Tuesday, March 01, 2011

Pranab's rope trick in the Budget

Finance minister Pranab Mukherjee struck a low key note in the 2011-2102 budget he presented on Monday in Lok Sabha. It is not the 'dream budget' that P.Chidamabaram presented in 1997, which had sent the captains of industry and the votaries of market into a tizzy but which was followed by crash of expectations. That is why, Mukherjee refrained from making the big statements. In the prefatory remarks he had said, “At times the biggest reforms are not the ones that make headline (sic), but the ones concerned with the details of governance which affect the everyday life of aam aadmi. In preparing this year's Budget, I have been deeply conscious of this fact.”

The big reforms agenda is all there with regard to disinvestment and foreign direct investment. He reiterated that government will retain the majority stake in central public sector undertakings, and that disinvestment could be rescheduled because of better non-tax revenues this year. That is, he has not abandoned calibrated and a phased disinvestment. He has allowed foreign institutional investors to trade among themselves during the minimum lock-in period and allowed mutual funds to tap foreign investors. He has also promised that he would bring in necessary legislation of insurance, of the pension regulatory fund to allow them to attract investment.

He has talked of the new and supposedly efficient form of subsidy – the cash transfer scheme (CTS) – which is the favourite of wobbly reformers. He proposed that the subsidy for kerosene, LPG and fertiliser will be through the CTS. Later in the afternoon, finance secertary Sushma Nath clarified that the modalities remain to be worked out. And late in the evening of Monday, in a TV interview that this will be tried out through a pilot project by early next year. Mukherjee has only said that this needs to be tried out.

Mukherjee did what the Congress is good at doing: introducing economic reforms with a poker face so that no one would accuse the party of abandoning the poor people for the sake of the rich, though the communists did say that. CPI's Gurudas Dasgupta said taht while growth rate was pegged at nine per cent, those below the poverty line remained at 40 per cent, and that Mukherjee did not talk about creating employment. CPI-M's Sitaram Yechuri pointed out the earnings from direct taxes, which mainly benefit the rich including the corporate sector, brough in less revenue while indirect tax earnings which affect the poor brought in more into government kitty. BJP's Yashwant Sinha described the budget as timid.

Mukherjee must be laughing in his sleeves because he knows that he has done the big and small things through tinkering here and tweaking there. The industry is happy because it has understood the unstated assumption of the budget – the reforms are on but there is no shouting about it from rooftops.

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