EDITORIAL 27.02.10

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Editorial

month  february 27, edition 000441, collected & managed by durgesh kumar mishra, published by – manish manjul

 

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THE PIONEER

1. GOOD ARITHMETIC
2. FLOATING BALLOONS
3. TAKING US FOR A RIDE - HIRANMAY KARLEKAR
4. ETERNAL LAW OF THE UNIVERSE - AJIT BISHNOI
5. AN EXERCISE IN DECEPTION
6. CRUEL ON GENNEXT - UDAYAN NAMBOODIRI
7. RURAL INFRASTRUCTURE BOOST WELCOME - JAYSHREE SENGUPTA

MAIL TODAY

1. STEPS ON REFORMS AND R&D IN BUDGET WELCOME - BY MOON B SHIN
2. PETROL BURDEN BACK

THE TIMES OF INDIA

1. GOING FOR FEELGOOD
2. FUELLING THE GROWTH STORY
3. SUDIPTO MUNDLE
4. A STEP IN THE RIGHT DIRECTION
5. GET OUT OF THE QUOTA MINDSET - KAUTILYA KUMAR
6. THE SPIRIT OF THE MATTER - GAUTAM ADHIKARI

HINDUSTAN TIMES

1. BEGINNING A NEW CHAPTER
2. THE FAT IS IN THE FIRE - PRATIK KANJILAL
3. A HUM, HINDUSTANI - GOPALKRISHNA GANDHI

INDIAN EXPRESS

1. UNPARLIAMENTARY
2. THE REFORMER'S BALANCESHEET
3. UNPARLIAMENTARY
4. THE FOUR-FOLD PROMISE - ILA PATNAIK
5. REMEMBER HIM RIGHT - TAHIR MAHMOOD
6. IT'S A BIRD...
7. BHAIRAV ACHARYA
8. TALK ABOUT TALKS - RUCHIKA TALWAR

FINANCIAL EXPRESS

1. FOCUS ON THE FISC
2. OIL PRICES AND FINANCIAL SECTOR
3. PRANAB SENDS OUT A 'CAN DO' MESSAGE - MK VENU
4. BUDGET FOR AAM AADMI AND DOUBLE DIGIT GROWTH - MUKESH AMBANI
5. AN OILY WALKOUT - RENUKA BISHT

THE HINDU

1. A DELICATE BALANCE
2. THE WRONG WAY FOR RURAL DOCTORS - ANBUMANI RAMADOSS
3. HOW THE EXPERTS HAVE BEEN FOOLED - S. GURUMURTHY
4. BUDGET 2010-11: THE TRUE PICTURE - C.P. CHANDRASEKHAR
5. GEORGIA CONTINUES TO POSE "DIRECT AND IMMEDIATE THREAT" - VLADIMIR RADYUHIN
6. CLIMATE CHANGE: WETLANDS PLAY AN IMPORTANT ROLE

THE TRIBUNE

1. TREADING CAUTIOUSLY
2. HOPE ON THE HORIZON
3. NUCLEAR TRACK RECORD - BY K. SUBRAHMANYAM
4. NANI'S ENDURANCE TEST - BY S.S. BHATTI
5. INDIA NEEDS POLICY FOR SPACE SECURITY - BY ANIL LAL VATS
6. OBAMA LIKED BUT NOT FEARED - BY RUPERT CORNWELL
7. INSIDE PAKISTAN - BY SYED NOORUZZAMAN

BUSINESS STANDARD

1. IN THE SAME OLD STYLE OF THE EARLY 1980S
2. SUKUMAR MUKHOPADHYAYA
3. GOOD HOUSEKEEPING
4. SOME WELL-TIMED CHOICES - MUKESH BUTANI
5. BATTING ABOVE AVERAGE - AJIT RANADE
6. A REASONABLE EFFORT - AKASH PRAKASH
7. LIVING ON A PRAYER - JEHANGIR AZIZ
8. AN EMERGING COHERENCE ON FISCAL DISCIPLINE - INDIRA RAJARAMAN
9. NOW FOR THE HARD PART

THE ECONOMIC TIMES

1. NEITHER GOOD ECONOMICS, NOR POLITICS - YASHWANT SINHA
2. FISCAL HEALTH GETS A BOOSTER SHOT - SWAMINATHAN S ANKLESARIA AIYAR
3. NOT QUITE AS GOOD AS IT LOOKS, PRANABDA - MYTHILI BHUSNURMATH
4. 'I NEED RESOURCES TO CONTROL FISCAL DEFICIT'
5. DON'T SEE ANY PROFOUND CHANGES IN THE BUDGET: JIM ROGERS

DECCAN CHRONICAL

1. FEEL-GOOD BUDGET FOR GROWING INDIA
2. GOODIES FOR ALL - BY S. CHANDRASEKHAR
3. SEEN UNSEEN
4. FM HAS IGNORED 95% INDIANS - BY JAYATI GHOSH
5. CORPORATES WILL SAVE, RICH WILL SPLURGE - BY D.R. DOGRA
6. LITTLE LESS TAX - BY DHIRENDRA KUMAR

THE STATESMAN

1. HAPPY HOLI 
2. RHETORIC SPEWED
3. BEHEADING THE SIKHS - RAJINDER PURI
4. 'FEELING OF ALIENATION IS WORRYING'
5. PERVADED BY DARKNESS, PEOPLED BY OUTSIDERS

THE TELEGRAPH

1. NOT RADICAL, BUT SOUND
2. RETURN TO RESPONSIBILITY - ASHOK V. DESAI

DECCAN HERALD

1. GROWTH GAMBLE
2. CYNICAL APPROACH
3. A TRANSPARENT EXERCISE - BY S L RAO
4. THE IRONY OF IT ALL - BY KAUSALYA RAMASESHAN
5. BE MY VALENTINE - BY KHUSHWANT SINGH

THE NEW YORK TIMES

1. GOV. PATERSON'S NEXT STEPS
2. INDIA AND PAKISTAN (BARELY) TALK
3. CLUELESS IN KENTUCKY
4. THE MAN IN WHITE - BY LAWRENCE DOWNES
5. TYLER PERRY'S CRACK MOTHERS - BY CHARLES M. BLOW
6. PATERSON ON THE BRINK - BY BOB HERBERT
7. PUTTING THE COAST GUARD OUT TO SEA - BY LAWRENCE J. KORB AND SEAN E. DUGGAN
8. LET THE S.E.C. HELP ITSELF - BY JOEL SELIGMAN

I.THE NEWS

1. WIDENING CHASM
2. FAMILIAR WORDS
3. WHAT A WASTE
4. CONSENSUS ON THE COD - ARIF NIZAMI
5. A SHIFT IN POLICY? - ASAD MUNIR
6. CIVIL SERVICE REFORM REVISITED - SANIA NISHTAR
7. TRUST DEFICIT - TAYYAB SIDDIQUI
8. OUR SENSE OF 'ENTITLEMENT' - BABAR SATTAR
9. JOBBERY! - ANJUM NIAZ

PAKISTAN OBSERVER

1. INDIA NOT READY EVEN FOR DIALOGUE
2. INTRUSIVE INSPECTION BY IAEA
3. EXPORT TARGET CAN BE EVEN MORE THAN $20 BILLION
4. JINNAH'S DREAM UNREALIZED! - NOSHEEN SAEED
5. SOLIDARITY WITH PALESTINIANS - MOHAMMAD JAMIL
6. EID-MILAD-UN-NABI: UN CHARTER - PARVEZ JAMIL
7. RUSSIA & WAR IN AFGHANISTAN - DMITRY SHLAPENTOKH
8. RIGI'S ARREST: LET'S TRUST EACH OTHER - DR RAJA M KHAN

THE INDEPENDENT

1. EID-E-MILADUNNABI
2. PENDING CASES
3. OUR LIVING ROOMS..! - ROBERT CLEMENTS
4. THE GREATEST CHAMPION OF WOMEN'S RIGHTS - SYED ASHRAF ALI

THE AUSTRALIAN

1. STRETCHING THE FRIENDSHIP
2. NEVER MIND THE POLITICS, LET'S TEST THE POLICIES
3. TECHNOLOGY OUTSTRIPS THE LAW

THE SYDNEY MORNING HERALD

1. OPPOSITION IS MORE THAN JUST OPPOSING
2. SCIENCE VS HOLLYWOOD: THIS TIME IT'S PERSONAL
3. FRIENDS DON'T FAKE EACH OTHERS' PASSPORTS

THE GUARDIAN

1. UNTHINKABLE? USEFUL GODPARENTS
2. THE ECONOMY: DON'T GET YOUR HOPES UP
3. CITIZEN ETHICS: THE ART OF LIVING

THE KOREA HERALD

1. CAPITAL PUNISHMENT
2. OLYMPIC LESSON
3. PHONY ATTACK ON CLIMATE SCIENCE - JEFFREY D. SACHS
4. RADICAL IDEA LIVES ON FOR FREEDOM

THE JAPAN TIMES

1. SHIFTING PLANS FOR JAPAN POST
2. TOYOTA PROMISES REFORM
3. FALKLANDS WAR, ROUND TWO? - BY GWYNNE DYER 

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THE PIONEER

EDIT DESK

GOOD ARITHMETIC

BUT BAD FOR MIDDLE-CLASSES

Every Union Finance Minister faces the unenviable task of preparing and presenting a Budget whose proposals, no matter how well-meaning they may be, invariably end up upsetting one or the other section of the people, leave industry demanding for more, and make States looking for heavily-funded Central welfare schemes complain of being neglected. Most important, the Opposition is never impressed by the Government's efforts, no matter how sincere, to bolster the economy. So, it is not surprising that Mr Pranab Mukherjee's second Budget in as many years should have riled so many people who clearly had higher expectations. Yet, in all fairness it must be said that Mr Mukherjee has sought to restrict fiscal deficit to 5.5 per cent of the GDP while basing his proposals on the hope that the national economy will perform better and the global economy will move out of the dumps by the time he re-checks his sums in early-2011. At the same time, he has hedged his bets by planning to mop up nearly Rs 70,000 crore more in revenues by way of higher taxes on goods and services. With expenditure projected to increase by Rs 50,000 crore (it will go up from Rs 10.5 lakh crore to a little over Rs 11 lakh crore), he has ensured that even if there is no spectacular growth and the global economy continues to remain in the doldrums, the Government will have sufficient revenue to fulfil its commitments.

The concessions Mr Mukherjee has offered on personal income tax may appear substantial, but the intended beneficiaries have little or no cause to celebrate. The higher imposts on petroleum products and the so-called 'clean energy' cess on coal are bound to have a cascading effect on the prices of essential commodities and manufactured goods while services will cost more. Add to this the increase in prices of consumer durables and the anticipated gains from income tax relief will get more or less wiped out — in fact, the salaried class is more likely than not to be left with a deficit home budget; those dependent on the unorganised sector will be adversely impacted, too; and, farmers have not necessarily gained, nor have investors or any other segment of the economy. The promised benefits will prove to be illusory. Irrespective of whether or not the Budget makes good economic sense — Mr Mukherjee is far too experienced to falter on details — it does fly in the face of the Congress's claim of working for the benefit of the aam admi. The galloping price of food and the relentless pressure of inflation that has caused the RBI to pump money out of the economy and raise interest rates on loans have made life more than difficult for the middle-classes. The poor have little to celebrate as the increase in funds for NREGA is notional. Corporates are saddled with an unfriendly twist to MAT. If market sentiment is any indication, investors are not overly enthused.

It would, however, be in order to underscore the fact that Mr Mukherjee has allocated more funds for physical and social infrastructure development. He has also done well to increase allocation for defence, with more money earmarked for acquisition of urgently required military hardware. But there's a catch. Allocating funds for building highways and roads means nothing unless they are actually built. The UPA's record on this front has been abysmally poor and there's no reason to believe it will improve in the near future. As for social infrastructure development, the State Governments will have to exert themselves for successful delivery on the ground. Urban poverty alleviation, however, will remain neglected due to inadequate funds. And unless Defence Minister AK Antony undergoes a radical change, military hardware will remain un-purchased. Mr Mukherjee, of course, cannot be blamed for not trying!

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THE PIONEER

EDIT DESK

FLOATING BALLOONS

IT'S NOT A LOT OF HOT AIR!

There are balloons and then there are tax-free balloons. This interesting bit of trivia came through Union Finance Minister Pranab Mukherjee's Budget speech on Friday. In a move that according to Mr Mukherjee will bring smiles to the faces of lakhs of mothers across the country, he has decided to completely do away with the Central excise duty that was hitherto applicable on toy balloons. Now before anyone jumps the gun and sniggers at the proposal, let us remind all that Mr Mukherjee's proposal is a carefully crafted one that seeks to address several concerns at once. Apart from the fact that it will have a positive psychological impact on the development of our future generation — happy mothers and their balloon-loving toddlers are sure to make for a healthy growing-up atmosphere — the proposal cleverly caters to a consolidated constituency that till date has remained politically untapped. Apparently, around 10,000 people in the country make a living from the toy balloon manufacturing industry, and about 75 per cent of the country's balloon requirement is sourced from 50 units located in Dahanu in Maharashtra. Last year's economic slowdown had hit the industry hard as supply constraints and spiralling global prices of natural rubber latex — the primary ingredient used in manufacturing balloons — had severely cut into the wafer-thin profits of balloon manufacturers. Besides, the fading popularity of traditional toys in the face of modern electronic gizmos among children has not helped matters either. It is only an astute politician such as Mr Mukherjee who could have recognised the potential in giving balloon manufacturers a helping hand.

If there are still some people who are not convinced about the greatness of Mr Mukherjee's proposal, this last argument is bound to change their minds: The Chinese have been trying to take over the Indian balloon market with their cheap variants. Despite the fact that Chinese balloons are subject to import duty, their retail price is extremely competitive. Thus, in effect, Mr Mukherjee's proposal actually serves to protect Indian interests in the face of predatory Chinese commercial tendencies. There is no doubt that at this moment the Chinese leadership in Beijing is furious with Mr Mukherjee for having thwarted its plans. Come to think of it, he better watch out. The Chinese might retaliate by taking over the domestic market for spectacles. Then Pranabbabu would have to live with cheap Chinese glasses. And that might really obscure his vision.

 

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            THE PIONEER

COLUMN

TAKING US FOR A RIDE

HIRANMAY KARLEKAR

One is overwhelmed by a weary feeling of déjà vu as one watches the United States bending over backwards to please Pakistan in the hope of getting it to do more to help America's war efforts in Afghanistan. The history of US-Pakistan relations is one of Pakistan's well-honed ability to exploit America's concerns to achieve its own ends at Washington's expense.

The process began in earliest stage of the Cold War. Visiting the US in 1950, Pakistan's Prime Minister Liaquat Ali Khan proclaimed his country's alignment with America. Pakistan's priority, however, was fighting India and not communism. Mr Husain Haqqani, currently its Ambassador to the US, writes in Pakistan: Between Mosque and Military, "The United States was Pakistan's great-power patron of choice, crucial as a source of weapons and economic aid." Mr Haqqani further states, "In one of its first overtly political initiatives, Pakistan's intelligence community fabricated evidence of a Communist threat to Pakistan to get US attention." It was, however, not the only one of its kind. Ms Ayesha Jalal writes in The State of Martial Rule, "Since the ceasefire in Kashmir, the Joint Services Intelligence had been fabricating increasingly bizarre reports about the fledgling Communist Party and its purported plans to destabilise Pakistan."

Under President Dwight D Eisenhower, the US sought to contain the Soviet Union and China by establishing a string of military bases in the adjoining countries. According to Mr Haqqani, Pakistan's military pushed for establishing a formal treaty relationship with the US and became a member of the Baghdad Pact (later Central Treaty Organisation) and the South Asia Treaty Organisation. While Washington pumped economic and military aid into Pakistan, its expectation "of a centrally-positioned landing site for possible operations against the Soviet Union and China was not met". According to Ms Shirin Tahir Kheli in The United States and Pakistan: The Evolution of an Influence Relationship, Gen Ayub Khan, then Commander-in-Chief of the Pakistani Army, kept tantalising Washington "with possible offers of such facilities and manpower only if the price was 'right'." Mr Haqqani writes, "The United States had to be content with looking upon its investment in Pakistan as one that would bear fruit only over time. Ayub Khan's bargaining for greater military and economic assistance became a norm for its successors."

Gen Zia-ul-Haq, who became President, proved to be a master in the game. In the wake of the Soviet invasion of Afghanistan in December 1979, he sought to persuade the US to support a war of resistance there. Brig Mohammad Youssaf says in The Bear Trap: Afghanistan's Untold Story, which he wrote with Mark Adkin, that apart from his strategic, religious and political consideration, Zia, "by supporting a jihad, albeit unofficially, against a Communist superpower" sought "to regain sympathy in the West" which he had lost by executing Zulfiqar Ali Bhutto earlier in 1979.

That he should even think of making such an effort after the attack on the US Embassy in Islamabad on November 21, 1979, reflects an amazing level of confidence in Pakistan's ability to manipulate the US. Mr Steve Coll, in his perceptive and informative work Ghost Wars: The Secret History of the CIA, Afghanistan and bin Laden, from the Soviet Invasion to September 10, 2001, gives an absorbing account of the incident. The attacking Islamist students, who believed in the rumour that Americans and Israelis were behind the capture on November 20 of Mecca's Grand Mosque, the holiest of all Muslim religious places, by armed followers of a Saudi Arabian, whose supporters had accepted him as the Mahdi, or the saviour, stormed into the embassy's compound, burnt down 60 embassy vehicles, attacked residential premises and took hostages, who were saved because a Pakistani police officer, who had not surrendered his weapon to the demonstrators, took to safety a truck in which they had been loaded for being taken for trial at the university. Meanwhile, the rioters had set the embassy building on fire and shot and wounded an US marine who subsequently died.

The Pakistani authorities knew all this but did not act despite, in Mr Coll's words, "dozens of pleas from Arthur Hummel, the Ambassador, and John Reagan, the CIA station chief". The US response was amazing. Mr Coll informs that State Department spokesman Hodding Carter told newspersons in Washington later in the day, "All reports indicate all of the people in the compound have been removed and taken to safety thanks to the Pakistani troops." President Jimmy Carter thanked Zia-ul-Haq over the telephone for his assistance. After this, one could hardly blame Zia for believing that Americans slaughtered by Pakistani mobs would die thanking him and the Pakistani Army!

Americans, who were wary under Mr Carter, bit the bait after President Ronald Reagan came to power with an agenda that included confrontation with the Soviet Union everywhere. Military and economic aid poured in while Pakistan played its usual double game. As Mr Yossef Bodansky, a former director of the US Congressional Task Force on Terrorism and Unconventional Warfare, shows in his exhaustive book Bin Laden: The Man Who Declared War on America, Pakistan funnelled the massive US economic and military aid to pathologically anti-American and fundamentalist jihadi groups, starving the moderate and pro-American ones, and used the camps for Afghan mujahideen to train Punjab and Kashmir terrorists.

The process continued after 9/11, with Pakistan joining the US-led war in Afghanistan to milk Washington and further its agenda of having a puppet regime in Afghanistan and destroying India. The outcome of the London Conference of January 28 indicates that it is succeeding. By seeking an accommodation with the "good Taliban", the US is making as huge a mistake as the one it made in 1994 when the CIA helped the ISI to create the Taliban. The "good Taliban" will soon become "bad" again and continue their jihad against the US in their quest for bringing the entire world under an Islamic caliphate according to their warped interpretation of the great religion of Islam. Having given up the effort to squelch terrorism's nurseries abroad, the US will have to fight terrorism at home, which will involve progressively severe restrictions on the liberties of its citizens and ubiquitous surveillance, which in turn will destroy the spirit of its free-wheeling libertarian civilisation.

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THE PIONEER

COLUMN

ETERNAL LAW OF THE UNIVERSE

AJIT BISHNOI

What is it that makes us fearful? To understand this, let us trace the origin of our bodies. We, as souls, get our bodies in the wombs of our mothers. Once our bodies take shape, we are free to make use of them as we please. But how is it that we commonly use our bodies? Before we answer this question, let us understand what a soul is and what should be its goal. A soul is essentially a tiny part of god (Bhagvat Gita, 15.7), and by its inherent nature is sat, cit, anand — that is eternal, conscious and blissful. Why is this so? It is because the soul is a part of god who is omniscient, omnipotent and omnipresent. However, there is a catch in being a part of god — we enjoy limited freedom or independence of action.

This is where there is a potential for getting into trouble and, consequently suffering. Any soul which misuses its independence suffers reactions. God has made certain rules by which the material nature functions in an impartial manner. Otherwise, how else does god manage this vast universe?

So how does one misuse this independence? We do so by assuming that we are the owners of our material bodies and that the fruits of our actions obtained through our bodies are for our enjoyment.

What happens due to such behaviour? There are adverse reactions in the form of suffering. Prominent ones are fears, losses, punishments, etc.

