Wednesday, March 21, 2012

Seeking Help to Understand Pranab Da's Budget

Since PrabnabDa gave his budget speech I have been trying hard to understand a few things he talked about, but have failed to fathom how he intends to achieve what he said by what he has proposed in the budget. I'm therefore seeking help from my readers. Maybe they could help me understand PranabDa's point.

Here are some of the things that confuse me.

The principal objective of the budget is to "focus on domestic demand driven growth for recovery" and he expects his budget to produce "lower inflation and higher savings". Towards this he has given the consumers a tax relief of Rs 4,500 Crores. However, he has proposed to rob them of Rs 46,000 Crores by raising various indirect taxes. I believe following this, domestic demand will go only in one direction - southwards.

In theory, a rise in savings without higher growth rate means lower demand and consumption. Add to this the rise in indirect taxes and raised freight charges, and the resultant inflationary push will not only erode savings but also demand. I am in no way implying that the increase in passenger fares or freight charges were not right. I am simply trying to understand what the FM has said in the light of what he has done.

Add to this the proposed borrowing of Rs 4,70,000 Crores by the government which is certain to lead to the crowding out of the private borrowers and an increase in interest rates. This will make expansion, modernisation and increase in employment for the private sector more difficult. Again, my point being, where the demand for consumption is going to come from.

The FM may have come with innovative terms for window-dressing the fiscal situation like the "effective revenue deficit" which is to be arrived at by deducting from the "revenue deficit" all grants made to the states, constitutional authorities and even NGOs for the creation of capital assets not owned and held by the government. What I fail to understand is how does it matter what you call it. We are still spending more than we are earning. So, who is the FM frying to fool?

Add to all of the above the fact that the FM has not assigned a rupee to the Right to Food Bill to which the government is committed and it does not take a seer to understand the gap between the FM's budget speech and the actual budget.

This is no doubt only a small part of the budget but as I have mentioned earlier, it deals with the principal objective, so to speak. However, my understanding is limited and hence would be glad if my readers can help me understand how PranabDa intends to achieve what he has talked about.