In 2003, former finance minister Jaswant Singh broke with convention, sprinkling tax proposals in his
Budget speech that focused on 'Panch Priorites' of the National Democratic Alliance (NDA). Addressing lifetime concerns of people, infrastructure development, fiscal consolidation, enhancing farm productivity and raising efficiency in manufacturing were the goals. The economy grew by 8.5% in 2003-04, but the NDA was voted out of power in 2004.
P Chidambaram, who presented the Budget in 2004, went by convention. His Budget speech had two parts, with Part B covering tax proposals. His successor, finance minister Pranab Mukherjee, did not depart from convention either. But he could always pull out surprises, given that his boss Prime Minister Manmohan Singh set the tone for Budget 2012 in his message to the nation on the eve of new year.
Dr Singh listed out five key challenges - call them 'Panch Chunautiyan' - that would dominate the government's policy agenda this year. These are: livelihood security - education, food, health and employment - economic security, energy security, ecological security and national security. Some of the goals are similar to the ones scripted eight years ago. Hopefully, Mr Mukherjee will unveil reforms to address these challenges when he presents the Budget on March 16.
Food security is a laudable goal. However, it has to be accompanied with a sound strategy to raise farm output and efficiency across the board to contain the subsidy bill. Surely, the country needs a second green revolution to arrest the slowdown in agriculture and help rural incomes grow. Private trade must be allowed to procure, store and distribute grains as this would be far more efficient than relying solely on the Food Corporation of India. A proactive role for private trade coupled with cash transfers to the poor will lower costs and reduce leakages.
Similarly, a stable fisc is a critical element in ensuring economic security. According to Dr Singh, the government took a conscious decision to allow a larger fiscal deficit in 2009-10 to counter the economic slowdown, "That was the right policy at the time. We have run out of fiscal space and must once again begin the process of fiscal consolidation."
So, the government must bring its finances to a better shape. And that's a challenge as growth has slowed down, the global economic environment is uncertain and inflationary expectations continue to be high. Investments take a hit when government borrows money to sponsor consumption. The Budget must create more space for investments. This calls for slashing subsidies, starting with petroleum.
Diesel prices should be freed and competition allowed in retailing of petrofuels. The government should eliminate subsidy on kerosene, used mostly to adulterate other fuels, and instead spend the money on solar lamps for rural lighting. The subsidy on cooking gas should go too. The next priority is to phase out fertiliser subsidy. A pragmatic way would be to merge the fertiliser ministry with agriculture ministry that helps farmers with better prices.
"Some of the reforms needed for economic security attract controversy and cause nervousness. This is understandable, but we should learn from our past experience with reforms," the PM had said, without refering to foreign direct investment in organised retail. The reform will bring in new technologies for storage and transport, besides financial capital into the market. Here, there's nothing much that the Budget can do as the government first needs to convince its ally, the Trinamool Congress.
The government should also exit the stimulus, given to industry in 2008-09, in the form of cuts in excise duty and service tax. The tax rates should be restored to pre-crisis levels. However, as the PM has rightly said, the most important step to restoring fiscal stability is the goods and services tax (GST) that would modernise our indirect tax system, increase economic efficiency and raise revenues. The Opposition BJP should stop playing politics and come on board for GST.
Of course, the Budget can herald policy changes to enable smooth transition to GST. A small and well-defined negative list of services that would exempt from tax is in order for such a transition. Other pending tax reforms must be pursued as well.
The third challenge, energy security, calls for augmenting domestic supplies though fresh investments. The Budget could outline a phased programme, aimed at aligning India's energy prices with global prices. Linked to this is the challenge of climate change. A roadmap to cut carbon emissions to around 25% by 2020 makes sense to ensure ecological security. Dr Singh has also promised to modernise and upgrade defence forces to ensure not just national security but also strengthen economic security. Mr Mukherjee could significantly step up the country's defence budget.
So, the Prime Minister has virtually scripted Part A of the Budget speech, leaving the finance minister to work on tax proposals. It's the best opportunity for the government to come out of the policy shutdown after a spate of corruption scandals. A 7.5-8% growth in 2012-13, forecast by the PM's Economic Advisory Council, is eminently feasible with a rational Budget package.
Source : economictimes.indiatimes.com