Can one escape such suffering? Yes, if one does the following: One should always identify oneself to be a part of god and not an independent entity in the shape of one's body. One should offer all fruits of action obtained through one's body and the opulences one is blessed with to god and give all credit for any success or achievement to the almighty without whose help no act would have reached fruition (Bhagvad Gita, 18.14).

If one does so, one minimises suffering, and is able to revert back to one's original sat-cit-anand state. However, there are traps which one must avoid in order to continue in this blissful state. Going against the laws of nature is a sure way of bringing misery upon oneself. The idea should be to hormonise one's actions according to this principle.

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THE PIONEER

OPED

AN EXERCISE IN DECEPTION

 

The Pranab Mukherjee way is to grandstand in the speech while tucking away uncomfortable truths in the Budget papers. He banks on media experts' known disregard for the devil in the detail and short-changes Mr & Mrs Aam Admi

S Gurumurthy

The finance minister has done a fantastic job". "Very good Budget"; "See the takeaways"; "See the positives"; "Fiscal deficit controlled to 5.5 percent"; "Government borrowings reduced to just Rs 3.45 lakh crore"; "Roadmap laid for oil sector reform"; "Infrastructure boosted"; "Consumer demand to raise on tax cuts"; "Bonanza for the middle class"; "Yet an inclusive Budget"; "I would give 10 on 10."

 

Thus went on the comments on the Budget as this column was being written after a strenuous effort to browse through the hundreds of pages on the Internet to see what the FM has left unsaid in his speech. But those who eulogised the Budget and the FM had nothing else on their hands other than what he had claimed in his speech and none of them would have had even a cursory glance at the Budget papers which were put on the NIC website almost an hour after the speech.

Thanks to the euphoria of the experts, the BSE Sensex rose to a high of 400. But as the facts contained in the Budget documents slowly became known, the Sensex moderated to a rise of 175 at close of trading. But the Budget and the FM had won approval with his well-structured speech which was long on words (including quotes from Kautilya) and hugely short on numbers. By now, taking the FM's words as the Gospel, the opinion of 'elite India' has been sealed in favour of the Budget.

Of course, the 'other India' has no instant opinion to express; already reeling under high inflation, against which there is no measure in the Finance Minister's speech, it has only to experience in the days to come what the Budget actually does. Now let us look at what the facts and numbers which lay buried deep in the Budget documents disclose.

The additional provision for rural development is just Rs 3,936 crore — a rise from Rs 62,201 crore in the current year to Rs 66,137 crore for the coming year. This translates to a rise of 6.3 per cent for the coming year over the current year. The estimated rise in the GDP for the coming year over the current is estimated at 12.5 per cent. This implies that the rural sector does not even get half of the rise in the
country's prosperity. The increase in the outlay for the NREGS in the coming year is just 2.5 per cent.

Contrast this with the rise of — believe it or not — 146 per cent in NREGS for 2009-10 over 2008-9. The tax cut for the middle class is some five times the extra rural- development provision. Still, the Budget is claimed as intended for the aam admi! Move on. The additional provision for agriculture is a pittance — just Rs 900 crore. So much for 'inclusive' growth. So, what was an inclusive agenda from 2004 to 2009 seems to have degenerated into a mere slogan now. The FM famously said last year that he couldn't care less for what the stock markets felt about his Budget.

Now, the FM's sleight of hand for infrastructure. See the provision for the road sector. It is just an additional Rs 2,374 crore — a mere 13 per cent more compared to the current year's 23 per cent rise over 2008-09. The additional provision for the Railways is Rs 950 crore — a mere rise of 6 per cent growth compared to the 46.3 per cent hike in 2009-10 over the previous year. In 2009-10, the additional provision in the urban infrastructure was 87 per cent.

The FM had claimed in his Budget speech for 2009-10 that IIFCL, the infrastructure finance set-up, along with the banks, was in a position to support infrastructure projects of — hold your breath — Rs 1,00,000 crore! Against that claim, he admits in his speech now, the disbursement and refinance by IIFCL, so far, has been just Rs 12,000 cr. It would rise to Rs 25,000 crore in the next three years! How did he dare to say one thing in his previous speech and another thing now? He was confident that the experts who would give instant opinion on his product would hardly have the time to check on what he claimed just eight months earlier. The claim that the infrastructure provision of Rs 1,72,552 crore is 40 per cent of the plan allocation is definitely less than honest.

Acting cleverly here, the FM does not give the comparative figures for the current year. Indeed, there was no appreciable improvement, but this does not distract the experts who eulogise the 'infrastructure boost' in the Budget.

What then is the secret of the reduction in deficit? The FM simply refuses to spend. And that is perhaps correct. But he has concealed that and said something to the contrary. Income would increase in 2010-11, but expenditure would not. The increase in Non-Plan expenditure in 2009-10 over 2008-9 was 37 per cent; in 2010-11 over 2009-10 it is proposed to be restricted to just 6 per cent. Non-Plan expenditure was Rs 6,42,000 crore in 2009-10, and in the coming year just Rs 6,44,000 crore — in other words, no increase at all. If the FM had increased Non-Plan expenditure for 2010-11 in proportion to the estimated GDP rise of 12.5 per cent, the deficit would have risen by Rs 1,99,000 crore to over Rs 5,80,000 crore, implying that the deficit would have been up by — believe it — almost 2.9 per cent to some 8.4 per cent! If this had happened, would the experts have gone gaga over the Budget? Would the stock market gone crazy? Obviously not. See how flawed is the premise that the Budget puts extra money in the hands of consumers. Non-Plan expenditure is straight injection of money into the system. If that does not grow, how will the consumer get extra money? The FM's claim that he had cut taxes to put extra cash into the consumer's pocket is less than honest as the amount would be actually less by Rs 1,80,000 crore than that of the last year!

It is not a bad thing that the FM has cut non-development expenditure. But his claim that he was putting money into the hands of the people through tax cuts is only one side of the story. The other, which is the biggest concealment in this Budget, is the cut in Non-Plan expenditure. See more. The biggest component of the rise in Non-Plan expenditure in the current year was the Pay Commission dues, which was extra money into the pockets of the people to spend. That was the reason why, despite the downturn in the economy in 2009-10, private consumption, which was expected to fall according to the Economic Survey 2008-09, did not fall. Private consumption powered by the Pay Commission dues sustained GDP growth in 2009-10, and that was the secret of the growth in 2009-10. This factor is absent in 2010-11. How will the aggregate demand rise more than last year when the amount of additional money in the hands of the people is far less in the coming year than in the year that is closing?

The finance minister's speech intends to conceal more than it reveals — in fact it cheats. He has trusted the propensity of the instant commentators to spin ornamental words in praise of the Budget speech — and won the day against the experts and the market!

-The writer is a corporate adviser and columnist

 

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THE PIONEER

OPED

CRUEL ON GENNEXT

UPA-2 BETRAYED TODAY ITS PITIFULLY INADEQUATE UNDERSTANDING OF THE ASPIRATIONS OF INDIA'S PREDOMINANTLY YOUTHFUL POPULATION

UDAYAN NAMBOODIRI

This was UPA-2's first true Budget but Finance Minister Pranab Mukherjee failed to reassure the people that the rousing mandate for Manmohan Singh in the 2009 hustings was justified. It comes at a time when the ground is shifting from under the regime's feet. A government headed by an economics professional has failed to curb rising prices, which is the touchstone by which the aam admi judges its performance. The bitterness in every heart is exacerbated by daily proof of how it pampers the rich and powerful.

The Opposition is only too glad to make capital on the announcement to hike duty levels on petrol and diesel. On Friday afternoon, we saw something which reminded us 40-somethings of the Bofors era — Communists, caste-formations, BJP, everybody united on a single issue. But they are allowing the government to get away with a far bigger lapse: the betrayal of our common tomorrow.

Mukherjee's plans for 2010-11, or FY-11, reminded many of the bureaucratic assembly line affairs that typified Budgets back in the 1970s and 80s. That's but natural considering the man's rich past in those decades, but surely the new India deserves better than extensions of the 20th century into the 21st. The senior citizens at the helm of affairs in UPA-2 scarcely realise that India is a young nation. It is projected that the average Indian in 2020 will be 26. The 2011 Census is expected to state the obvious — that we are the 'youngest nation' in the world. But sobering that would be the sub-text: our leaders are not.

Very few nations are blessed with the phenomenon of having a predominantly youthful population. China, in the 1980s, had it and used the advantage to its logical conclusion by investing heavily on education, skills development, sports schools, health, etc. In 2020, the average Chinese will be 37 and the west European, 47. It could be India's hour, but provided the UPA gets serious about reaping the 'demographic dividend.'

Tragically, a look at the Budget papers on social sector expenditure shows that there is little by way of human resource planning. There is a proposal to hike gross expenditure on literacy and school education from Rs 39,553 crore to Rs 47,773 crore and on higher education from Rs 14,376 crore to Rs 16,690 crore. The central Plan outlay on Health and Family Welfare is projected to go up from Rs 18,283 crore to Rs 22,300 crore. But, all this is partly the result of a reallocation of expenditures — an accountant's trick. Non-Plan expenditures on all social services are slated to fall from Rs 35,146 crore to Rs 29,483 crore — more than Rs 5,500 crore. That's less money in the hands of the state governments, the real implementers.

One no longer tunes in on the Budget speech to hear officialese. Pronouncement of a hike for this sector of government or that one pleases only the babu who waits eagerly to tear into enhanced outlays to improving his working conditions and perquisites. Recall Sir Humphrey Appelby in the Yes Prime Minister episode 'National Education Service (1988)?' "Education improvement means improvement of service conditions of teachers". This is fait accompli in India where state governments eye central budgetary supported projects as milch cows to underwrite political appointment of teachers and the costly lifestyles of bureaucrats.

What is singularly missing in this Budget is a GenNext vision. The Finance Minister has announced the use of information technology-based revamping of the indirect tax administrations of the Centre and the States, computerisation of commercial tax collection and all that. But for the youth he has reserved rare fiscal conservatism. A quantum leap in terms of bridging the shameful digital divide, on which the Prime Minister commented as recently as December 4, would have fired up the economy and had the effect of applying balm on the IT sector on which he served a body blow by raising the Minimum Alternate Tax (MAT). Could it happen that the Finance Minister was not briefed that more than 100,000 jobs were lost in Indian IT over the past year alone because multinational companies were discovering cheaper investment destinations?

One of the historic turns taken by the planners of the Indian economy was the conscious decision to prefer Services-led growth in the late 1990s over manufacturing. The share of Services in the GDP grew from 38.3 per cent in 1979 to 46 per cent in 1999 to 58 per cent in 2009. The IT sector alone has a 6 per cent share, employing about 2.3 million mostly young people. Yet, we still don't' have a single Indian hardware brand; nor are there too many off-the-shelve software products. The Finance Minister has announced the formation of a Technology Advisory Group for Unique Projects — tax information network, pensions, national treasury management, etc. But for how long would India continue to clone others? The urgent need of the hour is to promote a vibrant SME sector for IT, which would translate into payroll jobs in computer and peripherals manufactories. More moneys than present must be spent on research into software development to popularise e-Governance.

A lot of the experts who turn up in tuxedoes on Budget nights wax eloquent on schemes that the central government has no role in the first place. A paltry Rs 1,000 crore to be shared among 28 states and four union territories would amount to no great shakes for the hundreds of millions of workers in the unorganised sector. What would have served this mass of discriminated-against people better is a central legislation protecting their rights to livelihood and guaranteed services. For instance, the Rashtriya Swashya Bima Yojana began rolling in October 2007, but its only touchstone is the number of smart cards issued. This is a politician's way of achieving "health for all", ridiculed by United Nations organisations. For leaders like Pranab babu, health is a low priority. Government expenditure on health has never crossed the 0.9 per cent of GDP mark. India's commitment to the UN's Millennium Development Goals is known to be slipping. This is criminal indifference for a country with a youth majority population.

The argument for 'inclusive governance' goes beyond Budget-day rhetoric. In the five-and-a-half years of Manmohan Singh's prime ministership, India's poverty has deepened and broadened. Last year, the Indian Statistical Institute came out with a report which revealed that the number of rural poor in India has gone up 20 per cent since 2004-05. No state of India is free of this contrast. Maharashtra, the most industrialised, has 29.58 per cent of its rural population in poverty. This has belied the UPA's aam admi focus claims.

Meanwhile, the government's growing indebtedness is darkening the future of GenNext. The fiscal deficit's pegging at a lower level than the current year is nothing but deception — it is bound to be revised when media attention passes. FY-10, which began with the highest fiscal deficit in India's post-Independence history, has already seen two upward revisions (6.9% at present), and so expecting it to fall to 5.5 per cent in FY-11 is a flight of fancy, particularly when no plan of institutionalising government austerity has been announced.

Pranab Mukherjee has led down India's future today. How history will forgive him is a question with which I go to bed tonight.

-The writer is Senior Editor, The Pioneer

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THE PIONEER

OPED

RURAL INFRASTRUCTURE BOOST WELCOME

THE HIKE IN PETROLEUM PRICES MAY LEAVE A SOUR TASTE IN THE MOUTH, BUT AT THE END OF THE DAY THE FINANCE MINISTER HAS SHOWED HIS HEART IS IN THE RIGHT PLACE FOR THE URBAN MIDDLE CLASS AND RURAL POOR

JAYSHREE SENGUPTA

The finance minister has been very smart in not trying to hide the major problems of the Indian economy, which includes inflation. Yet, he manages to introduce a petrol/diesel price hike which would surely add to the problems of the aam admi.

While taking credit for the rather quick recovery from the effects of the global financial crisis that hit India in 2008, he has clearly identified the areas needing attention in the next one year. Problem areas like education, health, slums, farming and infrastructure all have been addressed and substantial boosts have been given to each.

School education has got Rs 31,036 crore, which may be utilised for better quality of primary education. Similarly, the National Rural Health Mission has got Rs 22,300 crore, which may be used to step up the quality of health care in villages and towns so that public hospitals in the cities are less crowded and people from lower income groups coming from distant villages do not have to struggle for getting treatment in metropolitan public hospitals.

The importance of property rights for slum dwellers has been addressed and a 700 per cent increase in the allocation for slum development programme — Rs 1,270 crore — is on the cards. Even for low income urban housing, a 1 per cent interest subvention loan for houses, costing Rs 20 lakh, has been extended to March 31, 2011, and Rs 700 crore have been provided.

Since 2008, the impact of the global crisis, especially in villages, had been softened by the NREGS and the grant of subvention on interest on crop loans. These have been extended and allocation for the NREGS has been stepped up by Rs 40,100 crore. Repayment of loans by farmers has been extended till June 30, 2010 in view of drought and floods in some parts of the country. There is no doubt that agriculture is the weakest area today and thus all aids for agriculture is welcome, otherwise the country will face a harsher food inflation.

To Pranab Mukherjee's credit goes the earmarking of 25 per cent of the Plan outlay for rural infrastructure. Though there has been much debate about the phasing out of the fertiliser subsidy, it has been continued with, but will be given directly to the farmers.

Simplification of the FDI regime is also welcome, especially when we realise that inflows continued despite the financial crisis, touching $20.9 billion in December 2009. More FDI would prepare India's manufacturing sector for competition from China.

It is now well known that banks have not been able to lend more as they have not reduced interest rates and instead have parked their extra funds with the RBI, gathering high interests. Rightly, private sector players and non-banking financial companies are being allowed banking licenses. This could solve the liquidity problem faced by many small and medium enterprises.

The unorganised sector has received its due recognition as being the most important employment provider in the economy where millions of workers (92 per cent of the workforce) are without any form of safety net. The government has decided to set up the National Social Security Fund with initial allocation of Rs 1,000 crore to provide social security to workers of the unorganised sector.

On the aam admi front, the income tax slabs have been changed to give exemption from tax for incomes up to Rs 1.6 lakh and 10 per cent tax for incomes between Rs 1.6 and Rs 5 lakh. This would give relief to 60 per cent of the tax payers. But on the price front, though the Food Security Bill is waiting in the wings and the current food inflation is at 17.5 per cent, no immediate relief measures were announced. The fuel price hike would push up the WPI further.

Perhaps this item of the Budget has been the most controversial but it is clearly aimed at cutting subsidies in the face of higher international oil prices.

There are encouraging signs for economists who have been pushing for the withdrawal of the fiscal stimulus in order to reduce the public debt. Disinvestment has been targeted to bring in Rs 25,000 crore. The news of a lower fiscal deficit at 5.5 per cent for 2010-2011 and even lower next year at 4.8 per cent should cheer those wary of the ballooning government debt, currently at 82 per cent of the GDP. The finance minister's promise of bringing this to 68 per cent by 2014-15 (in accordance with the recommendations of the 13th Finance Commission) should bring back the confidence of the market as it had feared a higher rate of interest and crowding out of private investment due to increased government borrowing.

Also heartening to note is that Non-Plan expenditure, which includes defence, subsidies and government salaries, is slated to rise by just 6 per cent. Of course, every year's Budget exercise comes packed with drama involving government's revenue and expenditure and we cheer when the minister announces an increase in expenditure in key areas. But then, how much of it gets utilised and how much just lies in the coffers unused? It is the duty of the government to ensure that the moneys allocated against projects are properly put to use so that the expected dividends accrue to the aam admi.

-The writer is an Author and columnist

 

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MAIL TODAY

EDITORIAL

STEPS ON REFORMS AND R&D IN BUDGET WELCOME

BY MOON B SHIN

 

THE UNION Budget 2010-2011 is a progressive one with a special focus on infrastructure and rural growth. With an impetus on high gross domestic product (GDP) growth, and laying down a roadmap for fiscal consolidation, the government is putting down things in perspective when it comes to allocation of funds.

 

However, as it is essentially a growth-driven budget, price hike is imminent in near future. We are thankful to the policy makers of the country for introducing reforms and measures. Such measures have helped the consumer durable industry in achieving high growth rate. The breeze of reforms has continued to be as impressive as in the past.

 

With two per cent increase in excise duty, prices will increase. The five per cent deduction from the existing 10 per cent excise duty on the metal component is a welcome move. For instance, excise duty on magnetron used in manufacturing of microwave ovens would help companies promote the concept of healthy cooking in India and adding value to Indian kitchens.

 

However, an increase in excise duty on petrol by one per cent and crude oil by five per cent will have an impact on the costs involved in freight and logistics. This will further put pressure on the prices of the products.

 

Special additional duty on mobile phones has been rolled back. This will benefit the mobile companies who import packaged mobile phones as it will now eliminate the long fund blockage. Abolishment of two per cent excise duty on mobile phone accessories is also encouraging for consumers.

 

I welcome the finance minister's announcement increasing the personal tax limit at individual level. Tax exemption will strengthen consumers' pocket. This would empower them to spend more on lifestyle products such under the home appliances category.

 

I also welcome minister's proposal to promote the in-house research and development (R&D). He has announced an increase in the deduction of tax limit from150 to 200 per cent for R&D. This will lead to better and innovative products. However, industry will eagerly wait for the implementation of GST (Goods & services tax) within the stipulated timeframe.

 

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MAIL TODAY

PETROL BURDEN BACK

 

It's a double whammy of sorts for consumers as the budget has pushed up fuel and car prices

 

THE UNION Budget, tabled in the Lok Sabha on Friday, has slapped levies on petrol and diesel but also left national oil companies in the lurch. These corporations continue to be saddled with losses even as the government is raking in Rs 25,000 crore in additional duties on petrol and diesel.

 

In a double whammy of sorts for consumers, car prices are also set to head northwards apart from the hole costlier fuel will burn in their pockets. Car manufacturers, including Maruti Suzuki, Tata Motors, Hyundai and Honda, on Friday said they were hiking prices to pass on to customers the 2 per cent increase in excise duty announced in the Budget.

 

Petrol prices in Delhi will go up from Rs 44.72 to Rs 47.43 a litre and diesel to Rs 35.47 a litre, since indirect tax proposals moved in the Budget come into effect immediately.

 

The customs duty on petrol and diesel has been raised to 7.5 per cent from 2.5 per cent. The excise duty has gone up by Re 1 per litre to Rs 14.35 and Rs 4.60 per litre on petrol and diesel, respectively.

 

Senior oil company officials lament that they are back to square one because finance minister Pranab Mukherjee has left the decision on implementing the Parikh committee report on the petroleum ministry. The report cannot be implemented in its present form owing to political considerations. "If a mere Rs 2 increase in the price of petrol can trigger such a storm in Parliament, where is the question of going for a Rs 100 hike in the price of an LPG (liquefied petroleum gas) cylinder?" an official wondered.

 

Petroleum and natural gas minister Murli Deora, for his part, said his ministry would give its view on implementing the Parikh report in a week to 10 days. "I am not the only one who has to decide (on this). We have to consult a lot of other people,'' he said.

