax front and instead increase the threshold for taxation from Rs 1.80 lacs to Rs 2 lacs. Net effect is that the beleaguered middle class gets an extra Rs 2000 to spend. Next step is to make the slab from Rs 3 lacs to Rs 5 lacs 10% instead of 20%. So a further 20k ends up in your pocket annually. With an inflation rate of roughly 10% we have a slight compensation for it. But if a family is earning Rs 2 lacs p.a. their income is already eroded to that extent. Corporate taxation is another area where it was possible to give a little extra benefit in order to attract investment and create more jobs. The budget fails here also.
Before getting to other objectives, most of which the Govt is content with paying lip service to through similar tinkering, let us see the big picture, viz. whether it has the cloth to make the coat. I made a list of what the FM said in his budget speech and the end result, whether credit or debit. Forgive a Banker for wanting to balance books!
PSU Banks Capitalisation 15000
DMIC Corridor 3700
Rural Housing Fund 4000
Interest subvention on HLs 0
Waiver of loans for Handloom 3888
Geo Textiles NE 500
Opportunity Fund 5000
Dept of Agri 20208
Green Revolution to East 1000
Mission for protein supplement 2242
Interest subvention 13% for agri 0
Agri Credit 575000
RRB for STL 10000
Research in agri 200
Accelerated Irrigation Benefit Programme 14242
Murshidabad Flood Control 439
National Mission on Food Processing 0
Creation of Foodgrain Silos 0
Scheduled Castes Sub Plan 37113
Tribal Sub Plan 21710
National Food Security Bill 0
Integrated Child Development 15850
Mid Day Meals 11937
Rajiv Gandhi Scheme for Empowerment of Adolescent Girls, SABLA 750
Rural Drinking Water and Sanitation 14000
Backward Regions Grant Fund 12040
Rural Infra Dev Fund 20000
Rashtriya Madhyamik Shiksha Abhiyan 3124
Credit Guarantee Fund for Education 0
National Rural Livelihood Mission 3915
Women’s SHG’s Development Fund 300
Bharat Livelihoods Foundation of India 0
Prime Minister’s Employment Generation Programme 1276
National Skill Development Corporation 1205
Himayat for J&K 0
National Social Assistance 8447
National Family Benefit scheme 0
Agri Universities 360
CAPF Buildings 4465
Remaining Expenditure (Probably revenue expenditure) 404708
Here are the sources: –
Tax Free Bonds 60000
Non Tax Revenue Receipts 164614
Non Tax Capital Receipts 41650
Overseas Infrastructure Bonds 8000
PSU divestment 30000
Market borrowings 479000
Here are a few catches. There is a big boost to be given for Aadhar and nothing has been budgeted for this. The last item of the expenditure is Remaining Expenditure and that is entirely being financed through market borrowings. So let us see what that means. All the money that is meant for day to day expenses will be borrowed from the market and we will pay interest on it. So the Congress can keep creating social contracts and we end up paying for their profligacy in perpetuity. What then of the BJP who will vote for this budget after making a few token changes. In Hindi there is a saying “Haathi nikal gayi aur poonch rah gayi!” Liberally translated it means the elephant got away but the tail remained. With these worthies in Parliament it is decorate the tail a bit and satisfy the opposition but let the elephant remain as it is!
Let us leave the expenditure and income aside and come to one great truth that has eluded most of our educated PhD economists, assorted MBAs from premier institutes and armchair intellectuals such as me! If we put together all the scams that we have suffered through with the UPA, during the current edition, the sum total would exceed 5 lac crores p.a. That is because, as per my hypothesis, like an iceberg, the scams hidden from view are greater than those that have surfaced.
I have not bothered to go into whether we are going to meet the targets of income or expenditure but I have no doubt that we will meet the borrowing targets! Hence, the Govt. is going to borrow Rs 479000 crores or almost three 2G scams worth of money from the market. Let us now see what happens when we do so. We end up paying interest on borrowings. Assuming an interest of 8% on an average, we would end up paying around 39,000 crores every year on the money borrowed by the Govt to plug the hole in its finances. So we are paying in perpetuity for the dishonesty and corruption of the UPA.
To me at least, this is good reason to ensure that the UPA is dispatched to the nether regions of the earth and never allowed to surface. For the BJP, which has had enough chances to kick the Govt. in the cojones, and has not done so; this is good enough reason to kick this Sarkar into oblivion.