Sunday, March 01, 2015

Budget 2015 - 16

I had reservations about Arun Jaitley's first full-fledged budget till I saw Manmohan Singh's comment. As The Hindu reports, he has said, "My worry about the budget is that it has good intentions but it does not have an adequate road map and framework to implement the initiatives".

Good intentions are anathema to Manmohan Singh and P.Chidambaram. So the words in italics (italics mine) convinced me that this year's budget is intentionally different from the  budgets for past ten years.

However, good intentions alone are not enough. There are many proposals which need to be meticulously followed up by the Finance Minister lest they remain only as promises. For example, 5 new Ultra Mega Power Projects are proposed this year, that too in Plug and Play mode. Nice to hear. Our experience is not reassuring. If earlier budgetary commitments had fructified, we would have had 12 UMPPs in 2012 itself. We now have only two.

The government has accepted the 14th Finance Commission's recommendation and therefore 42% (instead of 32% as earlier) of net proceeds of union tax revenues are transferred to states. Correspondingly, plan and non-plan assistance to states has been pruned. This sleight of hand would not have been foreseen by the Finance Commission.

Borrowings account for 24% of government's receipts. Low tax-GDP ratio continues to be worrisome. Revenue loss from direct taxes is Rs.8,315 crore. There is gain in indirect taxes for Rs.23,383 crore. This is undeniably regressive.

Service Tax goes up from 12.36% to 14% This effectively means that cost of services increases by 1.46% rightaway. Because service tax is now levied almost on all monetary transactions, the inflationary impact is all too sinister. As if this is not cruel enough, the Budget has indicated that a 2% Swatchch Bharat cess on service tax may become operative if necessary.

Added on 3rd March:
Narendra Modi has praised the budget (does he have a choice?) as progressive, positive, practical, pragmatic and prudent (5 p's?) Would he tell us what has happened to the much vaunted 3p company promoted with Rs.5,000 crore corpus in the 2014-15 budget presented by Arun Jaitley? (3p was supposed to stand for PPP, the infrastructure model.)

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