 

Deora indicated that he would seek to build a consensus on the issue within the ruling UPA before deciding on any further increase in prices. WHILE the finance minister claimed that international crude oil prices had eased to $ 70 a barrel, the truth is that the oil companies are bleeding because the prices of petrol, diesel, LPG and kerosene are much lower than the cost of production. During the current year, Indian Oil Corporation, Hindustan Petroleum and Bharat Petroleum suffered revenue losses to the tune of Rs 31,574 crore on selling LPG and kerosene.

 

The finance minister has provided an additional Rs 11,845 crore in the Budget to partly offset them. This still leaves a Rs 19,729-crore deficit in their books. While Mukherjee advocated the allocation of cash directly from the Budget instead of issuing bonds to subsidise food, fertiliser and fuel, he has made no additional provision for cooking fuel. At Rs 3,108 crore, the allocation for LPG and kerosene subsidy for 2010-11 is almost unchanged from the previous fiscal.

 

Deora said he would continue to seek about Rs 19,800 crore compensation for state-owned oil to cover the remaining part of the LPG and kerosene losses. The Budget proposal of raising customs duty on other specified petroleum products from five to 10 per cent would lead to an increase in aviation turbine fuel prices by Rs 1,000 to Rs 1,500 per kilolitre. So, flyers too will have to shell out more.

 

For motorists, purchasing a car will be a much dearer deal. Maruti Suzuki India (MSI) said its models would cost between Rs 3,000 and Rs 13,000 more (ex-showroom, Delhi) from Friday midnight.

 

Hyundai Motor India Limited also said it will increase prices between Rs 6,500 and Rs 25,000. Honda Siel India too said it would jack up prices by Rs 13,000 to Rs 41,000 from Saturday. Maruti chairman R.C.

 

Bhargava said the hike in the prices was essentially meant to offset the increase in central excise duty. He, however, added that the auto industry would be able to sustain its growth because other measures taken in the Budget would help fuel demand.

 

Tata Motors managing director P.M. Telang said in Mumbai that prices may be hiked by up to Rs 60,000- 70,000 for heavy vehicles and Rs 5,000-6,000 for smaller vehicles. Other vehicle manufacturers, including General Motors and Mahindra & Mahindra (M&M), are also considering similar hikes.

 

General Motors said the prices of its models will go up by Rs 6,200-22,000. Ford India president and managing director Michael Boneham said the hike in excise duty was a major disappointment for the automobile industry. "It is sure to affect consumer sentiment," he added. Bajaj Auto managing director Rajiv Bajaj said the increase in excise rate will have to be eventually passed on to the consumers. In the two-wheeler segment, largest player Hero Honda said it will hike prices by Rs 500-1,500 across all models.

 

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THE TIMES OF INDIA

COMMENT

GOING FOR FEELGOOD

 

Going by market cheer, Budget 2010-11 scores on feelgood. Its revised middle-class friendly tax slabs are a major mood-enhancer that'll promote consumption and savings. For the aam aadmi, expected price rise due to the finance minister's partial rollback of crisis-time excise duty cuts will be offset by larger disposable incomes. And since tax concessions usually mean better tax compliance, the government may rake in greater revenue here than accounted for. For the private sector, several pluses include a pledged FDI-friendly environment and the no-change on service tax. Vulnerable export sectors will continue to see soft financing. On the minus side, India Inc could have done without the minimum alternative tax hike.

There's good news in that the 5.5 per cent fiscal deficit target remains unaltered and anticipated 8-9 per cent growth is no longer a pipedream. With fiscal consolidation back on the radar, the FM is optimistic about higher growth, healthier tax receipts and disinvestment proceeds hiking revenue. Moreover, the excise rewind going along with a status quo on service tax is in tune with GST's goal of aligning goods and services rates. But while reaffirmed commitment to the direct tax code and GST is welcome, greater urgency was surely warranted on implementation.

As expected, social sector spending has been enhanced. However, expenditure from now on must be geared to outcomes, be it in relation to delivering roads, healthcare or rural jobs. Official data shows that over a third of funds earmarked to eight of UPA's 15 flagship schemes remained unspent at the close of 2009-10's first three quarters. Moreover, NREGS is still to see the financial inclusion and biometric identification of beneficiaries that'll help stanch leaks and show the door to middlemen. On this count, good Budget announcements include a bank in every large village and UID cards' confirmed rollout this year. On agriculture, there's an appropriate focus on boosting agro-processing. But it won't do to reduce retail reform to policy innuendoes given the worrying dip in private investment in the farm sector, in crying need of improved infrastructure. And while giving fertiliser subsidies directly to farmers is spot-on, India could do with pilot projects on alternative mechanisms such as, say, direct cash transfers or coupon systems for delivering social services.

Several innovative ideas are tucked away in the Budget, such as the proposal to auction mining licences that'll help make the sector less of a political playground. A national social security fund for unorganised sector workers is also well-intended, though such palliatives can't substitute for labour reform. The Nilekani-headed commission to upgrade IT systems for tax administration is a reform-oriented idea, as is the proposed financial sector legislative reforms panel.

Finally, the FM makes two key political statements. He admits public delivery bottlenecks. And he describes government as an enabler whose job is to aid individuals and enterprises. It's good to hear policymakers acknowledge that economic well-being is ultimately an issue of governance and reform.

 

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THE TIMES OF INDIA

TOP ARTICLE

FUELLING THE GROWTH STORY

SUDIPTO MUNDLE

 

Barring the histrionics of a strident opposition increasingly lost in the wilderness, virtually all sections have welcomed the budget. All sections, that is, of the visible and vocal minority. As for the silent majority, they are well silent, but more on that later. The BSE stock price index went up 300 points even before the finance minister finished his speech. Pranab babu has done all the expected things the market had factored in plus some, hence the gain. With the economy growing at 7.2 per cent, he has started winding down the fiscal stimulus in a calibrated manner. How is this to be accomplished?

Tax revenues are to go up to Rs 5,34,000 crore and non-tax revenues are to go up from Rs 1,12,000 crore to Rs 1,48,000 crore, mainly on account of 3G spectrum sales. This will raise total revenues to 9.8 per cent of a projected GDP of Rs 69,35,000 crore in 2010-11, up from 9.3 per cent of GDP in the revised estimates for 2009-10. Capital receipts other than loan recoveries (mainly sale of public sector equity) will yield Rs 40,000 crore or 0.58 per cent of GDP as compared to 0.42 per cent last year. Thus additional revenue and non-debt capital receipts will reduce the fiscal deficit by 0.7 per cent of GDP. On the expenditure side, capital expenditure will rise to Rs 1,50,000 crore or 2.16 per cent of GDP, an extra 0.3 per cent of GDP compared to 1.86 per cent last year. However, revenue expenditure will be compressed to Rs 9,59,000 crore or 13.83 per cent of GDP compared to 14.66 per cent last year, yielding an additional reduction in the fiscal deficit of 0.5 per cent, i.e., a total compression of the fiscal deficit by 1.2 per cent from 6.7 per cent last year to the targeted 5.5 per cent this year.

Tax revenues will rise despite significant relief in income tax rates for personal incomes below Rs 8 lakh and a reduction in the surcharge on corporate income taxes. On balance the reliefs will entail a revenue loss of Rs 26,000 crore on the direct taxes side. This will be more than offset by a revenue gain of Rs 46,500 crore in indirect taxes. The indirect tax take will go up mainly on account of the expected partial rollback of excise duty reductions, a one per cent clean energy cess on domestic and imported coal, etc. The excise duty rate, the peak customs duty rate and the service tax rate have all been set at 10 per cent, preparing the ground for introduction of a unified Goods and Services Tax next year. This, along with the Direct Taxes Code, will usher in a new phase of thorough tax reform. However, an opportunity has been lost in not significantly extending the coverage of the services tax. Also, the indirect tax proposals are still full of discretionary exemptions, concessions and specific rates for individual items, which are reminiscent of the pre-reform days.

Tax reforms will be combined with a new commission to oversee significant reforms in the financial sector, licensing of new banks and another commission to monitor large corporations that could pose systemic risk as seen in the advanced countries during the financial crisis of 2008-09. Announcement of a substantial reform programme, along with fiscal consolidation, and the protection of capital expenditure on infrastructure while compressing revenue expenditure, makes the current budget a very sound budget for growth.

However, the budget has been quite conservative on the inclusion agenda and social programmes, which are mostly items of revenue expenditure. Thus, total spending on the flagship inclusion programme NREGA, now renamed Mahatma Gandhi National Rural Employment Guarantee Scheme, has remained essentially constant at Rs 40,100 crore in nominal terms compared to Rs 39,100 crore last year, which means a decline in real terms. It's the same story if you take the total spending programme on rural development, or agriculture, or school education and literacy, or women and child development, or health. In all these social inclusion programmes, the expenditure levels have been maintained at more or less the same nominal levels as last year, meaning a decline in real terms.

This is not surprising coming from an experienced finance minister. This being the first year of the UPA II political cycle, he knows he has only this year and the next to push through all the hard-nosed reforms and fiscal discipline that are important for sustaining high growth. After that, inclusive spending will start galloping in response to political compulsions as elections loom large on the horizon, and fiscal discipline will fall by the wayside.

It also has to be mentioned that there is a whole different approach to inclusive growth outlined in this year's Economic Survey, which proposes revolutionising the delivery of social services and anti-poverty programmes, making them more effective and leakage-proof through a coupon based system instead of just throwing more money at them. The finance minister has hinted that he is buying into this approach. We will hopefully see far-reaching reforms not only on the growth front but also in the approach to inclusiveness over the next two years. So all is not lost for the silent majority after all.

The writer is Emeritus Professor at the National Institute of Public Finance and Policy, New Delhi

 

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THE TIMES OF INDIA

TOP ARTICLE

A STEP IN THE RIGHT DIRECTION

 

Fourteen years after it was tabled, the Women's reservation Bill - which seeks to reserve 33 per cent seats in state legislatures and in Parliament for women - might finally see the light of day. The Union cabinet had formally approved the Bill and it will be taken up in this session of Parliament. Hopefully, the Parliament will see the Bill through this time.

Political consensus on this important issue has been elusive and the Bill has been strongly resisted by parties like the Samajwadi Party and the JD (U), which have staged walkouts and even resorted to physical intimidation in the past to register their protest. They continue to insist that quotas for SCs, STs, OBCs and Muslims be carved out of the overall quota, a move that is both undesirable and untenable.

The idea behind reserving seats for women is that women are a disadvantaged group and must be given adequate political representation through special measures. Critics of the quota argue that reservation is a regressive move and that political parties should instead voluntarily field more women candidates. Well, after more than 60 years since independence, we are yet to see any political party giving women adequate representation. If we wait for them to take corrective measures on their own, we may well have to wait till kingdom come. Sometimes affirmative actions are called for to set right historical wrongs. The Women's reservation Bill is one such necessary measure.

Some women have held high political office in our country but there aren't as many women legislators or ministers as there should be. Denying adequate political representation for one half of our population does not sit well on our claim to be a thriving demo-cracy. When women are politically empowered, it significantly enhances their prospects, giving them the voice and space to reverse the several disadvantages they face on different fronts. It is therefore crucial that we have more women in our political system. All measures to improve the lives of women, economically, socially and politically, must be welcomed. Only then can we lay claim to being an egalitarian and inclusive society.

 

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THE TIMES OF INDIA

GET OUT OF THE QUOTA MINDSET

KAUTILYA KUMAR

 

The move to reserve seats for women in Parliament is flawed. Of course, the intention behind the decision that we need to have more women participation in legislating is laudable. But the way to achieve it is not through reservations. Quotas will create another area of patronage, which in the long run will defeat the purpose of achieving gender parity in legislatures.

Our policymakers seem to view reservations as the magic bullet that will wipe out all forms of discrimination. It may have succeeded in some sectors but is not necessarily the solution for all our deficiencies. Ours is essentially a patriarchal society. Men control the levers of power. There are historical factors as well as economic reasons for women being pushed to the background. Power relations shape social perceptions. Political representation is an outcome of these factors.

What do we mean by women empowerment in politics? It is not merely about having more women legislators, but about forcing a paradigm shift in the way public policies are decided. The real issue is to ensure that public policies become more women-friendly. That calls for a change in social mindset. Can more women MLAs and MPs ensure that? Not necessarily. The additional women legislators could well share the patriarchal mindset and legitimise policies that are unfriendly to women. We have seen in our own country and the neighbourhood that mere presence of women in powerful places needn't necessarily make things easier for other women. Special quotas are unlikely to change the political agenda of parties. What is most likely to happen is that parties will pick pliable women to fill the quota and ask them to further the party agenda in legislative bodies.

A qualitative change is possible only if the basic needs of women are addressed. India's record in women's health and education are abysmal. Low priority is given to their needs even when public infrastructure is built. So few women get the time or opportunity to acquire skills that are necessary for a successful career in public life or economic activity. Quota politics is unlikely to address these issues. If these biases are not changed we may get more women legislators, but few of them are likely to be agents of change.

 

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THE TIMES OF INDIA

THE SPIRIT OF THE MATTER

GAUTAM ADHIKARI

 

WASHINGTON DC: India is shy of advertising its democracy. But, as a democracy, it has done good things in the past, which still help it collect brownie points. Half a century ago, India gave shelter to the Dalai Lama and thousands of Tibetans escaping from China's tyranny. Today, the Dalai Lama speaks glowingly of his India experience.

He had a busy schedule in this town last week, much to the annoyance of the Chinese. He called on President Barack Obama at the White House, showed up in the Library of Congress to collect a Democracy Service Medal awarded by the National Endowment for Democracy, and gave interviews to Larry King on CNN and to the National Public Radio. The Chinese put out surly statements criticising his visit; but with a smile on his face he spoke gentle truths that stung some and soothed others.

He praised India wherever he spoke. He contrasted his experience in the mid-1950s of the Chinese parliament, where the orderly proceedings had a soporific effect on members and visitors alike, to his later visit to the Lok Sabha, where he watched a cauldron of cacophony to imbibe his first lesson in the joys of democratic pluralism.

When Larry King brought up the subject of discipline, the wise lama separated 'totalitarian discipline', which damaged individuals, from 'self-discipline', which elevated individuals. In the teachings of Gautam Buddha, the acquisition of self-discipline was a key to self-realisation. Since Buddhism had come out of India, he said, "I always describe myself as a messenger of India, because i am a Buddhist."

Speaking of the Buddha, he said something that took me back to a conversation in Delhi with a friend who had wondered how an agnostic, like myself, could hope to comprehend the reality of the cosmos without any spiritual training. The Dalai Lama said, in his speech at the Library of Congress, that the Buddha implored his disciples not to accept any statement or assertion of truth on faith alone. All assertions or claims to truth, even those coming from the Buddha, must be investigated. Every position on the nature of reality should be adopted on the basis of reasoning inquiry.

The problem is that such rational inquiry requires in any curious individual a basic level of acquired information. I, for instance, can't graduate myself from 'agnostic', that is someone who thinks any ultimate truth may be unknowable for us humans, to 'atheist', that is someone who asserts there is no god or prime mover. I am unable to do that because my knowledge of mathematical astrophysics is far too limited to understand a concept like a 'singularity', for instance, that makes superfluous the need for a prime mover, or to comprehensively grasp the idea of a causeless cosmos.

There are thinkers, however, who can do that and have written essays and books explaining their take on reality. You can say, in a sense, they are at one with the Buddha and the Dalai Lama in that they don't accept any faith-based assertion about the nature or origin of life. They and, for that matter, we agnostics don't allow inquiry to cease or curiosity to die as long as our thinking faculty is intact.

That is not to suggest that a god-believing person cannot also be an inquiring soul. Einstein, who had a profound understanding of the nature of reality, seemed to be a believer in a divine being up there with a plan for the universe. But there may be no compelling need to be spiritual, or to belong to one religious group or the other, to carry on a fulfilling life of rational inquiry or raise questions about existence. You just have to be ceaselessly curious and ready to change positions when facts evolve.

That was what was pleasing about the Dalai Lama's spirit. As a Buddhist monk, he did not think there was a need for devotional belief; as a leader of an exiled people, he did not believe any authority, be it divine or political, should be unquestioningly accepted, including his own. In Buddhism, agnostics and atheists can feel at home.

 

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EDITORIAL

BEGINNING A NEW CHAPTER

 

This is probably the last budget as we know it. If things work to plan, India's finance minister will have ceded a significant part of his discretionary power over tax rates when Pranab Mukherjee rises to present the budget for 2011-12. A single tax on goods and services across the land will be set by a collegium of ministers from the states and a code on taxing incomes will dictate rates and slabs. This year's budget paves the way for a turning point in the republic's history. By widening income tax slabs on the one hand, and raising the indirect tax rate on the other, Mr Mukherjee is ushering in a new era that will become official once the necessary legislation is in place, hopefully in the next 12 months.

 

The regime change also envelops a calibrated rollback of the economic stimulus. Shifting the incidence of tax from income to consumption should nurse the recovery along while improving the fiscal balance. The risk in this gambit is to the price line as producers, notably oil companies, pass on the higher tax and neutralise the gains of larger disposable incomes. With inflation the foremost concern, the cost of fiscal consolidation could be pretty high.

 

Mr Mukherjee has dipped into non-tax receipts like divestment and spectrum auction proceeds to shave a percentage point off the fiscal deficit, but the government must realise these revenue streams are not in perpetuity and cannot be a substitute for expenditure control.

 

A beginning has been made in explicitly accounting for subsidised fuel and fertilisers. Yet overall, subsidies are stubbornly stuck at 10 per cent of total government expenditure while capacity building in infrastructure needs another 15 per cent and interest payments an additional 22 per cent. As welfare entitlements become legally enforceable, the onus will be on cutting back revenue expenditure. Yet the finance ministry's zeal is directed more towards pruning the fiscal deficit in the medium term than the more worrisome one in revenue. One in three rupees Mr Mukherjee spends this year will be borrowed, a prospect the bond market has greeted with trepidation. The stock markets, though, find cheer in a lower corporate tax surcharge and a conditional withdrawal of the excise giveaway.

 

Surprising, because the bourses had dipped after last year's budget despite it having a bigger reforms agenda than this one. Disinvestment, oil and fertiliser price decontrol, greater access to foreign investment, easier infrastructure finance and tax reforms are all works in progress. This year Mr Mukherjee has, understandably, turned his attention to farm productivity and food management. Banks will be recapitalised and a super financial watchdog created, coal blocks auctioned under scrutiny of a regulator, and a fund set up to foster clean energy. A bigger reforms push in a year when state elections do not cast much of a shadow seems to have yielded to the more pressing demands of reviving growth and making it more inclusive.

 

After employment and education, the UPA is moving to make food security an entitlement. Spending on social security, including flagship programmes like the unemployment dole and Bharat Nirman, is now up to 12 per cent of total expenditure. A quarter of plan spending is on rural infrastructure. Given the sums involved, Mr Mukherjee's third guiding principle in making this budget assumes salience. "If there is one factor that can hold us back in realising our potential as a modern nation, it is the bottleneck of our public delivery mechanisms… we have a long way to go before we can rest on this count." India cannot tarry its tryst with destiny.

 

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HINDUSTAN TIMES

EDITORIAL

THE FAT IS IN THE FIRE

PRATIK KANJILAL

 

As a thin man with a bad lifestyle, I am deeply concerned. I have just learned that fats don't spare the thin. Apparently, macrophages go into hunter-killer mode when we gorge on fats, aggravating heart disease, diabetes and cancer in the thin and the obese alike. George Bernard Shaw was way off the beam when he urged us to "stimulate the phagocytes" (The Doctor's Dilemma). Like the 2010 economy, a stimulus is just what they don't need.

 

In fact, prosperity and consumer choice are stimulating the death rate. Pranab-da believes that India will finally become a market growth leader in 2011-12, but unfortunately it's already leading the world in the incidence of chronic diseases typical of prosperous nations. This is affecting everyone, not just fries-fed city folk and mall rats. In 2006, a study based on Andhra Pradesh Rural Health Initiative data found that rural epidemiological patterns are changing rapidly. Infectious and parasitic diseases are no longer the leading causes of morbidity and mortality. They have been overtaken by vascular disorders, ischaemic heart disease and strokes.

 

Not surprisingly, self-harm is a major problem, accounting for one-third of all deaths attributable to injury. The whole world has been nattering on about change ever since Obama's campaign, but rapid economic and social change can be a wild ride. Some people just throw up their hands and say, "No, I can't," and drown their sorrows in rat poison.

 

The medical fraternity and policy-makers in preventive and social medicine will have to recalibrate their response to disease in India, taking into account the rapidity with which lifestyles and the incidence of serious diseases are changing. Leaving the specialists to ponder that problem, I wandered afield on the Internet like a tourist of death's domain, seeking the great slayers of the 21st century. And I found that in believing that malnutrition and HIV are the biggest challenges we face, we are living in a mass hallucination.

