Budget 2008
I'm glad that many of you have been happy with my post on the Railway budget.
On the whole, PC's budget is one big POLITICAL budget. There are some proposals here and there which have either a positive or negative impact on the economy, but the Political Impact is very straightforward - It is one big PLUS for the Congress. Chidambaram has, quite clearly, taken care of "his part" of doing what he can to satisfy every plausible vote bank. So much so, that unlike the Railway Budget, I'll not specify any separate "PI" for each budget proposal - it is a simple case of satisfying that particular section of the vote bank.
For example, right at the outset, PC claimed that during the current year 40+ villages are being electrified every day and telephones are being provided in over 50 villages each day of the year. This is both a matter of pride - because so much of rural infrastructure is being developed and a matter of great shame - to note that there is scope to electrify so many villages or introduce telephones to so many villages over 60 years after we got independence.
Here's my take on the economic impact some of PC's Budget 2008 proposals:
{BP - Budget Proposal; EI - Economic/Financial Impact}
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BP - 16 new Central Universities, 3 IITs, 3 IISc, Allocation to Education increased to 34400 crores (implying an increase of 20%), increased age limit for science scholarships, etc.
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BP - All knowledge institutions (esp of higher learning) to be integrated through a digital broadband network.
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BP - 15% increase in allocation to health
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EI - Potentially inflationary, if you are in a mood to criticise - However, essential for a country of our size - Can't afford to allow people to suffer and die on account of diseases which can very well be cured. Improves quality of life of the population at large
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BP - Health Insurance of Rs. 30000/= for all persons below the poverty line (BPL)
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BP - National Programme for the Elderly (400 crores allocation), 2 National Institutes of Ageing
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EI - Most timely, considering a combination of factors such as (1) Ever increasing urbanisation, leading to migration of youth to different corners of the country in search of livelihood, increasing life expectancy, absence of adequate social security network, etc.
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BP - Announcement of increased allocation to North East (over 16000 crores, including a dedicated NE development fund of 500 crores)
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BP - More candidates from minorities to be recruited for Paramilitary forces
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EI - Greater opportunities for the minorities for further upliftment both economically and politically. Will also further the cause of National Integration, with obvious peace dividends in terms of better law and order, lesser number of bandhs, etc. Can be accused of "communal budgeting" (as the BJP have promptly done, keeping in mind both this proposal and a few other proposals).
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BP - Life and health cover on subsidised basis to All-women Self-Help Groups through LIC
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EI - Yet another example of gender budgeting and women empowerment. Also, when a man is "provided for", only he is provided for. When a woman is "provided for", her entire family (and future generations) are often taken care of.
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BP - Salary of Anganwadi Workers increased from Rs. 1000 to 2000 per month
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BP - Allocation for National Drinking Water Mission increased to 70000 crores, Increased thrust on Irrigation, Opening of several new rural branches by PSU banks, Target of at least 250 new accounts per annum for each rural / semi-urban branch of every bank, etc.
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BP - Agri-loan waiver (for small and marginal farmers holding upto 2 hectares) amounting to 50000 crores - benefitting 3 crore farmers, One time settlement (of 25% waiver on payment of the balance 75% of agri loans) for all other farmers, benefitting around 1 crore farmers
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EI - Most significant "give-away" of not only this budget, but perhaps the biggest give-away of all time since independence, according to most experts. Nevertheless, this is likely to be of great benefit to very large sections of our society who have been suffering immensely in the past couple of years (I'm sure that you'll be well aware of farmer suicide reports from different states all over India.) This proposal can (and mostly will be) inflationary. Nevertheless, despite being a person who is a staunch capitalist and who is dead against subsidies, according to me this proposal is essential and even economically acceptable. (To know why, just calculate the "per-capita" impact spread over 3-4 years (over which the benefit will accrue) and compare it with the per-capita Income Tax Exemption Benefit that PC has given away for the middle classes (and the richer folks) in this budget. My only grouse is that it has been declared as a "give-away". A smarter move might have been to securitise the debts and buy the securities (at the government end) and restructure the loans for individual farmers by extending the due date by a few years (so that credit discipline is not violated)
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BP - Introduction of currency futures, credit derivatives, introduction of "Commodities Transaction Tax" on the lines of STT for shares, clarification on reverse mortgages, etc.
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BP - Announcement of 5-Year tax holiday for establishment of hospitals (everywhere except in identified urban areas) and for establishment of 2-3-4 star hotels in certain heritage locations
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BP - Creation of National fund for Power Transmission & Distribution, Irrigation & Water Resource Finance Coroporation, etc.
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BP - PAN made compulsory for more financial transactions
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BP - Smart Cards introduced on pilot basis in Haryana & Chandigarh for distribution of foodgrains and PDS.
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BP - Increased Allocation for Defence by 10% (with an assurance of further allocation if required)
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BP - Not too many changes in Customs Duty
- BP - General CENVAT rate brought down from 16% to 14%
- BP - Reduction in Excise for Pharma, 2-wheelers, cars (esp. small cars), Buses, Chassis, certain types of jewellery, paper, paper board, etc.
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BP - Specific duty instead of Ad Valorem duty for Petrol and Diesel
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BP - Increase in Exemption Limit for individuals, Minor tinkering of slab rates
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BP - Increase in Short Term Capital Gains Tax (from 10% to 15%)
On the whole, I'd give a 9 on 10 in terms of a politician's election budget, but my score will come down to a 6-7 on 10 from an economic perspective:
Overall Drawback of the budget - Certainly Inflationary - highly unlikely to meet revenue deficit and fiscal deficit targets, especially considering the HUGE give away on account of Farm-loan waivers to the tune of 60000 crores. This figure was way beyond even the most wild imagination of any of the TV channel predictions from so-called experts as well as from the politicos!
Overall Benefits of the budget -
Do give me your feedback regularly to keep me motivated to post equally regularly!
Regards,
N