 

HIV/Aids is only the tenth biggest killer worldwide, well behind cardiovascular problems, infectious and parasitic diseases and cancers. It is slightly ahead of gastrointestinal disorders and diarrhoea, which are slightly ahead of suicide, war and fatal muggings and such. Disturbingly, death due to violence is ahead of death due to lung cancer, though we have come to regard smoking as the biggest preventable cause of mortality. Maybe it's because more people die of smoking than of violence in the district of Columbia, an area that does more than its fair share in shaping world opinion. Maybe there are too many smokers in Washington and not enough homicidal maniacs. And its Beltway bandits fight their wars elsewhere, raising the rate of violent death on other continents.

 

Indeed, local flavour causes huge variations. Malaria trails behind heart disease in rural India. But in cities, the anti-malaria drive is in retreat and mosquitoes are a menace. I'm told that last week, a mosquito landed at IGI Airport and the ground crew tried to refuel it, taking it for an Airbus. So, to each his own. Speaking for myself, the thin man who has just learned that he is doomed to be felled by growth-led fats, I'm off to take a hard look at Pranab-da's growth budget.

 

Pratik Kanjilal is publisher of The Little Magazine

 

The views expressed by the author are personal

 

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HINDUSTAN TIMES

EDITORIAL

A HUM, HINDUSTANI

GOPALKRISHNA GANDHI

 

When President K.R. Narayanan started a spoken sentence with 'Incidentally...' his staff knew what was coming. Instructions of moment entered through that one-word gate, as did tickings-off for omissions, errors or even plain thoughtlessness.

 

Careful paper work had preceded President Bill Clinton's State visit in March 2000. But Narayanan handed back one of the 'less important' papers I had given to him. 'Less important'? This was the seating plan for the banquet he was hosting for his American counterpart. The President had spent at least a half-hour on the plan, changing it around  in spidery snakes-and-ladders loops that brought many tail-enders to the centre. "Incidentally," he said to me, "you do not seem to have applied your mind to this plan."

 

"Incidentally," he asked me in a moment of brooding earlier the same year, "have you kept any jottings or notes or suchlike about our conversations?" As I shook my head, he added, "Nor have I. They could be very useful later for references." I followed up on his suggestion almost immediately.

 

One of the first conversations I recorded was about himself. "I was working with The Times of India in Bombay in 1945," he reminisced, "when I got a Tata scholarship to the London School of Economics. Gandhiji happened to be in Bombay  and I thought I should call on him and ask him some questions that were agitating me."

 

The 25-year-old Narayanan posed two questions to Gandhi at Birla House, Bombay, on April 10, 1945. The first began with a comment: "All great men have a passion for simplification." Narayanan went on: "You have simplified the nature of human conflict as between violence and non-violence, truth and untruth, right and wrong..." And then he put the question: "But in life is not the conflict between one right and another right or between one truth and another truth?"

 

The existential question received an indirect answer. But the practical one that followed solved a hard, personal dilemma for the young man on the eve of his departure for London. The question was: "How can a Harijan who goes abroad best serve his country and community from abroad?" "He cannot serve the one without serving the other," Gandhi replied, adding "Abroad you will say it is a domestic question which you are determined to solve for yourselves."

 

Gandhi could not have known that the young  Keralan was to become, in time, the tenth president of India and would confront these two questions, both as Head of State and as Kocheril Raman Narayanan.

 

During his State visit to France in 2000, before he could engage President Jacques Chirac in bilateral discussions, President Narayanan had a momentary preoccupation with an issue that connected him directly to the second question he had posed to Gandhi. As I went to brief Narayanan on some routine matters, his Aide-de-Camp (AdC) met me at the doorstep, holding that morning's issue of a Paris newspaper. "We have not shown this to the President yet," he said. The paper had chosen, in a bold headline, to describe our President's community origins in terms India has long ceased to use.

 

Neither the expression on the President's face nor the timbre of his voice showed any reaction. "The West," he said a few moments of reflection later, "continues to be fascinated by tales of grimness from India but..." and then, after another pause "...our own social evolution being what it is, there are enough sensationalisers among us who provide grist to the mill."

 

The discussions at the Elysee went exceptionally well, with Chirac at his most artful, Narayanan at his most articulate and that morning's story figuring nowhere in the proceedings. I felt an immense pride in the Head of our State overcoming a personal inner turmoil within minutes and serving India's representation abroad with rare sophistication. Gandhi's advice to him 55 years earlier had not been wasted.

 

An individual can resolve the conflict between one right path and another through his or her instincts. But what about a State? Does the State have instincts that help it choose one of the two, or does it rely on objective reasoning alone?

 

In a totalitarian regime, the supremo's instinct decides everything. But to the extent that a democracy elects thinking, feeling individuals to office, its leadership cannot but use both intelligence and instinct, intellection and intuition. When a Nelson Mandela says he is against racism and adds "both white racism and black racism," his individual instinct for justice is revealed. When, as President of South Africa, he sets up the Truth and Reconciliation Commission, his instinct, his 'inner voice', acquires the colours of the State, the new rainbow nation.

 

What of a nation? Is there such a thing as an 'Indian instinct'? Is calm our basic instinct? Or is it rage? We witness both.

 

In India's integrated acoustics three major forms of utterance can be segregated: the grammar of authority (sarkar/siyasat), the prose of faith-systems (dharma/mazhab) and the free verse of human instincts of the finer kind (svabhav/jazba). The first two, the grammar and the prose, are strong baritones. The 'free verse' of human instincts illustrated powerfully in Sufi compositions and in the writings of Kabir and Surdas, is soft. This is not just because it is un-pedestalled and unamplified but because it is plural, like a choir's.  The framers of our Constitution were aware of the importance, as well as the fragility, of this voice, the 'inner voice' of India. The preamble to our Constitution, beautifully rendered in Hindi as 'Uddeshika', is the seat of that voice.

 

There is a small bidi-making village in West Bengal's Murshidabad district called Pachalgram. I asked a little girl standing outside her hut in that village if she went to school. And on her saying yes, I asked if she would please show me her school textbooks. She brought out a slim English publication and opened it on a page that carried the preamble to our Constitution. "Have you read this?" I asked incredulously. "Yes," she replied in Bengali, and proceeded to read it aloud softly but clearly, in English. "We the people..."

 

This was Pachalgram, not Paris. It was a hut, not the Elysee. But I felt the same pride in this girl poised between childhood and youth, school and either its fruition or its possible abandoning, as I felt in President Narayanan as he led the discussions with President Chirac. To me the little girl's was the voice of India's instinct not under trauma, tragedy or even tension. It was the voice, the instinct, the intuition of anticipation waiting, in Longfellow's words "with uncertain feet, where the brook and river meet".

 

And I fantasised telling President Narayanan, "Incidentally, sir, this girl should get a scholarship to the LSE."

 

Gopalkrishna Gandhi was the Governor of West Bengal from 2004 to 2009

 

The views expressed by the author are personal

 

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INDIAN EXPRESS

EDITORIAL

UNPARLIAMENTARY

 

The Union Budget is an occasion of great ceremony. It begins with the arrival of the finance minister carrying, conspicuously for the cameras, a briefcase of documents — after all, the word "budget" derives from an old French word for a little bag. The stage is entirely his as a customarily packed Lok Sabha keeps itself roused to boo or welcome even arcane tax proposals. And with the minister having had his say, they all tumble out with instant critiques. There is almost a festive air through this contentiousness because, of course, the real business of debating the Budget in the House and consideration of the demands by standing committees of Parliament will truly begin on the morrow. On Budget day, Parliament affirms its primacy in authorising the government's expenditure and its proposals for tax levies by hearing out the finance minister.

 

Not this time. On Friday, the opposition undermined Parliament by choosing to walk out almost to the last MP — there was the quaint picture cut by Jaswant Singh remaining seated through the ruckus — even as Finance Minister Pranab Mukherjee read on. They gathered themselves out of the House in a big huff over the hike in petroleum product duties, and we had the oddest sight of Lok Sabha MPs feeding the waiting camera crews outside with denunciations of the proposal without obtaining the full text of the Budget. From the BJP, this was conspicuous incoherence: had the NDA not taken great strides to reform petroleum prices, to the then-too present din of complaints that this would have an inflationary effect? However, incoherence apart, the walkout was another step in the gradual erosion of the House as a site for meaningful and responsive engagement.

 

It is yet another low for this Lok Sabha, not even a year into its term. And more than previous disruptions, it marks the flight of responsible engagement from the House. It is not just that a show of opposition unity by walkout displays a lack of imagination and stamina to use the instruments of legislature to hold a government to account. It is also that it confirms a suspicion that MPs see the legislature as little more than a site to numerically test a government's majority.

 

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INDIAN EXPRESS

EDITORIAL

THE REFORMER'S BALANCESHEET

 

Finance Minister Pranab Mukherjee had many objectives to juggle in this Budget. On the one hand, the government's expansion of spending that followed on from the global financial crisis had put pressure on its bottomline, and across India and the world stakeholders hoped that the Budget would mark a return to fiscal prudence. On the other hand, the momentum that India has managed to sustain through the global downturn needed to be given fresh energy, to propel India back towards a higher growth path. Mukherjee, handed this tough slate, has pulled together the political experience of two decades, and presented a package that manages to accomplish a great deal. More, that he began the Budget speech with a public reminder that government cannot do everything, that it must play an enabling role, that the animal spirits of India's investors are crucial to growth, should be seen as a major reformist signal.

 

The macro picture first. This Budget scores on fiscal consolidation and tax reform. The Finance Commission's recommendations on reducing the debt/ GDP ratio by 2014 have been accepted — and there will be a roadmap available in six months. (An emphasis on time-bound targets is visible throughout this Budget, which might help towards creating a culture of accountability.) The fiscal deficit/ GDP ratio is to be decreased to 5.5 per cent in the base estimates — not that hard, since there are no Pay Commission arrears or debt relief for farmers this year. More important are the rolling targets that have been set: 4.8 per cent in 2011-12 and 4.1 per cent in 2012-13. The crucial takeaway: these are in fact add-ons to the Finance Commission's recommendations.

 

Add to this the decision (long argued for by those who want a clean balancesheet from the government) to include off-Budget items explicitly in deficit calculations. Another sign of conservativism: the disinvestment target is Rs 25,000 crore. But this should in fact be exceeded, if markets behave as most expect. When 3G auction receipts are added in, the finance minister should have no problems in attaining the deficit targets. Subsequent fiscal consolidation, however, will remain contingent on reforming subsidies. The Direct Tax Code and GST targets remain April 1, 2011 and it was important to keep proceeding towards it; this was done by hiking excise to 10 per cent and/ or service tax to 12 per cent. (The GST will be 12 per cent, with 7 per cent the Centre's share and 5 per cent the states'.) That excise has been hiked, despite industry protestations, is welcome, though there is a little too much tinkering across sectors. The FM has made urban segments happy by realigning slabs (though not rates) on personal income taxation. On the flip side, there is the hike in the minimum alternative tax to 18 per cent, though this is offset by a reduction in surcharge. Overall: the tax proposals are revenue-neutral, with the shortfall in direct taxes paid up through indirect taxes. Given the constraints, the FM was expected to be evaluated on tax reform and fiscal consolidation. On that, he has certainly passed the test.

 

But correcting the macro picture couldn't be allowed to happen at the cost of slowing India's recovery. So what have we got? Let's start with the financial sector. It would have been very easy for Mukherjee to continue to use the global financial crisis as an excuse to not even think about financial sector reform. Instead we have a commitment to create a financial sector legislative reforms commission, which will review our interlocking and confused financial regulation. And, in an idea imported from the latest post-crisis policy thinking elsewhere, a "super-regulator" charged with systemic stability will be set up. Then there's a commitment on financial inclusion — again, with a date: March 2012. The opening up of accounts, and the spread of insurance services, is a crucial step towards revolutionising India's use of its citizens' savings. Additional licences for private sector banks also help move that forward. On the knotty issue of petroleum subsidies, there is little doubt that a wholesale reform of the administered price mechanism would have been a great addition to the Budget. While the Kirit Parekh Committee's report was specially mentioned, and recommended to the petroleum ministry, for now there is a first step towards addressing the petrol bill — the reaction to which shows how politically fraught the road ahead will be.

 

Overall, Mukherjee, by setting the government targets and dates — and, not least, announcing a new agency that will independently evaluate the UPA's pet social sector programmes — has embedded challenges for his ministry and his government.

***************************************

 

INDIAN EXPRESS

COLUMN

THE REFORMER'S BALANCESHEET

 

Finance Minister Pranab Mukherjee had many objectives to juggle in this Budget. On the one hand, the government's expansion of spending that followed on from the global financial crisis had put pressure on its bottomline, and across India and the world stakeholders hoped that the Budget would mark a return to fiscal prudence. On the other hand, the momentum that India has managed to sustain through the global downturn needed to be given fresh energy, to propel India back towards a higher growth path. Mukherjee, handed this tough slate, has pulled together the political experience of two decades, and presented a package that manages to accomplish a great deal. More, that he began the Budget speech with a public reminder that government cannot do everything, that it must play an enabling role, that the animal spirits of India's investors are crucial to growth, should be seen as a major reformist signal.

 

The macro picture first. This Budget scores on fiscal consolidation and tax reform. The Finance Commission's recommendations on reducing the debt/ GDP ratio by 2014 have been accepted — and there will be a roadmap available in six months. (An emphasis on time-bound targets is visible throughout this Budget, which might help towards creating a culture of accountability.) The fiscal deficit/ GDP ratio is to be decreased to 5.5 per cent in the base estimates — not that hard, since there are no Pay Commission arrears or debt relief for farmers this year. More important are the rolling targets that have been set: 4.8 per cent in 2011-12 and 4.1 per cent in 2012-13. The crucial takeaway: these are in fact add-ons to the Finance Commission's recommendations.

 

Add to this the decision (long argued for by those who want a clean balancesheet from the government) to include off-Budget items explicitly in deficit calculations. Another sign of conservativism: the disinvestment target is Rs 25,000 crore. But this should in fact be exceeded, if markets behave as most expect. When 3G auction receipts are added in, the finance minister should have no problems in attaining the deficit targets. Subsequent fiscal consolidation, however, will remain contingent on reforming subsidies. The Direct Tax Code and GST targets remain April 1, 2011 and it was important to keep proceeding towards it; this was done by hiking excise to 10 per cent and/ or service tax to 12 per cent. (The GST will be 12 per cent, with 7 per cent the Centre's share and 5 per cent the states'.) That excise has been hiked, despite industry protestations, is welcome, though there is a little too much tinkering across sectors. The FM has made urban segments happy by realigning slabs (though not rates) on personal income taxation. On the flip side, there is the hike in the minimum alternative tax to 18 per cent, though this is offset by a reduction in surcharge. Overall: the tax proposals are revenue-neutral, with the shortfall in direct taxes paid up through indirect taxes. Given the constraints, the FM was expected to be evaluated on tax reform and fiscal consolidation. On that, he has certainly passed the test.

 

But correcting the macro picture couldn't be allowed to happen at the cost of slowing India's recovery. So what have we got? Let's start with the financial sector. It would have been very easy for Mukherjee to continue to use the global financial crisis as an excuse to not even think about financial sector reform. Instead we have a commitment to create a financial sector legislative reforms commission, which will review our interlocking and confused financial regulation. And, in an idea imported from the latest post-crisis policy thinking elsewhere, a "super-regulator" charged with systemic stability will be set up. Then there's a commitment on financial inclusion — again, with a date: March 2012. The opening up of accounts, and the spread of insurance services, is a crucial step towards revolutionising India's use of its citizens' savings. Additional licences for private sector banks also help move that forward. On the knotty issue of petroleum subsidies, there is little doubt that a wholesale reform of the administered price mechanism would have been a great addition to the Budget. While the Kirit Parekh Committee's report was specially mentioned, and recommended to the petroleum ministry, for now there is a first step towards addressing the petrol bill — the reaction to which shows how politically fraught the road ahead will be.

 

Overall, Mukherjee, by setting the government targets and dates — and, not least, announcing a new agency that will independently evaluate the UPA's pet social sector programmes — has embedded challenges for his ministry and his government.

 

***************************************

INDIAN EXPRESS

COLUMN

UNPARLIAMENTARY

 

The Union Budget is an occasion of great ceremony. It begins with the arrival of the finance minister carrying, conspicuously for the cameras, a briefcase of documents — after all, the word "budget" derives from an old French word for a little bag. The stage is entirely his as a customarily packed Lok Sabha keeps itself roused to boo or welcome even arcane tax proposals. And with the minister having had his say, they all tumble out with instant critiques. There is almost a festive air through this contentiousness because, of course, the real business of debating the Budget in the House and consideration of the demands by standing committees of Parliament will truly begin on the morrow. On Budget day, Parliament affirms its primacy in authorising the government's expenditure and its proposals for tax levies by hearing out the finance minister.

 

Not this time. On Friday, the opposition undermined Parliament by choosing to walk out almost to the last MP — there was the quaint picture cut by Jaswant Singh remaining seated through the ruckus — even as Finance Minister Pranab Mukherjee read on. They gathered themselves out of the House in a big huff over the hike in petroleum product duties, and we had the oddest sight of Lok Sabha MPs feeding the waiting camera crews outside with denunciations of the proposal without obtaining the full text of the Budget. From the BJP, this was conspicuous incoherence: had the NDA not taken great strides to reform petroleum prices, to the then-too present din of complaints that this would have an inflationary effect? However, incoherence apart, the walkout was another step in the gradual erosion of the House as a site for meaningful and responsive engagement.

 

It is yet another low for this Lok Sabha, not even a year into its term. And more than previous disruptions, it marks the flight of responsible engagement from the House. It is not just that a show of opposition unity by walkout displays a lack of imagination and stamina to use the instruments of legislature to hold a government to account. It is also that it confirms a suspicion that MPs see the legislature as little more than a site to numerically test a government's majority.

 

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INDIAN EXPRESS

OPED

THE FOUR-FOLD PROMISE

ILA PATNAIK

 

Finance Minister Pranab Mukherjee delivered more in Budget 2010 than was expected. It was a challenging job to roll back the stimulus in a small and calibrated manner, as well as lower the fiscal deficit significantly. But, the FM delivered more than this tight-rope balancing act. He laid out the big picture on fiscal consolidation by reducing government debt, as recommended by the Thirteenth Finance Commission. He promised that the Direct Tax Code and the Goods and Services Tax will be implemented from April 1, 2011. These would be vital ingredients in allowing the government to meet its fiscal consolidation targets.

 

However, some of these announcements were expected, and perhaps not fulfilling these expectations would have created negative sentiment. What came as a pleasant surprise were some new initiatives in the budget speech.

 

First, the FM announced the setting up of an apex-level Financial Stability and Development Council to strengthen, institutionalise and maintain financial stability. The need for such a body has been acutely felt after the global financial crisis. In the nascent field of financial stability there is an understanding that taking steps to address issues of risks to the financial system as a whole can require giving directions to all regulators. On his own a regulator, such as the equity markets regulator, or the banking regulator, may not be able to see risks building up and may not tighten norms when required. This means a body over and above the existing regulators is required. Also, in the Indian context, this may involve taking decisions about unregulated entities, as it did in the case of the investment banks in the US. Today we may not know where trouble may arise but if it does, these trouble spots should not fall between the cracks in regulation.

 

Further, the public anger seen in the US and UK public on the use of taxpayer money to help out big banks has shown how politically sensitive this issue can become. Tomorrow, if in India, taxpayer money has to be used for bailing out a private financial institution that can create a risk to the system as a whole, the government could find itself facing all kinds of allegations. It is thus a sensible and forward-looking idea to protect itself in such a situation by creating an institutional framework though which the FM does not put himself into the unenviable position of Hank Paulson or Alistair Darling. When faced with the decision to bail out a private financial institution, and be blamed for the decision, or to let it fail and be responsible for a crisis, the government should be able to take bold decisions.

 

The Financial Stability and Development Council has to be over and above all other regulators — who may have failed in their jobs. In the UK this job has been located in the Bank of England which is not a financial regulator, and in the US in a Council of Regulators. In India, the proposed Financial Stability and Development Council is along similar lines.

 

Second, the Finance Minister has taken into account the needs of India as a fast modernising and globalising economy. The laws that govern the financial sector are outdated, and after many amendments over the years, they are now non-transparent and often ambiguous. The existing structure of financial regulation has worked to a large extent by banning one financial product or the other. As the Economic Survey points out, India needs to move away from a model of an intrusive government to one of an enabling government which works through creating policies which are incentive-compatible. This sentiment was supported by the FM in the early part of his budget speech when he says, "An enabling government... creates an enabling ethos so that individual enterprise and creativity can flourish." If this idea is taken forward, it will require a whole new way of thinking about financial regulation. The FM has proposed setting up of a Financial Sector Legislative Reforms Commission to rewrite and clean up financial sector laws to bring them in line with the requirements of the sector.

 

The third pleasant surprise in the budget is the announced intention of the banking regulator, the Reserve Bank of India, to give new private bank licenses. This decision is welcome especially because after the global crisis, many commentators seemed to forget that India was still to satisfy basic needs for financial services of its people, and that half the population of the country still did not have access to banks. Instead, the crisis had become a reason to argue that India had done right not to allow more private banks to operate. The FM's speech has brought a sense of balance back into the discourse by indicating that India will make progress on providing financial services to its population. This is in line with the proposals for financial inclusion recommended by the Raghuram Rajan committee report.

 

The fourth forward-looking decision in the budget is the creation of a Technology Advisory Group for Unique Projects which proposes to look at various technological and systemic issues for newly created projects that have a strong IT requirement. These include the Tax Information Network, New Pension Scheme, National Treasury Management Agency, Expenditure Information Network and the Goods and Services Tax. These projects require rising above the normal government style of functioning — i.e. within the given structure and existing department. They will need to be treated as projects that require a new way of thinking and the creation of the Technical Advisory group indicates that the government is aware of this challenge and will devote resources to meet it.

 

The disappointment in the budget speech was that there was no vision of a system that could operate without an "industrial policy" — in which the government knows what is best for industry and promotes some sectors or products versus others through the use of tax exemptions, lower rates or subsidies. The last part of the budget speech was reminiscent of the old India of the 1970s with the FM proposing a reduction in duty on items such as rhodium, magnetrons and toy balloons. Once the Direct Tax Code and GST kick in, these relics of the past will hopefully disappear forever.

 

The writer is a professor at the National Institute of Public Finance and Policy, New Delhi

 

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INDIAN EXPRESS

OPED

REMEMBER HIM RIGHT

TAHIR MAHMOOD

 

If the mountain won't come to Mohammed, Mohammed must go to the mountain" was the great man's answer to his detractors demanding from him, as a condition for obedience, the miracle of summoning to his audience the mountain-hill on top of which he used to preach. The message was that instead of waiting for miracles to happen we must make concerted efforts to lead a happy and meaningful life. The Prophet in fact never claimed any supernatural powers and kept asserting "innama ana basharun" (verily I am a human being). But today he is seen as an embodiment of spirituality: those swearing by him and fighting for his honour, blissfully forgetting his teachings on character-building, excellence in education, human rights, gender justice and peaceful coexistence. Year after year Eid-e-Milad-un-Nabi is celebrated with great fervour — powerful orators sermonising on his theology and poets eulogising his imaginary superhuman powers without caring least about how recklessly his temporal teachings are going to the dogs.

 

Deeply concerned about social degeneration, the Prophet ventured on the hazardous mission of reforming the society around him, known for its tribal infighting and brutality. Convinced that education was the first answer to all social evils, he began his mission by gracefully impressing upon his people that God wished them to learn the use of the pen and get educated. "A person reading is handsome in the eyes of God," he said once, and declared on another occasion "the ink of the learner is holier than a martyr's blood." Certainly these were not injunctions for learning Islamic theology, else he would not have ordered non-Muslim prisoners of war to teach Muslim children in lieu of ransom, nor commanded "utlub-ul-ilma wa lau kana bis-Sin" (acquire knowledge even if you find it in China). Determined to leave no room for gender-based discrimination in any walk of life, he more often than not mentioned women along with men — "al-muminin wal-muminat" (believing men and believing women) — so that never in future could his people put in his mouth "men only" in respect of any of his general teachings.

 

It is indeed a misfortune of modern Indian society that the Prophet's followers here have mercilessly thrown into oblivion all his teachings on secular education and gender justice. The word "ilm" (learning), used in the Quran and the Prophet's sayings in its most extensive sense, has been confined to religious education and theology. Thousands of Muslim boys end up learning religion and theology at the lower levels of madrasa education, and thousands of Muslim girls do not go beyond pre-primary education or even remain illiterate. The word ulema, the plural form of "alim" — which simply means "scholar" — is reserved for those who have studied nothing but religion and theology.

 

In respect of women's status and rights we insist on remaining the most backward people on earth. The holy book had begun gradually reforming the pre-Islamic custom of polygamy by first subjecting it to a strict discipline and later saying that a total adherence to this discipline was not even possible, but we take pride in claiming that plurality of wives remains till this day an inseparable part of our religion. The Prophet had declared divorce to be "abghad-ul-mubahat indallah" (most detestable among permitted things in the sight of God), but we insist that our men are free to turn out their wives at whim by simply uttering the word "talaq." Insisting that these and some other anti-women practices are "bad in our theology but good in law," we keep warning that any legislative or judicial interference with this "sacrosanct law" would not be "tolerated."

 

Unfortunately, but not unreasonably, some people look at the Prophet's teachings in the mirror of our practices of the day. If we keep shouting from rooftops that our faith encourages temporal learning of all sorts and is exceptionally women-friendly, while our people keep behaving exactly the other way round, can we succeed in commanding the world to unreservedly admire our Prophet? His birth anniversary merits a sincere retrospection to answer this question.

 

The writer is a senior professor of law and former chair of the National Minorities Commission

 

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INDIAN EXPRESS

OPED

IT'S A BIRD...

BHAIRAV ACHARYA

 

On the face of it, Stephen Hampton and Steven Ayres — the two Britons arrested last week from Delhi's Radisson Hotel for listening to air traffic control (ATC) communications — were simply unlucky. In the UK, as in India, listening to ATC communications is an offence. But this has not deterred aviation enthusiasts across the world from standing alongside runways for hours photographing and documenting airplanes and monitoring their radio frequencies. For most, this is an incomprehensible hobby and the Radisson's staff cannot be accused of overreacting to a situation that lends itself to suspicion rather easily.

 

A few decades ago, when airlines and pilots and stewardesses epitomised glamour, plane-spotting was an understandable hobby. Each country's national airline did more than ferry people overseas; they represented that country abroad. In the late '80s, for instance, when Ethiopia was in the midst of famine and conflict, their national airline was remarkably successful. In major airports around the world, Ethiopian Airlines aircraft jostled for space with the big European and American carriers. I remember a group of Ethiopian women break into proud applause in a waiting room in Dubai when their airline touched down in front of them.

 

I often used to travel to Tanzania, and from the windows of African airports I watched planes from little known cities land and depart, each one a colourful embodiment of their countries. I was fairly young when I learned to identify aircraft. There is something unforgettable about sitting in the rear of a Boeing 727, with the third engine screeching overhead, as the pilot makes the last broad turn over the Red Sea before landing in Aden. Or the steady whine of the Boeing 757's two engines barely 30 feet above the water, where Entebbe airport's runway juts out like a promontory into Lake Victoria.

 

For many of us, planes are just a quicker way of going on holiday or commuting to work. But for me, they have never been so banal. Before terrorism came to India's cities, Bangalore's old airport had a narrow road running alongside its single runway. At some points, this road was less than 30 feet from where the planes touched down, separated from the airport by a wooden fence. Only one plane used to come in at night, an Air India Boeing 747 that landed at half past midnight a few times a week. On one rainy night, it landed in a howling spray of jetwash that nearly uprooted the fence and sent me reeling backwards. A landing plane is an overwhelming display of scarcely controlled power; it is only understood at close quarters when the scale of the aircraft, the roar of its engines, the force of air and the shuddering ground together engulf the human senses.

 

It is this fascination that drives plane-spotters across the world, to foreign airports and alien hotel rooms, in search of planes. You do not need much to be a planespotter, just patience and a keen eye. Some spotters photograph their planes: this is not an easy thing to do, even with good cameras and equipment you need a steady hand and an exact understanding of the plane's next move. One of the best places in India to plane spot is at the southern edge of Mumbai's airport, standing atop the rocky outcrop that overlooks the planes queuing up to take-off from Runway 27. Delhi, too, is quite sublime, especially on late winter nights when the fog muffles the sound of engines and leaves you startled when an Uzbekistan Airlines, with one of the most colourful liveries I have seen and a regular in Delhi, thunders into view overhead.

 

But photography does not give you a feel of how a plane is flown. Short of sitting with the pilots, the best way to track a plane's journey is to listen to its communication with ATC. In the USA, and in many other countries, monitoring ATC frequencies is permitted as long as you do not transmit and jam the frequency. There are websites dedicated to broadcasting live ATC feeds. When there is time, I listen to the progress of any one plane from Ireland across several trans-Atlantic controllers until it is finally handed to a Tower controller in New York who issues landing clearance. Air traffic controllers perform a complex and thankless job. From a single screen with several moving blips, a controller must construct a three-dimensional awareness of her airspace that is constantly moving and in which thousands of lives are always in play.

 

A few months ago, I stumbled across a recording of a lengthy exchange between a Delhi radar controller and the pilots of at least 35 different aircraft. It was rush hour in the sky and the stress was palpable. In a calm voice, the controller issued back-to-back instructions to about 20 planes, asking them to descend, climb, turn, increase or reduce speed and intercept the ILS. The last instruction went to the pilot of a landing Lufthansa flight. In line with safety protocols, the pilot acknowledged the controller by repeating her instructions. "Thank you, Madame", he said quietly at the end. The controller issued instructions to ten other aircraft before coming back to Lufthansa: "It is my pleasure, Sir. Welcome to Delhi."

 

The writer, a plane-spotter, is based in Bangalore

 

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INDIAN EXPRESS

OPED

TALK ABOUT TALKS

RUCHIKA TALWAR

 

The story which developed over the week was the meeting between the foreign secretaries of India and Pakistan. Daily Times reported on February 22: "Foreign Minister Makhdoom Shah Mahmood Qureshi said he was personally 'optimistic' about foreign secretary-level talks between Pakistan and India, but the outcome of talks entirely 'depends on the response from the Indian side'." Dawn added: "The Pakistani side would approach the talks 'positively and constructively to make the most out of the renewed engagement', a senior official said." However, the news item cautioned: " Islamabad and New Delhi might have been nudged back to the negotiating table by an international community anxious to defuse tension in a conflict-prone region. But differences have widened, particularly in the aftermath of the 26/11 Mumbai incident, to an extent that the gulf looks unbridgeable. Hence, the lowering of expectations in diplomatic circles about a breakthrough at the Delhi meeting is nothing but natural."

 

The American view on the talks favoured Pakistan as Dawn reported from Washington on February 23: "As Pakistan goes to New Delhi — for crucial talks with its larger neighbour — there's a realisation in the US capital that India alone cannot bring stability to South Asia. The change in Washington 's attitude happened slowly but by the time India signalled its willingness to resume talks with Pakistan, it had become obvious that the Americans had once again developed a new respect for Islamabad." Patting Pakistan's back, it also stated: "The change in US tone has not gone unnoticed in India. A report published on Monday quoted former Indian Foreign Secretary Salman Haider as saying that "Pakistan is riding the luck of the devil. In fact, Afghanistan has helped Pakistan time and again to become relevant to the international community".

 

The News reported on February 24: "Indian 'posturing' sees the Pakistan foreign office relaxed and refusing to take the 'bait' from New Delhi and respond to the 'dictatorial' language of South Block. Knowing it is today the 'flavour of the region', top Pakistani diplomats and bureaucrats appear relaxed, puffing smoke from their Chinese cigarettes, as India once again binds itself in knots on the eve of the talks." However, Daily Times maintained a contrarian view in a report on February 25: "India enjoyed a diplomatic triumph before the start of the talks when it forced Islamabad to change the composition of its proposed delegation. Diplomatic sources said Islamabad had planned to include one official from the ministry of water and power and interior ministry each, but was asked by India to drop the two officials."

 

Replying to questions from the Senate Standing Committee on Defence Pakistan 's army chief General Ashfaq Kayani was reported by Dawn on February 24 as saying: "the army is prepared to give a befitting response to any misadventure from the eastern border and there is no possibility of the adversary catching Pakistan unawares... India 's cold start doctrine based on hegemonic designs had not been taken."

The outcome of the talks were commented upon only by Dawn . Their editorial on February 26 held: "The key from here forward is devising a workable framework for the two sides to resolve their disputes."

 

Swat turnaround

Apropos of the Swat military operation, the Pakistani army appears self-congratulatory. Daily Times quoted a senior officer on February 25: " 'From US National Security Adviser James Jones to Joint Chiefs of Staff Chairman Admiral Mike Mullen, no senior American military dignitary's visit to Pakistan is complete without a trip to the former Taliban stronghold of Swat... These visits help the Americans understand how the Taliban were defeated and how the same model will work in Afghanistan,'...Swat has taken a 180-degree turn."

 

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FINANCIAL EXPRESS

EDITORIAL

FOCUS ON THE FISC

Pranab Mukherjee's 2010 Budget speech was always going to be very closely watched for the government's policy direction on a) fiscal stimulus and b) fiscal consolidation. In the end, he lent much-needed clarity on both these fronts and many more. On stimulus, the issue of greatest relevance and impact in the immediate short run, the finance minister treaded a cautious but sensible line with a partial roll back of the excise concession granted in the course of three stimulus packages in December 2008 and January 2009. The recent index of industrial production numbers and indeed sector-specific numbers from industries like automobiles suggested in no uncertain terms that recovery has taken strong enough root for it to be weaned off at least some tax concessions. But given the continuing uncertainty in the global economy, the finance minister took the right decision by not rolling excise concessions all the way back to pre-crisis levels. This makes sense when we consider Mukherjee's insistence on the importance of high growth as one of his key vision points, the other two being inclusive growth and fiscal consolidation.

 

Of course, the rollback of a portion of stimulus will help that other great source of anxiety for both the government and market participants—the bloated fiscal deficit which ended up quite close to 7% in 2009-10. However, the finance minister's clear roadmap on reducing the fiscal deficit to 5.5% in 2010-11, then further lower to 4.8% in 2011-12 and then down to 4.1% in 2012-13, did much to boost general confidence—the stock markets gave this signal of fiscal restraint an enthusiastic thumbs up, an enthusiasm that wasn't even slightly dampened by the finance minister's subsequent announcement hiking MAT from 15% to 18%—that shows just how much reducing the pressure of government borrowing meant to the rest of the economy. Needless to say the revenue from the 3G auctions, now due to accrue in 2010-11, will play a crucial role in bringing the deficit down to 5.5% as will continued divestment of stakes in prominent PSUs. But over the medium term, what will perhaps make the big difference in bringing the deficit down to 4% and below will be the complete overhaul of the tax system. On this front, the finance minister reiterated his government's commitment to roll out GST and the direct taxes code by April 2010. Both sets of tax reform will do away with all exemptions, broaden the tax base and lower the burden on individuals, all while helping the government mop up revenue more efficiently. Interestingly, the hike in MAT to 18% may be one step towards harmonising the current corporate tax structure with a future DTC. Just as the move to adjust tax slabs on income tax—a stimulus measure in its own right, since it put more money into people's pockets—is a move to harmonise the current income tax structure with a future DTC—after this Budget individuals earning up to Rs 5 lakh, a majority of taxpayers in India, will only pay tax of 10%; under DTC this threshold will rise to Rs 10 lakh, again benefiting a majority of taxpayers and likely to increase compliance.

 

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FINANCIAL EXPRESS

EDITORIAL

OIL PRICES AND FINANCIAL SECTOR

 

Perhaps the only really controversial proposal in the Budget was the one hiking customs duty and excise duty on petroleum products, both of which will lead to a rise in retail prices of petrol and diesel. The entire opposition staged a walkout on this single issue, an unprecedented act and clearly not the most appropriate form of expressing dissent during a Budget speech. The minister's move was, of course, primarily aimed at shoring up revenues in the short term. But, if the FM had his eyes on the long term, he ought to have addressed the fundamental issue of deregulation of oil prices. Mukherjee did mention the Kirit Parikh Committee Report on decontrolling oil prices but then tossed the final decision on the recommendations of that report into the petroleum minister's court. As we have argued on many occasions in these columns, oil subsidy reform is crucial to rein in unproductive spending by the government. So, while hiking duties may help the government deficit, oil-marketing companies will still make losses that will need to be shored up by government subsidy in the end. Even though the minister has now said that these losses will be transparently subsidised by cash, and not bonds, it doesn't solve the problem of oil subsidies being a burden on the fisc as long as global oil prices hover above $65 per barrel. That deregulation, when it happens, will likely raise fuel prices, more than even imposing duties has done, is a given. But it is sensible, reformist economics, the kind that at least the BJP (the party that actually first toyed with the idea of oil price deregulation) should support instead of staging a populist walkout.

 

Incredibly, the Budget even made some positive noises on reforming the financial sector, a subject that has been largely on the backburner in UPA's time in office. The finance minister said that RBI would be giving more licences to private sector banks to expand their presence. That's good for competition in Indian banking. The minister also promised to set up a commission, in the mould of the Administrative Reforms Commission, to rewrite and bring clarity to financial sector legislation. That is welcome. He even mentioned the plan to have a super-regulator for the financial sector that would coordinate across the various sectoral regulators like RBI (banks), Sebi (markets) and Irda (insurance). Obviously, we need a robust debate on whether such a regulator is indeed the way to proceed with financial sector reform, but at least the UPA is showing some intent on initiating financial sector reform. Needless to say, the finance minister will have to press the ever-conservative RBI to toe his vision on financial reform. Overall, the Budget may disappoint those who expected big bang reform announcements. But the days when Budgets were used to make big reform announcements may now be over. That isn't necessarily a bad thing though, as long as policy is consistently tilted in the right direction. In that context it was heartening to hear the finance minister talk about the importance of big retail in cutting out intermediation between the farmer and final consumer—that intermediation is a known source of high food prices. Again, the Budget didn't get into any announcement on FDI in retail, but at least the thinking, even on the problem of food inflation, is getting clearer. That augurs well for the remainder of UPA's term in office as long as they jump to the implementation stage of their best ideas sooner rather than later.

 

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FINANCIAL EXPRESS

COLUMN

PRANAB SENDS OUT A 'CAN DO' MESSAGE

MK VENU

The most heartening aspect of the 2010-11 Budget is that it adheres to the broad conceptual framework of the two most critical pieces of tax reforms initiated under the UPA regime—goods and services tax (GST) and the draft direct taxes code (DTC). A closer reading of the Budget shows that the finance minister has already started moving towards implementing both GST and DTC, which are formally slated to kick in next year. For instance, he has already gone halfway to accept a bold proposal in the draft DTC, that is, to bring all annual taxable incomes up to Rs 10 lakh in the 10% tax bracket. The finance minister has made the first move by extending the 10% tax slab for incomes up to Rs 5 lakh annually. Thus, nearly 75% of all individual taxpayers will now pay no more than 10% tax. This will encourage more compliance.

 

Similarly his attempt to pare the corporate surcharge from 10% to 7.5% and instead increase the minimum alternate tax (MAT) is also in line with the philosophy underlined in the DTC. Under the DTC, MAT, as a principle, is more closely aligned with the actual proposed corporate tax rate of 25%.

 

On the GST front the finance minister made it clear that it was important to align the central excise duty and service tax if the government was to move towards a unified GST by April next year. Thus going by the philosophy underlying the Budget proposals, finance minister Pranab Mukherjee appears convinced that India is at an inflexion point where the tax base could widen exponentially if a transparent tax system is put in place, which creates an incentive for individuals and businesses to come into the tax net on reasonable terms.

 

When I asked the finance minister in a television interview whether he was confident about building a political and constitutional consensus with all the states to work out a reasonable GST architecture, he was indeed very upbeat about it. Therefore, in some sense, the 2010 Budget is a mere precursor to something much bigger that Pranab Mukherjee is attempting, which will unfold before us in the months ahead. The stock market's initial positive response is largely due to the consistency and stability of the big-ticket tax reforms, which the UPA is seen as attempting over time.

 

Besides this, the markets also seemed to appreciate the fact that Pranab Mukherjee has bitten the bullet on the fiscal deficit front. By budgeting for a much lower fiscal deficit at 5.5% of GDP, he has made his intention clear that he will not do reckless spending. By reducing the budgeted gross borrowing considerably from the level seen in 2009-10, he has sent positive signals to the bond markets. Reserve Bank of India, which conducts the government's borrowing programme, should be somewhat relieved as lower government borrowing will give greater room for its monetary policy conduct.

 

But there are some imponderables in the Budget that need to be studied. His stated objective to reduce fiscal deficit to 5.5% of GDP is based on certain assumptions. One assumption is that he will not encourage any below-the-line subsidies and resort to direct transfer of cash from the Budget, whether it is for oil or fertiliser. He categorically told me, "I don't believe in postponing a liability to a future date through an issue of bonds." This is sensible accounting. But when I asked him how he would contain the fiscal deficit if oil prices shoot up to much higher levels, he said, "The government may have to partially adjust it within the books of oil companies." This may not be sustainable for the oil companies whose minority shareholders will become unhappy if higher international prices are absorbed in their books.

 

In the future, passing on higher international oil prices to consumers may become difficult because the finance minister has already taken the tough decision of imposing a 5% customs duty on crude import and a Rs 1 per litre excise duty on oil. This issue could potentially disturb the deficit calculations.

 

The finance minister has projected increased revenue of Rs 60,000 crore through excise and customs. Besides, he has projected fairly large non-tax receipts on the revenue and capital account. Divestment of PSUs could fetch up to Rs 40,000 crore and under another head titled, "other non-tax revenues", the finance minister has projected a receipt of Rs 74,000 crore. One presumes the revenues of auctioning 3G spectrum will be part of this revenue stream.

 

The stock markets will also pat Pranab Mukherjee for committing that he would present a white paper on how to bring down the government's debt-to-GDP ratio by 12% by 2014.

 

An important commitment contained in the Budget proposals is to take banking access to an additional 120 million people in rural India. This is an ambitious programme and Pranab Mukherjee is serious about getting banks and telecom companies to collaborate to reach out to 60,000 rural habitations with a minimum population of 2,000 each. The finance minister has committed to do this by next year through the banking correspondent model. The finance minister told me he would seek help from banks, like State Bank of India, which have introduced cutting edge technology recently to assist in meeting the budgeted target of taking bank access to over 100 million new customers in the hinterland.

 

The Budget, overall, displays a "can do" attitude. That is quite heartening.

 

mk.venu@expressindia.com

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FINANCIAL EXPRESS

EDITORIAL

BUDGET FOR AAM AADMI AND DOUBLE DIGIT GROWTH

MUKESH AMBANI

It is a daunting task to present a Budget that meets the expectations of a country of the size and complexity of India. The finance minister should be commended on the exemplary Budget that he has presented, managing the conflicting demands with a dexterity that comes with his long experience in public life.

 

This Budget takes the inclusive high-growth agenda of the government forward while recognising and addressing the immediate challenges of inflation and fiscal deficit. The finance minister, through this Budget, has amply demonstrated the keenness and the intent of the government to quickly get back to the inclusive high economic growth. This Budget reflects the government's vision of building a path to sustainable double-digit economic growth in an inclusive framework. This Budget clearly builds on the three challenges laid out by the finance minister in the previous Budget—high growth, inclusive growth and addressing the weaknesses in the public delivery systems. Specific initiatives in addressing each of the challenges presented in this Budget will make the country realise its true and full potential.

 

This Budget, presented in the backdrop of India's coming out of the global economic crisis, had large expectations from virtually every sector of the Indian economy. The finance minister has managed to meet these expectations and at the same time, charted a pragmatic course in steering forward the inclusive high-growth agenda of the country. India has come out of the global economic crisis relatively unscathed and quickly, thus highlighting the inherent strengths of the Indian economy. This Budget attempts to reinforce these strengths and address the weaknesses so that the fruits of the growth can positively impact larger sections of our population.

 

An interesting feature of the Budget is the importance provided to clean energy and environmental initiatives, through budgetary allocations and with indirect tax incentives. This reflects India's sensitivity to a global challenge while stimulating domestic investment in alternative forms of energy.

 

The emphasis on agriculture production, credit support to farmers, and incentives for food storage and processing will improve productivity and enhance efficiency in linking the farmer to the consumer and thereby improving the country's food security. Increased allocation for the social sectors such as education, healthcare, financial inclusion and rural development is a clear sign of the focus on the inclusive growth agenda. The increased plan outlays for the social welfare schemes are laudable. All of these are creditable and will make the India growth story broad-based.

 

The finance minister should be applauded for the stress that this Budget places on expansion of financial services to the rural hinterlands through banking and insurance services. This takes the financial inclusion agenda forward as an integral element of socio-economic development. The setting up of the National Social Security Fund for the unorganised sector workers is another welcome step.

 

The finance minister has rightly observed that the focus of development and economic activity has shifted to non-governmental actors, bringing into sharper focus the role of the government as an enabler. This enabling role of the government is clearly established in the Budget by the emphasis and focus on areas such as infrastructure, education, healthcare, food security and agriculture—key areas for an inclusive high-growth framework. This Budget has attempted to focus public spending towards improving the productivity of the economy. The huge plan allocation towards infrastructure—both rural and urban—clearly shows the intent of the government to address the infirmities in this domain quickly, thus spurring the productivity of the Indian economy.

The implementation of the direct taxes code and goods and services tax from April 1, 2011, will give a huge fillip to tax reforms and simplifying the process of taxation. There is plenty to cheer in this Budget for the individual taxpayers by the broad-basing of the tax slabs. This single measure will put additional money in the hands of millions of Indians and spur additional demand in a range of sectors.

 

As the finance minister concluded, this is indeed a budget for the aam aadmi. The finance minister has set his expectations and directions clearly and it is now up to all of us to rise to the occasion to deliver double-digit inclusive growth on a sustained basis.

 

The author is the chairman and managing director of Reliance Industries Ltd

 

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FINANCIAL EXPRESS

EDITORIAL

AN OILY WALKOUT

RENUKA BISHT

The best thing that elections do for India is keeping the ruling bloc on its toes. A strong Opposition is important, because a bloc that rules without a serious Opposition is one that is more likely to make mistakes. On the other hand, the worst thing that elections seem to do in India is to make parties turn away from their own best ideas when they switch from one side of the Parliament aisle to the other.

 

It was actually the BJP-led NDA government that dismantled the administered pricing mechanism for the oil sector. Yesterday, when UPA-2 decided to hike the central excise duty on petrol and diesel, BJP joined hands with the Left parties and the rest of the Opposition to walk out of the FM's Budget presentation over a hike in fuel prices.

 

The BJP had plenty of ways for reasonably challenging the FM's Budget announcement—such as cut motions claiming that the amount of a Budget demand be reduced. That it chose the walkout option instead reflects a larger governance malaise in India. More and more Bills are now passed with lesser and lesser discussion. Walkouts and adjournments mean Parliament works fewer actual hours. With the exception of select members leaving the chambers, at least the Budget presentation used to be sacrosanct—rightfully so, since the government gives an accounting of how it will spend citizens' money in the Budget. Not only have yesterday's happenings broken with precedence, they haven't even done this in a progressive cause—over time, India will have no option but to deregulate oil. When in the Opposition, it's the easiest thing for parties to demand that farmers should get more prices and urban consumers cheaper produce. In government, however, the very same parties realise the difficulty of reconciling these demands. Those who have worked on both sides of the aisle, couldn't they act a little bit more responsibly?

 

renuka.bisht@expressindia.com

 

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THE HINDU

EDITORIAL

A DELICATE BALANCE

 

Union Finance Minister Pranab Mukherjee's strategy of a partial rollback of the fiscal stimulus package in his Budget is not without its risks, given particularly the uncertainty over the external environment. Yet it is a measure of the government's confidence that the move to a higher growth path of 7.2 per cent this year and to a projected 8.2 per cent next year is sustainable even in the absence of the stimulus that it has reversed course and sought to raise Rs.46,500 crore through indirect taxes. Though this is offset partially by the direct tax concessions totalling Rs.26,000 crore, the net revenue raised, together with the expected buoyancy in a year of robust growth, has enabled the Finance Minister to keep the fiscal deficit down to 5.5 per cent next year. The real story of this budget then is not of any big idea or innovative strategy, but one of fiscal consolidation. There is the recognition that a sound and prudent fiscal management — with the deficits under control, and subject to gradual and targeted reduction over the medium term — has provided an enabling environment for the move on to a high growth trajectory. In a milieu where fiscal consolidation would be impossible while simultaneously increasing social sector spending and holding taxes down, the tax area had inevitably to yield. Overall, while an additional tax burden of Rs.20,500 crore is not too much for the economy to absorb, the impact of specific increases as, for instance, on diesel and petrol — the main target of protest by the opposition — is bound to be reflected in the price level.

 

Structural reform of the income tax system has been delayed with the new income tax code still in its formative stage. Meanwhile, income tax payers have gained significant relief from the broadening of the income slabs and from tax deductions for investing in infrastructure bonds and contributing to the Central Government Health Scheme. The cut in the surcharge on corporate tax from 10 per cent to 7.5 per cent is balanced with the raising of the minimum alternate tax to 18 per cent. Among the specific sectors, real estate that has been hit the most by the slowdown has been provided some concession. So have the medical equipment and mobile phone manufacturers, and the cinema industry. The restoration of the general excise duty to its original level of 10 per cent and of the duty on large cars and multi-utility vehicles from 20 per cent to 22 per cent would not be much of a burden. More significant from the point of view of impact are the revival of the customs duty of 5 per cent on crude and of 10 per cent on petroleum products and the hike in the excise duty on petrol and diesel by Re. one a litre. Even while it is reluctant to decide on raising the prices of petroleum products as recommended by the Kirit Parikh Committee, it has collected more in taxes and may well let the oil companies live with under-recoveries of the product prices.

 

As in the earlier budgets, much of the focus on the expenditure side is on social sector spending that now accounts for 37 per cent of the total plan outlay for 2010-11, while another 25 per cent is to be spent on rural infrastructure. The United Progressive Alliance's flagship Mahatma Gandhi National Rural Employment Guarantee Scheme has been allotted Rs.40,100 crore and the Bharat Nirman programme of building rural infrastructure Rs. 48,000 crore. In addition, the allocations for health and housing — rural and urban — have been increased. Higher allocations are no doubt needed in all these sectors, but what is missing is the effort to strengthen the delivery mechanism at the ground level though the institutional weaknesses in the government structure have been identified over and over again. The suggestion made in the Economic Survey for moving away from subsidising the foodgrain prices in the public distribution system and instead providing coupons directly to the families below the poverty line so that they can buy food from the open market is no doubt too radical for the budget. Yet, in the case of fertilizers, the government has adopted the nutrient-based subsidy scheme and it even talks of moving towards a system of direct payment of subsidies to the farmers. This is an area in which it has to move with caution lest the inevitable increase in fertilizer prices should prompt the farmers to use less of the nutrients, thereby affecting farm production. The right to education bill passed last year is still to make its impact felt and the Finance Minister has increased the allocation for upgrading the quality of school education, to which every child in the 6-14 age group would be entitled. The right to food, the big idea that emerged from the last budget, is still in its formative stage, with the draft bill almost ready for circulation and debate. The government's dilemma on how inclusive that right should be — whether to adopt the conventional poverty line with its lower figure of poverty or the higher estimates that expert committees have come up with more recently — and the attendant cost seem to be holding back its roll out.

 

Notable in this budget are the moves on reforming the financial sector. New banking licences are to be issued by the Reserve Bank and eligible non-bank finance companies are to be allowed to convert themselves into banks. The global financial crisis has shown up the systemic weaknesses of financial regulatory institutions the world over. Drawing a lesson from this experience of the advanced financial markets, the Finance Minister has proposed a Financial Stability and Development Council to exercise macro prudential supervision over the economy including over large financial conglomerates, and to coordinate the functioning of multiple regulatory agencies. Overall, the budget has had a positive impact on business sentiment and the animal spirits of the market.

 

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THE HINDU

EDITORIAL

THE WRONG WAY FOR RURAL DOCTORS

THE PROPOSAL TO INTRODUCE A SHORTENED MEDICAL COURSE IS A FOLLY: IT WILL AGGRAVATE THE RURAL-URBAN DIVIDE AND GIVE A RAW DEAL TO VILLAGES.

ANBUMANI RAMADOSS

 

The proposal put forward by the Central government to introduce a shortened medical course at the graduate level to serve the rural areas will only widen the rural-urban divide and impede India's role as an emerging global power. In seeking to virtually revive the Licentiate Medical Practitioners (LMP) scheme that was available before Independence, the government has taken a regressive step. And in the process it is resorting to discrimination against rural folk, who are taken for second-grade citizens deserving medical care by a brigade of 'qualified quacks'.

 

The scheme involves a three-and-a-half year course that leads to a bachelor's degree in medicine and surgery. Doctors trained under this scheme will work in rural areas. They will be trained in district hospitals.

 

In the erstwhile LMP scheme, students were trained for around three years, awarded a diploma and asked to meet rural health care needs. It was considered a way to bridge the gap between demand and supply outside metropolitan India. The LMPs outnumbered the MBBS graduates and largely served in the rural areas. Following the Bhore Committee report of 1946, medical courses were unified into the standard five-and-a-half-year MBBS degree.

 

The issue is the impact of this scheme on the status of the rural Indian. In what way are rural Indians different from their urban counterparts? Do they deserve health care from medical personnel who are less qualified than those who attend to the health needs of their urban brothers? Are their well-being and lives less important than those in urban areas? This discrimination could sow the seeds of disunity and discrimination. The scheme is against the spirit of the Constitution and human rights.

 

The proposal is superfluous, too. Any State can introduce a short-term medical course. We do not need a centralised concept of rural service, governed by the likes of the Medical Council of India (MCI).

 

The need is to utilise existing personnel prudently. Today even medical colleges recognised by the MCI, numbering about 300, face faculty shortage. How is the government planning to equip the so-called rural-based institutions that will eventually churn out semi-qualified medical personnel, with faculty and infrastructure?

 

India has a wealth of alternative medical systems such as Ayurveda, Siddha, Unani, Homeopathy and so on, that brings in hundreds of thousands of qualified medical professionals into the health care industry. They qualify after more than four years of training. It would be easier to use this huge corps of medical manpower according to the needs of the local regions rather than create a new cadre.

 

Today a nurse undergoes four years of training during her or his course, whereas the proposed BRMS course is for three and a half years. The rural folk would be better off being catered to by nurse-practitioners who are more qualified than the 'qualified quacks.'

 

The doctor-patient ratio in India is 1:1,700. Add to this the doctors under the traditional medical systems and the ratio comes down to about 1:700. The World Health Organisation's recommended criterion is 1:300. To reach that target, we cannot go for short-sighted and short-term measures to create a cadre of semi-qualified professionals.

 

We have the schemes and tools to enhance the health of our rural fellow-beings. With an exemplary scheme like the National Rural Health Mission, all that is needed is to revive and give new momentum to such schemes.

 

There are more than a million fully trained nurses and more than 3,00,000 Auxiliary Nurse Midwives in India. There are also more than 7,00,000 Accredited Social Health Activists (ASHAs). Then there are Village Health Nurses, Male Health Workers, Male Nurses, Anganwadi workers and so on. There is no dearth of paramedical professionals and qualified medical personnel to serve the districts and villages.

 

Adding one more cadre of workers who are neither here nor there will lead to state- acknowledged quackery. Already, nearly 75 per cent of India's population is treated by quacks. The proposal will only help strengthen the cause of the quacks, bestowing upon them respectability.

 

Already the urban-rural disparity in health infrastructure is huge. If the rural areas are catered to by BRMS personnel, it will deter qualified and experienced doctors from taking up rural assignments. It was after much thinking and cajoling that we put forward a compulsory scheme for rural service for those who desire to pursue higher medical courses. With one imprudent and rash gesture, we will do away with a good practice that was initiated with astute planning.

 

Ghulam Nabi Azad, my successor Union Minister of Health and Family Welfare, says BRMS personnel can be posted in Sub-Health Centres and Primary Health Centres. These already have more than enough qualified nurses who have completed four-year courses and done their practical training. So where is the need for a BRMS course that will produce medical personnel dismally equipped with only three and a half years of training?

 

The website of the Union Health Ministry provides details about the NRHM. Thousands of crores of rupees are being invested in the rural health sector under the NRHM to strengthen rural infrastructure. As Health Minister, in order to supplement the NRHM, I initiated a proposal for a one-year compulsory rural posting for each MBBS doctor after the internship. This faced stiff resistance from medical students. A committee under Dr. Sambasiva Rao was formed to deliberate on this issue around the country and give their recommendations. Finally, the recommendation was that anybody who aspired for a post-graduate degree should undergo a one-year compulsory rural posting. Unfortunately this recommendation came at the fag end of my tenure. Had this been implemented, every year we would get nearly 30,000 fully qualified doctors working in Rural Health Centres.

 

The need is to start more medical colleges in areas such as the northeast, Bihar, Uttar Pradesh, Madhya Pradesh and Jharkhand. The country has nearly 300 colleges, of which 190 are in Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra and Gujarat. Uttar Pradesh, with a population of 19 crores, has only about 16 colleges. Bihar, with a population of nine crores, has eight. Rajasthan with an eight-crore population has eight and Madhya Pradesh, with a population of eight crores, has 12. If the State governments open medical colleges in all the districts, we can have nearly 600 medical colleges, rolling out nearly 75,000 MBBS graduates a year.

 

We have another huge health resource pool to tap from: doctors trained in Russia and China. Their services can be utilised in the rural areas.

 

Many doctors settle abroad. The government should take steps to prevent this drain by offering them attractive

remuneration, avenues to train and upgrade knowledge and due recognition.

 

One school of thought favours admitting two batches of medical students in each institution every year – in the morning and in the afternoon. Clinical sessions could be alternated. By resorting to the double shift, we can double the number of medical graduates using the same infrastructure and faculty. This can be followed for medical, dental and nursing courses. This was accepted by the MCI for post-graduate courses when I put forward the suggestion that accommodates one more student per professor within the existing system, given the infrastructure available. Earlier one professor could take in only one postgraduate student; now one professor can take in two students without compromising on the quality of medical education, thereby doubling the intake of students to postgraduate courses, leading to optimum use of the existing resources and infrastructure.

 

My suggestions in a nutshell are here. Make one-year rural posting compulsory for all MBBS doctors after internship. State governments should start medical colleges in every district to create more medical graduates. Increase the number of medical graduates and post-graduates using the existing infrastructure and faculty. Focus more on the northern and northeastern States. Expand and invest more in the National Rural Health Mission. Start government-run nursing colleges in all districts. Public-Private partnership ventures can be initiated, using the district and sub-district government hospitals for the purpose. Preference should be given to students from rural areas for admission to the MBBS courses, and it should be stipulated that the graduates work for five to 10 years in rural areas. The harmonisation and utilisation of doctors who have been trained in Russia and China, who have undergone seven-year MBBS courses, to fit into the rural programmes could help. The utilisation of doctors from traditional systems for specific needs and programmes could be planned. Anyone who wants to join a post-graduate course in a government college should have done a minimum of three years in a rural posting.

 

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THE HINDU

LEADER PAGE ARTICLES

HOW THE EXPERTS HAVE BEEN FOOLED

THE FINANCE MINISTER'S BUDGET SPEECH INTENDS TO CONCEAL MORE THAN IT REVEALS.

S. GURUMURTHY

 

"The Finance Minister has done a fantastic job." "Very good budget." "See the takeaways." "See the positives." "Fiscal deficit controlled to 5.5 per cent." "Government borrowings reduced to just Rs. 3.45 lakh crores." "Road map laid for oil sector reform." "Infrastructure boosted." "Consumer demand to rise on tax cuts." "Bonanza for the middle class." "Yet an inclusive budget." " I would give 10 on 10 for the Budget" …

 

Thus went the comments even as this writer was browsing through the Budget papers running to hundreds of pages to see what the Finance Minister had left unsaid in his speech. Those who eulogised the Budget and the Finance Minister seemed to have nothing in their hands other than what he claimed in his speech, and most of them would not have had even a cursory glance at the Budget papers which were put on the website almost an hour after the speech concluded.

 

Thanks to the euphoria of the experts, the Sensex rose by 400 points by the time the speech ended. But as the facts contained in the Budget documents were slowly becoming known, the Sensex was moderated, with the rise being confined to 175 points by the close of the day. But the Budget and the Finance Minister had won approval thanks to the well-structured speech that was long on words — including quotes from Kautilya — and hugely short on numbers. By now, taking the Finance Minister's words as gospel truth, the opinion of 'elite India' has been sealed in favour of the Budget. Of course, the 'other India' has no instant opinion to express; already reeling under high inflation, to counter which there is no measure in the Finance Minister's speech, it has only to experience in the days to come what the Budget will actually do to them. Look at the facts and numbers that lie buried in the documents.

 

Examine the claim that it is an inclusive Budget. The additional provision for rural development is just Rs. 3,936 crore — a rise from Rs. 62,201 crore in the current year to Rs. 66,137 crore for the coming year. This translates to a rise of 6.3 per cent for the coming year over the current year. The estimated rise in GDP for the coming year over the current year is estimated at 12.5 per cent. It means the rural sector does not even get half the rise in the country's prosperity in the coming year. The rise in the allocation for the MGNREGS in the coming year is just 2.5 per cent. Contrast this with the rise by – believe it – 146 per cent in the MGNREGS for 2009-10 over 2008-9. The tax cut for the middle class amounts to some five times the extra provision for rural development. Still the Budget is claimed as being an aam aadmi effort.

 

Move on. The additional provision for agriculture is a pittance — Rs. 900 crore. So much for the Finance Minister's claim of inclusive growth. So, what was an inclusive agenda in budgets from 2004 onwards and until the last Budget seems to have become a mere slogan. The Finance Minister was unconcerned about how the stock markets reacted to his Budget last time. And he was the only Finance Minister who said he could not care less for what the stock markets felt about his Budget.

 

Now look at the sleight of hand involved in the Finance Minister's claims on infrastructure. See the provision for the road sector. It is an additional Rs. 2,374 crore — just a 13 per cent rise in the coming year over the current year, against a 23 per cent rise in the current year over the previous one. The additional provision for the Railways is Rs. 950 crore — the rise of a mere 6 per cent for the coming year over the current year against the rise of — believe it, 46.3 per cent — in the current year over the previous year. In 2009-10 the additional provision for urban infrastructure was 87 per cent.

 

There is more. The Finance Minister had claimed in his Budget speech for 2009-10 that India Infrastructure Finance Company Limited (IIFCL), along with the banks, was in a position to support infrastructure projects of — again believe it — Rs. 100,000 crore. Against that claim, he admits in his speech now that the disbursement and refinance by IIFCL so far has been to the extent of just Rs. 12,000 crore. It will rise to Rs. 25,000 crore in the next three years. How did the Finance Minister dare say one thing in his previous speech and another thing now? He was confident that the experts who would give instant opinions on his product would hardly have the time to check what he had claimed some eight months ago. The claim by the Finance Minister that the infrastructure provision of Rs. 172,552 crore is 40 per cent of the Plan allocation is definitely less than honest. Acting cleverly, here he does not give the comparative figures for the current year.

 

Indeed, there was no appreciable improvement in the coming year over the current year, and yet the experts continued to eulogise the infrastructure boost in the Budget.

 

Deficit reduction

 

What, then, is the secret of the reduction in deficit? The Finance Minister simply refused to spend this year. And that is perhaps correct. But he has concealed that fact and said something to the contrary. The income will increase in 2010-11, but the expenditure will not. The increase in non-Plan expenditure in 2009-10 over 2008-09 was 37 per cent; in 2010-11 over 2010-11 is just 6 per cent. The non-Plan expenditure was Rs. 6,42,000 crore in 2009-10, and in the coming year it will be just Rs. 6,44,000 crore. That is, there will be just no increase at all. If the Finance Minister had increased non-Plan expenditure for 2010-11 in proportion to the estimated GDP rise of 12.5 per cent, the deficit would have risen by Rs. 199,000 crore to Rs. 580,000 crore-plus. It would have meant that the deficit would have been up by — believe it — almost 2.9 per cent to some 8.4 per cent.

 

If this had happened, would the experts have gone gaga over the Budget? Would the stock market have risen? Obviously not.

 

See how faulty the comment that the Budget puts extra money in the hands of the consumers is. Non-Plan expenditure is a straight injection of money into the system. If that does not grow next year as it did in the previous year, how will the consumer get extra money over the last year? The Finance Minister's claim that he had cut taxes to put extra cash into the consumer's pocket is less than honest as the amount in the consumer's hands will be actually less by Rs. 180,000 crore as compared to the last year. It is not a bad thing that the Finance Minister has cut the non-development expenditure. But his claim that he was putting money into the hands of the people through tax cuts is only one side of the story.

 

The other side of the story, which is the biggest fact concealed in this budget, is the cut in non-Plan expenditure. See more. The biggest component of the rise in non-Plan expenditure in the current year was the Pay Commission dues, which was extra money straight into the pockets of the people to spend. That was the reason why, despite the downturn in the economy in 2009-10, private consumption, which was expected to fall according to the Economic Survey 2008-09, did not fall. Private consumption powered by the Pay Commission dues sustained the GDP growth in 2009-10, and that was the secret of the growth in 2009-10. This factor is absent in 2010-11. How will the aggregate demand rise more than last year when the amount of additional money in the hands of the people is far less in the coming year than in the year that is closing? So the claim that the tax cut will put huge money in consumers' hands and activate the domestic demand is less than honest.

 

In sum, the Finance Minister's speech intends to conceal more than it reveals – in fact it cheats. The Finance Minister has trusted of the propensity of the instant commentators of the TV channels to rely on ornamented words in the budget speech and won the day against the experts and the market.

 

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THE HINDU

BUDGET 2010-11: THE TRUE PICTURE

A COMBINATION OF INFLATIONARY TAXATION, SIGNIFICANT REVENUE OPTIMISM AND A MODICUM OF WINDOW DRESSING.

C.P. CHANDRASEKHAR

 

In a budget speech which was tiresome in parts and often filled with trivia that was almost meant to distract, Finance Minister Pranab Mukherjee claimed that he was delivering a growth-oriented but inclusive budget that was within the bounds of fiscal prudence. If true this does signal the emergence of a new form of economic governance. The Economic Survey had earlier argued that the time had come for a shift to an "enabling" rather than an interventionist state. That shift was supposed to deliver non-intrusive governance that only seeks to help those who cannot manage to do well for themselves. In the process it was supposed to ensure fiscal consolidation through a reduction in the fiscal deficit.

 

The difficulty of course is that in a country where as much as 40-50 per cent of the population is poor, properly financing even this "minimalist" role for the state needs a substantial sum of money. If in addition the government, given its fiscal conservatism, wants to exit its fiscal stimulus and reduce its fiscal deficit, a substantial increase in revenues is necessary. There are, therefore, two questions that arise. To start with, how far has the Finance Minister gone in sustaining expenditures and pushing his objective of being more inclusive? And, to the extent he has, how has he mobilised the requisite resources and what are the resulting implications?

 

If we examine total expenditure in the budget, it has risen by just 8.5 per cent in nominal terms. Adjusting for inflation at current rates this amounts to a stagnation of real expenditures. But given the fact that financial year 2009-10 was one in which expenditures did rise noticeably because of the implementation of the Pay Commission's recommendations and because of the fiscal stimulus in response to the slowdown in growth, this stagnation in real expenditures cannot be dismissed as wholly inadequate. Moreover, if we examine the central plan outlay and aggregate expenditures in two social sector areas — education and health — which the Finance Minister has chosen to draw attention to in his speech, we find that they are indeed projected to rise significantly. Gross expenditure on Literacy and School Education is slated to rise from Rs. 39,553 crore to Rs. 47,773 crore and on Higher Education from Rs. 14,376 crore to Rs. 16,690 crore. In addition, the Central plan outlay on Health and Family Welfare is projected to rise from Rs. 18,283 crore to Rs. 22,300 crore. But, all this is partly the result of a reallocation of expenditures. Thus, non-plan expenditures on all social services are slated to fall from Rs. 35,146 crore to Rs. 29,483 crore or more than Rs. 5,500 crore. To boot, a planned cut in subsidies on food and fertilizer, which would impact on the poor and sectors like agriculture that house a majority of the poor, is reflected in the budgetary figures.

 

These trends aside, it is true that the budget provides for an increase in aggregate expenditures in nominal terms. This rise is accompanied by some direct tax concessions in the form of substantially "broadened" income slabs for different levels of income taxation and a reduction in the surcharge on corporate taxes. Yet, the budget expects a reduction in the revenue deficit from 5.3 to 4 per cent of GDP and the fiscal deficit from 6.7 to 5.5 per cent of GDP. How has the Finance Minister ensured this transition? To start with, even though direct tax concessions are expected to result in a decline in Income Tax receipts of around Rs. 4,400 crore between the revised estimates for 2009-10 and the budget estimates for 2010-11, Corporation taxes are projected to rise by as much as Rs. 46,255 crore. The latter occurs despite the fact that the surcharge on corporate taxes is to be reduced from 10 to 7.5 per cent. There are only two ways in which the substantial increase in Corporation taxes can be explained. One is an assumption that the increase in the Minimum Alternate Tax to be paid by corporations from 15 to 18 per cent would substantially increase revenues. The other is that corporate profits would display strong buoyancy in the aftermath of the recovery.

 

But even this Corporation tax bonanza is inadequate to explain the Finance Minister's "achievements." There are three other features of the budget that are of relevance. First, through an "across-the-board" hike in non-oil excise duties, adjustments in customs duties, higher duties on oil and petroleum products and expanded taxes on services, the Finance Minister expects to garner an additional Rs. 70,000 crore of indirect tax revenue. This is a reversal of the practice of relying less on indirect and more on direct taxes in recent years. Indirect taxes are known to be inflationary in nature, hurting the poor in the process. So this trend goes contrary to the claim that the budget aims to be more inclusive. In fact, in the run up to the budget, with the evidence pointing to a recovery in GDP growth, the close to 20 per cent inflation in food prices had emerged as the principal problem to be addressed. The decision to rely on inflationary indirect taxes (including on universal intermediates like oil products that would raise costs and prices across the board), which would push up prices further, points to the fact that inclusiveness is less of an objective than the Economic Survey and the Budget proclaim. This perception is supported by the fact that in a context of food price inflation the budget seeks to curtail food and fertilizer subsidies.

 

A second noteworthy feature of the budget is the unusual fact that an item called "Other Non-tax Revenue" is slated to rise from Rs. 36,845 crore to Rs. 74,571 crore between the revised estimates for 2009-10 and the budget estimates for 2010-11. This huge revenue windfall is to come largely from receipts from 'Other Communication Services', which consist of licence fees from telecom operators and receipts on account of spectrum usage charges. Receipts under this head were budgeted for Rs. 48,335 crore in 2009-10, but yielded only Rs. 13,795 crore. The budget for 2010-11 again provides for Rs. 49,780 crore from this head of "revenue", suggesting that what is being calculated is the receipts from the auction of spectrum. If this is the case, it would be wrong to treat this as a revenue receipt. If it is not, the revenue and fiscal deficits would go up substantially.

 

Finally, the budget provides for "Miscellaneous capital receipts" of Rs. 40,000 crore in 2010-11, which refer to receipts from disinvestment and privatization. This head is reported to have yielded Rs. 26,000 crore in 2009-10. If not for this sale of public wealth, the borrowing required to finance the government's expenditures would have been much more, necessitating higher commitments for interest and amortization payments in future. That would have made it difficult for the Finance Minister to claim that he was not merely delivering inclusive growth, but doing so while remaining fiscally "prudent".

 

In sum, it does appear that a combination of inflationary taxation, significant revenue optimism and a modicum of window dressing have helped craft a budget that appears growth oriented, partially inclusive and fiscally prudent. We need not wait till the revised estimates come next year to conclude that this is by no means the true picture.

 

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THE HINDU

GEORGIA CONTINUES TO POSE "DIRECT AND IMMEDIATE THREAT"

VLADIMIR RADYUHIN

 

In August 2008, Russia had its own Kargil. On the night of August 7-8 the former Soviet state of Georgia launched an assault on its breakaway region of South Ossetia killing dozens of Russian peacekeepers stationed in the region. Russia responded with a devastating counter-strike that routed the Georgian military.

 

For all their differences, above all duration, the wars in Kargil and in South Ossetia had certain similarities. In both conflicts the attackers sought to occupy territory. Both Pakistan and Georgia tried to mislead international public opinion about the nature of the conflict. While Islamabad denied the involvement of its regulars in the attack, Tbilisi claimed it was only responding to a Russian attack. Both assailants attempted to internationalise the conflict but miscalculated.

 

Like India, Russia drew its lessons from the war in South Ossetia, and these may be of interest to the Indian defence community.

 

The first strictly military analysis of the war was recently brought out by the Moscow-based Centre for Analysis of Strategies and Technologies (CAST), a premier Russian defence think tank. "The Tanks of August" is a 144-page collection of essays on the background, conduct, and fallout of the five-day Russian-Georgian war of August 2008.

 

In contrast to Kargil, the attack on South Ossetia did not take Russia by surprise. Its intelligence agencies had gathered enough information about Georgia's designs, short of the exact date of attack, in order to prepare contingency plans. According to CAST experts, Russia had assembled substantial forces in the region that began pouring into South Ossetia through the Roki Tunnel within an hour after the Georgian attack. A minute-by-minute account of the hostilities gleaned by poring through Russian, Georgian and international sources convincingly debunks Georgia's myth that it only responded to a Russian attack. The speed and power of the Russian counter-attack, apparently unexpected by Georgia, foiled its plan to seal off the only lifeline road linking Russia and South Ossetia across the North Caucasus mountains. This was the key to defeating the Georgian blitzkrieg.

 

In South Ossetia the Russian armed forces for the first time faced a western-style army, trained by U.S. and Turkish instructors and armed by many NATO countries and Israel. Even though the Georgian army failed to stand up to the Russian military because of organisational, training and command deficiencies, the CAST study warns against complacency. Within a year of the conflict Georgia not only rebuilt its armed forces, but "substantially enhanced" its combat power .

 

The conflict — Russia's biggest combat engagement outside its borders since the Soviet intervention in Afghanistan — showed that its army is a formidable force, but has important weaknesses. The main among these are outdated communications and poor coordination among different branches of the armed forces. According to CAST analysts, out of six aircraft Russia lost in the conflict, four succumbed to "friendly fire."

 

The conflict prompted Moscow to speed up a radical overhaul of the armed forces to prepare them better for local conflicts. In the opinion of CAST experts, the reform is creating certain risks for Russia as it leads to a temporary weakening of its military might while Georgia may be gearing for a new attack.

 

"Georgia remains a flashpoint of instability and a source of potential aggression and war in the Caucasus," the study says. "Georgia's military build-up has a patently revanchist character and… a growing anti-Russian thrust, and is oriented, not so much at retaking Abkhazia and South Ossetia, as militarily challenging Russia itself." The "Tanks of August" study comes to the conclusion that Georgia continues to pose a "direct and immediate threat" to Russia.

 

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THE HINDU

CLIMATE CHANGE: WETLANDS PLAY AN IMPORTANT ROLE

 

Experts said here on Friday that wetlands can greatly help Vietnam cope with the impacts of climate change. The remarks were made at a conference on wetland conservation held here by the Vietnamese General Department of Environment under the Ministry of Natural Resources and Environment, with the participation of many Vietnamese and foreign experts. At the conference, the experts said mangrove forests growing in wetlands are able to accumulate carbon dioxide which can reduce green house effect, the main factor of climate change.

 

Being one of the worst affected countries by climate change in the world, Vietnam needs international assistance in establishing the programme for the conservation and sustainable development of wetlands to reduce the climate change impacts, said the experts. — Xinhua

 

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THE TRIBUNE

EDITORIAL

TREADING CAUTIOUSLY

UNDERTONE OF BUDGET IS POSITIVE

 

Mr Pranab Mukherjee is one of those finance ministers who give with one hand and take away with the other. If he has reduced the income-tax burden on the salaried class by raising the slab limits for various tax brackets, he has hiked the excise duty on petrol and diesel by Re 1 per litre. He has maintained the balance between rural and urban India. Perhaps, lack of consensus within the Congress has stopped him from breaking new ground in reforms. Mr Mukherjee is a middle-of-road- finance minister — neither too bold nor altogether hesitant. He has missed the chance to undertake the next-generation reforms as this was the ideal time with no major elections in the near future and no communist shackles to hold him.

 

The oil price hike, though not unwarranted altogether, will contribute to the over-all price rise, an issue which the opposition parties are exploiting to the hilt. They chose to walk out of Parliament on this issue on the Budget day, which is something unheard of. Some experts expect inflation to move up from 8.6 per cent last month to 10 per cent shortly, driven by a relentless hike in food prices, the hardening of the oil prices and an excise duty hike.

 

The Finance Minister, however, has been sensitive to the volatile issue of high food inflation. He has tried to accelerate agricultural production to ensure food security. A sum of Rs 300 crore has been set apart for creating 60,000 pulse and oilseed villages. The government has decided to take the Green Revolution to eastern India to spread it to the states of Bihar, Jharkhand, Orissa and West Bengal. A sum of Rs 400 crore has been earmarked for this expansion. Punjab and Haryana, it is believed, have reached a saturation point. The political leadership in Punjab and Haryana had demanded special compensation for farmers for keeping up paddy production despite a deficient monsoon last year. They have not got any relief. However, Mr Mukherjee has given farmers six months more to repay their loans. Otherwise they would have been classified as defaulters and the bad loans would have impaired the state-owned banks' performance.

 

Some judge the popularity of a finance minister by the reaction of stock markets to a budget. From that angle it is a positive signal though the BSE Sensex retreated after the initial euphoria to close with a gain of 175 points only. Major benefits to the infrastructure, realty and banking sectors enthused the markets initially. Infrastructure has been given 46 per cent of the total plan. The allocation for power has been doubled and for roads it has been raised by 13 per cent.

 

Foreign investors appreciated the Finance Minister's efforts to cut the government debt-to-GDP ratio and consolidate the finances. He has promised to bring out a status paper within six months to curtail debt. The 13th Finance Commission report had suggested capping the combined Central and state debt at 68 per cent of the GDP instead of the present 82 per cent. But, perhaps, they felt let down by the Finance Minister's lack of boldness in opening up health insurance, rural banking and higher education for foreign direct investment as was suggested by the latest Economic Survey.

 

The Budget is a big success in terms of efforts to control fiscal deficit. The target of keeping fiscal deficit within 5.5 per cent is commendable. The government expects cash flows from surging economic growth, sales of government company stakes and 3G mobile licences. On the reforms front, a clear message has gone out that the goods and services tax (GST) and the Direct Tax Code will be introduced from April, 2010. The Unique ID Authority of India will get Rs 1,900 crore. Those who feel the defence budget should be hiked in view of the sensitive security environment will be disappointed as Mr Mukherjee has made just a 4 per cent increase in the defence outlay against a 34 per cent raise last year.

 

It is also a green budget. Raising the cost of owning cars, sports utility vehicles, TV sets and ACs apart from a hike in the oil prices are environment-friendly measures. But public transport still has not got the attention it deserves. A clean energy cess has been levied on coal and the money thus collected will go to the National Clean Energy Fund. Goa has been given Rs 200 crore for preserving its beaches and green cover. This is welcome though other coastal and hill states may also demand such help in future. The rivers, canals and other water bodies too need funds and an operation cleanup. 

 

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THE TRIBUNE

EDITORIAL

HOPE ON THE HORIZON

DELHI TALKS A FILLIP TO PEACE PROCESS

 

It would be reasonable to surmise that there is an undercurrent of positivity to the first official talks between India and Pakistan in 14 months held on Thursday in New Delhi. Given the acrimony and trust deficit that persists, it was unrealistic to expect anything dramatic from the talks between Indian Foreign Secretary Nirupama Rao and her Pakistani counterpart Salman Bashir. In fact a 'breakthrough' was never on the cards. But in so far as the way has been cleared for future contacts between the two countries and contentious issues have been discussed threadbare across the table, it is a step in the right direction. There can be little doubt that terror outfits across the border have a stake in keeping alive a high level of tension between the two neighbours. Consequently, it is important that the dialogue process, which was stopped understandably due to public anger over Pakistan's role in the terror attacks in Mumbai on November 26, 2008, be now resumed.

 

Clearly, a lot of ground needs to be covered for putting the peace process visibly on track. It was amply clear that the Pakistan government was not ready for a material change in its position on bringing to book perpetrators of the Mumbai terror attacks. The contemptuous manner in which Mr Bashir dismissed India's dossiers on Lashkar-e-Toiba founder Hafiz Saeed as "literature, not evidence" reflected the hard reality that India cannot expect Pakistan's cooperation in curbing terror especially when the Pakistan army is breathing down the government's neck. When India asked for 33 terrorists — Pakistani nationals and Indian fugitives — Mr Bashir's response was that India should stop sermonizing to his country on terrorism.

 

Yet, all said and done, there is an air of hope that while agreeing to disagree on contentious issues, the two countries would, in due course, find common ground especially on economic issues. External Affairs Minister S.M. Krishna's statement in Parliament on Friday that the just-concluded talks represented an "encouraging step" towards restoring dialogue and better communication is proof of India's earnestness to move forward.

 

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THE TRIBUNE

COLUMN

NUCLEAR TRACK RECORD

PAKISTAN CAN'T BE TREATED ON A PAR WITH INDIA

BY K. SUBRAHMANYAM

 

Last week in the Committee on Disarmament (CD) in Geneva, the Pakistani delegate made an elaborate statement on Pakistan's objections for the CD taking up for consideration of the issue of Fissile Materials Cut-off Treaty (FMCT). He opposed the move and argued that the treaty, as it is formulated will affect Pakistan's security.

 

In his view, the issue cannot be considered in isolation independent of other developments in South Asia. He launched a vitriolic attack on India for triggering an arms race in South Asia. But his main focus was on the waiver of the Nuclear Suppliers Group's guidelines in favour of India in respect of civil nuclear cooperation.

 

He cited some US experts to support his view that it will enable India to save its own uranium for weapon purposes and that the Indo-US nuclear deal was damaging the Non-Proliferation Treaty (NPT). According to him, the Indian nuclear submarine programmed, ballistic missile programme and anti-ballistic missile programme were all making an arms race in South Asia inevitable.

 

Though the Pakistani delegate made his speech an attack on India, it was a criticism of the major powers of the world who took the initiative to get India the NSG waiver and a criticism of the 45-member NSG for having extended to India this waiver. Though he denied that Pakistan was isolated on the issue the fact that the 45-member NSG group gave India the waiver and not to Pakistan speaks for itself. In March 2006, when President George Bush stopped at Islamabad on his way back from New Delhi, General Musharraf raised the issue of Pakistan getting a civil-nuclear cooperation agreement analogous to India's in public before the TV cameras. President Bush replied that Pakistan was different, its needs were different and its history was different. The last sentence that Pakistan's history was different explained the whole issue and provided the effective answer to all US critics of Indo-US nuclear deal.

 

India has been recognised as a responsible nuclear state with advanced nuclear technology while Pakistan has not been so recognised by the international community. This is the crux of the issue and no amount of propagandist attacks on India can alter this fact. There are only three non-signatories to the NPT — Israel, India and Pakistan.

 

Israel is not in need of civil nuclear energy. Therefore, when it is argued that the NSG waiver for India will

damage the NPT, the critics are only advocating the cause of Pakistan even while professing to make out a

general case to save the NPT.

 

The Pakistani delegate evidently thinks that South Asia is an island continent like Australia and there are no countries in it other than India and Pakistan. India has a longer border with China than with Pakistan. While the Indo-Pakistan ratios in terms of population, GDP, industrial and agricultural productions are seven to one, the two neighbours, China and India are more approximately balanced in terms of population and resources.

 

While Pakistan argues that its security considerations should have overriding priority, it does not appear to extend that logic to its neighbour. Since President Bush cited the different history of Pakistan as the justification for not extending to Pakistan the civil-nuclear cooperation, it is necessary to focus on that history.

 

Pakistran is the unique case where nuclear weapon development and deployment have been exclusively in the hands of the military. Even in North Korea, the Communist Party commands the weapon. Whenever Pakistan had civilian governments, the nuclear weapon development and deployment were outside the jurisdiction of the head of the civilian government.

 

The Pakistani Army has not only a history of repeatedly seizing power from elected democratic governments, it has also a history of one of the largest genocides committed after World War II in Bangladesh. This has been recorded in the report of Justice Hamidur Rahman Commission set up by the Pakistan government itself.

 

Pakistan set up the infamous Taliban regime in Afghanistan which had to be removed as it supported the terrorist organisation Al Qaeda which plotted and executed the 9/11 terrorist attack on the US. On February 3, 2010, US Director of National Intelligence Dennis Blair told the Senate, "Pakistan's conviction that militant groups are strategically useful to counter India are not only hampering the fight against terrorism but also helping Al Qaeda sustain its safe haven…Islamabad's strategic approach risks helping Al Qaeda sustain its safe haven because some groups supported by Pakistan provide assistance to Al Qaeda…Islamabad's conviction that militant groups are an important part of its strategic arsenal to counter India's military and economic advantages will continue to limit Pakistan's incentive to pursue an across-the-board effort against extremism." He added, "despite robust Pakistani military operations against extremists that directly challenge Pakistani government authority, Afghan Taliban, Al Qaeda, and Pakistani militant groups continue to use Pakistan as a safe haven for organising, training and planning attacks against the United States and our allies in Afghanistan, India and Europe…However, it still judges it does not need to confront groups that do not threaten it directly and maintains historical support to the Taliban," providing the assessment reflecting the views of 16 intelligence agencies, including the Central Intelligence Agency and the Federal Bureau of Investigation (FBI).

 

He went on to elaborate, "Simultaneously, Islamabad has maintained relationships with other Taliban-associated groups that support and conduct operations against US and ISAF (International Security Assistance Force) forces in Afghanistan...It has continued to provide support to its militant proxies such as Haqqani Taliban, Gul Bahadur group, and Commander Nazir group…The Al Qaeda, Afghan Taliban, and Pakistani militant safe haven in Quetta will continue to enable the Afghan insurgents and Al Qaeda to plan operations, direct propaganda, recruiting and training activities and fund-raising activities with relative impunity."

 

Does the Pakistani delegate believe that his country which has been accused of helping and abetting the Taliban fighting the forces of the European Union countries in Afghanistan has any credibility to persuade the international community that it is not a state supporting terrorism but a responsible state?

 

The Pakistani Army under General Musharraf charged the Metallurgist Dr A.Q. Khan of having proliferated nuclear weapon technology to Iran, North Korea and Libya and he confessed to it in public on national TV. Now he has been exonerated by the Pakistani judiciary and he accuses that the confession was obtained by coercion and the proliferation took place with the knowledge and approval of the Generals and one of them even made money out of it.

 

Pakistan refuses to allow access to A.Q.Khan by the International Atomic Energy Agency. With this unique record of nuclear irresponsibility, Pakistan expects that it should be treated on a par with India and its fairytales will be credible to the international community.

 

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THE TRIBUNE

COLUMN

NANI'S ENDURANCE TEST

BY S.S. BHATTI

 

Prabhtej is barely two years and three months. By American standards of height and weight for babies, he is at zero per cent. But, in terms of ebullient energy and destructive power, he is a mini-nuclear reactor. He is free from gender biases and distinguishes me from his Nani by adding the honorific suffix "jee" to the epithet for granny or mother's mother.

 

Driven by a monstrous instinct for independence, he brooks no interference in whatever he does. When hungry, he eats on the dining-table all by himself as neatly as a grownup. But the moment his tummy is full, he starts using roti, cheese, mashed potatoes, and other cuisine like an art maestro using clay or paint. His tiny hands become a giant's tools, and he applies his materials to the table-top in gay abandon. When so fed up he litters the kitchen-cum-dining floor no vacuum-cleaner can easily clean up.

 

The other day he emerged as a real monster and an alien from a Hollywood movie, and put his Nani's endurance and prudence to a near-fatal test right in the guest toilet. While supervising his ablutionary activities, his mother suddenly received a call on her mobile. Excited that it was the caterer she wanted to contact in preparation for the birthday party of her elder son, she coolly said: "Mummy! You take care of Prabhtej", and walked out to discuss the menu, the charges, delivery time, bargaining—-all in one go, which included persuasion for a bonus dessert. During her five-minute conversation, the toilet became a battlefield for the Hollywood monster-alien. The urge for potty got transformed into irrepressible ardency for maverick marauding. He flushed the w.c. [water closet] four times in quick succession [American cisterns fill up in 20 seconds!].

 

When his Nani said "No", he rose from his precarious position and hurled the baby-seat-adapter like a discus. Challenged by a double "No", he unrolled the tissue-paper and spread it like spaghetti on the floor. Undaunted by further restraints, he thumped the full-height glass door that separated the bath from the dry area.

 

The catch-me-if-you-can sport progressively got more violent, and he squeezed the toothpaste out of the tube to make a lavish use of the "economy size".

 

Nani tried everything, but it worked in the direction of exhausting her endurance and dwindling energy. Her commanding voice provoked the little devil to brandish the w.c.-cleaner like the legendary Bheema's mace. This was followed by a magician's trick of pulling out of the basket dirty laundry piece by piece. Then the trash bin was emptied as if he were looking for something precious he had misplaced.

 

Her conversation over, my daughter moved towards the toilet and mercifully asked: "Are you OK, Mummy?" Collecting her attenuated breath in one giant gasp the poor Nani said: "Another minute and I would have collapsed!" The word 'collapsed' alarmed me, and I promptly enquired after her grandson-gruelled health. "God has been unfair to you. He has granted me a new lease of life. Otherwise you would presently have been the fortunate beneficiary of my foreign health insurance!"

 

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THE TRIBUNE

OPED

INDIA NEEDS POLICY FOR SPACE SECURITY

BY ANIL LAL VATS

 

India's recent successful test of a 22-metre long heavy motor can be graded as number three in the world. In fact, India has gone ahead of China in this particular aspect. This achievement will give a phillip to India's space programme and build capacity of placing heavier version of satellites weighing four tonnes or more in the orbit projected through a 200-tonne solid propellent.

 

Two S-200 will hug the core liquid stage of the GSLV Mark-111 rocket, which will itself be propelled by a cryogenic engine (which is a great achievement for India as the US-led technological denial regime had denied India this capability for more than two decades). The other country with these capabilities of two heavy motors is NASA's booster rocket of its heavy space shuttle Ariane-5 space launch vehicles.

 

Heavier payloads of the category of four tonnes will give multi-role capabilities to the satellite and make their operations more versatile. This will enable more efficient utilisation for civil application (and even military option). Although, India's space programmes are strictly based on civilian application on the Eisenhower Model of the 1950s.

 

However, with the recent Chinese test of ASAT Weapons, India may have to revise its policy to build defensive systems in space. Over and above this, in a future scenario where solar energy can be tapped through space, such heavy platforms can become very useful.

 

Further,thinking on the other end of the spectrum, can India in combination with China create an Asian alliance and form the Asian Space Station like the ISS? Can this big Idea become feasible, to prove that the 21st century is Asia's century?

 

Militarily speaking, these heavy satellites in combination with nano or microsatellites can become a deadly military configuration. These duel use satellites will usher space power groupings akin to the existing global nuclear order. In other words, if India has to stay as an influencing power in future, then it will have to showcase its space-based capabilities, which in a way is bound to become the power index.

 

Yesterday's nuclear P-5 s are bound to transcend to similar space power groupings like S-6 or 8. Latest reports of an EMP threat from space are yet another area of worry and that too from non-state actors. There are other many weapon system, which may take shape. All these will require bigger payloads satellite and India can build on these technological successes. But this mandates a space security blue print of growth and India is already late in formulating one so as to enable cost-effective duel-use application.

 

Here one can quote the pioneering work done by the IDSA-Pugwash Committee Report ,which was published about a year back and which has laid out some concrete recommendations, which need urgent attention by the government. The recommendations state that there is an urgent need for India to formulate a space security policy with elements of creating an institutional structure for its implementation.

 

The space policy should include the requirements of the defence services and civil agencies like broadcasting services, meteorology etc. The aspect of R&D, space laws and commercial business development needs to be factored in. The government may consider setting up a "national space security command" to meet operational needs of various agencies. India needs to identify critical duel-use technologies and become self-reliant in them (technologies like sensors, satellite hardening, counter-space nano and micro-satellite, sub-orbital flights etc.) Human resources (10,000 scientists) have to be trained and thus the same be facilitated by the government.

 

In addition the government's international negotiating strategy must be proactive and flexible. International cooperation on space issues should be given high priority as it builds the soft power of a nation. For instance, India should consider international cooperation with SAARC and other developing countries and give them benefits in space.

 

The end result of an assertive India in space will add to India's comprehensive growth and power in the comity of nations as a responsible nation. The government and the media should take note of this urgent requirement.

 

The writer is a former fellow at the IDSA and has done a PhD in defence studies.

 

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THE TRIBUNE

OPED

OBAMA LIKED BUT NOT FEARED

BY RUPERT CORNWELL

 

What went wrong? In January 2009, Barack Obama took power in a nation that overwhelmingly yearned for him to succeed. He was a fresh face, eloquent, thoughtful, plainly intelligent. On Capitol Hill, his party had massive majorities. All of that remains true. Yet, just 13 months later, America is in about as foul a mood as when George W. Bush reached his nadir.

 

Most parties that win the White House lose seats at the next mid-term elections. This November though, Democrats are bracing for a wipe-out that could conceivably see them lose control of both House and Senate, as the independent voters who, in November 2008, bought Obama's message of change and renewal abandon him in disillusioned droves.

 

The man they thought was an outsider has behaved like the quintessential insider. He and his administration talk tough about Wall Street, but after their near-death experience the banks are paying bonuses as they did in the locust years. Instead of bringing a fresh broom to Washington, Obama has deferred to the crusty old barons of Congress. He promised a new era of unity. Instead, the system is so gridlocked by partisanship that some call the country ungovernable. And then there's the healthcare morass.

 

Today the president is bringing Democrats and Republicans together for a televised "summit" in a last bid to rescue his signature initiative that after nine months was about to cross the finish line – until the Democrats contrived to lose Ted Kennedy's former seat in Massachusetts, and with it the 60th Senate vote that would have enabled them to break a Republican filibuster.

 

The calculations underlying this event are far too complex to go into here. An ever more confused American public no longer knows what it wants. The Republicans will play nice to the national viewing audience to show they're not bloody-minded obstructionists. In reality, they have no incentive to compromise now. The Democrats will also be on their best behaviour, even as they plot to ram through a final version of the bill over Republican objections, using a procedural manoeuvre that requires just 51 Senate votes, not 60, for passage.

 

Whether they can pull it off is anyone's guess, but for Obama the gamble is huge. Having invested so much in healthcare reform, he cannot walk away now. Yet after a while persistence starts looking like a political obsession to match Captain Ahab's hunt for the great white whale. Moby Dick, of course, hauled Ahab to his death, and healthcare could easily drag Obama to disaster.

 

However the big lesson of the Obama presidency thus far is the opposite. Intelligence, eloquence and sweet reason alone are not enough in politics. Yes, it seemed that way to voters when they chose a successor to the dogmatic, tongue-tied and defiantly anti-intellectual Bush. Obama was the most politically inexperienced person to become president in a century, but in 2008, a majority of Americans either overlooked that fact or saw it as a positive virtue. Obama, they thought, would summon what Abraham Lincoln called "the better angels of our nature".

 

In fact another Illinois politician, the former governor Adlai Stevenson, hit the nail on the head, more than half a century ago. Like Obama, Stevenson ran for president (twice, both times unsuccessfully). Like Obama, he was highly intelligent and rather cerebral. He was also very witty. "You have the vote of every thinking person," a woman supporter called out during Stevenson's 1956 campaign. To which he replied, "that's not enough, madam, we need a majority."

 

Today Obama is on the verge of losing that majority, if he hasn't lost it already. When an administration is struggling, the pundits' advice machine moves into overdrive. The current wisdom is that Obama must broaden his circle of close advisers beyond a "Chicago mafia" at the White House, and maybe jettison Rahm Emanuel, his foul-mouthed White House Chief of Staff.

 

That the infighting is seriously under way was proved by a column in The Washington Post at the weekend, surely inspired, if not leaked, by Emanuel or his allies, arguing that Obama's mistake had been to ignore his top aide's advice on key issues, and that Emanuel was the one reason Obama's presidency hadn't already gone the way of Jimmy Carter's. When such pieces start appearing, you know a president's in trouble.

 

But the person who probably needs to change is the boss. Events have proved Stevenson right, that reason and intelligence take you only so far in politics. Obama cannot be accused of masking the truth about America's financial and economic situation. Nor does he fail to make the case for sacrifice.

 

But he rarely demands sacrifice directly. Take healthcare. To win agreement, Obama now proposes that a crucial revenue-raising provision, a tax on higher-end employer-sponsored schemes is now being deferred to 2018, long after he leaves office. Such moves only reinforce a feeling that this president is a soft touch.

 

Which in turn suggests a second truth. When times are tough, successful leaders must not only be liked. They must also be feared. No one fears Obama, in part because he hasn't faced anyone down, least of all the Congress that is now supreme emblem of everything the public thinks is wrong with the system.

 

It's not yet too late; Obama is far more popular than the Congress. There are parallels too with the early stages of Bill Clinton's presidency. Clinton also failed to push through sweeping healthcare reform. After a crushing mid-term defeat in 1994, he changed tack and went for smaller changes. These now add up to a decent legacy. But the 2010s are not the 1990s. Big things need to be done, and Americans instinctively knew that when they voted Obama into office. Thus far, he hasn't delivered.

 

— By arrangement with The Independent

 

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THE TRIBUNE

OPED

INSIDE PAKISTAN

LAHORE'S BASANT: POLITICS ENTERS THE FRAY

BY SYED NOORUZZAMAN

 

There was a time when Lahorites would wait for Basant more eagerly than even their Eid. But times have changed. Now it is not possible to celebrate Basant with kite-flying, which remains a banned activity. Yet every year Basant enthusiasts try to celebrate the occasion in the traditional manner – flying kites, wearing colourful dresses, holding dance and song parties, etc. In the process, the Basant controversy gets revived involving different sections of society.

 

The controversy has taken an interesting turn with Punjab Governor Salman Taseer declaring on a TV channel a few days back that he would defy the ban by celebrating Basant with kite-flying, etc. The Kite-Flying Association of Lahore, too, announced that Basant would be celebrated on March 6 and 7 (Saturday and Sunday) in the traditional manner. This led to the association's Secretary-General Sheikh Salim getting arrested and the provincial government threatening that the Governor would also meet the same fate if he went ahead with his Basant celebration plan.

 

Governor Taseer is a member of the ruling Pakistan People's Party, but Punjab province has a PML (N) government, headed by Mr Shahbaz Sharif, younger brother of Mr Nawaz Sharif. The two principal political parties are in different camps – one against the kite-flying ban and the other in favour of it.

 

As Nusrat Nasarullah says in an article in Business Recorder, referring to a TV programme on the subject, "Of course, there is a political side to the kite-flying context and the Basant picture … Those who are with the Pakistan People's Party on this kite-flying issue have opted to defy the ban, and those who are supporting it are standing behind the Pakistan Muslim League (Nawaz)."

 

According to a report in The News, the Supreme Court of Pakistan banned kite-flying in 2005 "in response to an outcry over injuries and deaths caused every year by the glass-coated string." The court order, however, has it that the ban can be lifted for a brief period if the court is approached for the purpose. Despite this, last month the Lahore High Court turned down a request for lifting the ban.

 

This has dampened the spirits of Basant enthusiasts. They wanted the provincial government to defend their case in the court at a time when democracy is back on the rails in Pakistan. The government, however, looks at the whole issue from the law and order and ethical angles, ignoring the business aspect and the sentiments of those who want to celebrate Basant to keep this popular cultural festival alive. Most people are of the view that culture should not be made to suffer if some people indulge in questionable activities.

 

On this occasion, women prefer yellow-colour dresses. The famous cultural festival heralds the arrival of spring. During the days when there was no ban on Basant celebrations, it provided an opportunity to make huge profits to businessmen. Many multinational companies would pitch their tents on rooftops. The owner of the highest building in Lahore would get the maximum rent. One could find everybody constituting the Who's Who of Pakistan in the country's cultural capital. However, all this has become a thing of the past because of the controversy associated with Lahore's Basant.  

 

Judicial appointments

 

The recent controversy over the appointment and promotion of judges ended soon after it was caused, but it highlighted the need for transparency in the consultation process involving the judiciary and the executive. It was also felt that there must be a clearly laid down procedure to avoid an confusion over whose opinion would be final.

 

According to Daily Times (Feb 25), the Constitutional Reforms Committee of parliament headed by Senator Raza Rabbani has recommended the formation of two commissions – a judicial commission and a bipartisan parliamentary commission – for the purpose. "In this scheme, the parliamentary commission has the final authority to approve or reject names proposed by the judicial commission, while the role of the Prime Minister and the President has been reduced to ceremonial approval", the daily pointed out.

When the controversy arose following the two notifications by President Asif Ali Zardari for certain judicial appointments contrary to the recommendations made by the Chief Justice of Pakistan, the two sides made different claims over the question of consultation. Those belonging to the Chief Justice's camp expressed the view that his recommendation could not be overruled. The appointment of the two commissions can eliminate the chances of such claims and counter claims.

 

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BUSINESS STANDARD

EDITORIAL

IN THE SAME OLD STYLE OF THE EARLY 1980S

NO REFORM DONE, NO MOVE TO FACILITATE GST FOR NEXT YEAR INTRODUCED, TOO MANY EXEMPTIONS GIVEN AND HARDLY A FEW WITHDRAWN

SUKUMAR MUKHOPADHYAYA

 

In the brouhaha over the rise in petrol duty, what has been lost sight of is that this Budget has done no reform, introduced no move to facilitate GST for the next year, has given too many exemptions and withdrawn hardly a few, not simplified the tariff or any important procedure, and not brought in the comprehensive service tax. The only two positive moves are the increase in the excise rate from 8 to 10 per cent to make it equal to the service tax rate and the increase in the customs and excise duties on petroleum products.

Just by making excise duty and service tax rates 10 per cent one cannot say that it is a move towards facilitating GST for the next year. For one doesn't know what the rate for Central GST will be next year. On the other hand, much more substantial changes could have been introduced this year to make the transition smoother for GST. So in general we can say that this Budget has followed the very old pattern of exempting goods even if not necessary, sometimes for imaginary and populist reasons without paying any heed to the lot of the importers and manufacturers who will be burdened with interpretation problems even more than before.

On the customs side, the major change is in the case of petroleum. The duty on crude petroleum has been increased from nil to 5 per cent. Duties on Motor Spirit (petrol) and HSD (diesel) have been increased from 2.5 to 7.5 per cent and duty on some other specified petroleum products have been increased from 5 to 10 per cent. The Central Excise duty on petroleum products, namely motor sprit and HSD, have also been increased by Re 1 per litre. Economically speaking, this is a correct move. The reduction in duties on petroleum products takes place at a time when the price of crude petroleum in the international market was exceptionally high. But, now that the international price has come down substantially, there is every reason to increase the duty to harness some more revenue to bridge the fiscal deficit. The policy is also in line the reduction in subsidy for the fertilizer. To this extent, it is a consistent and legitimate economic policy. However, there are certain negatives in the Budget on the customs side. Many exemptions have been given on several types of machinery, industrial, agricultural, transport, electronic etc. These are all exemptions mostly to the extent of 2.5 per cent and are not well deserved. Micro-oven parts do not deserve any exemption as they are not used by the Aam Aadmi to whom the Budget is dedicated. Several such minor exemptions have been given which are end-use based, such as special grade stainless steel for the manufacture of orthopaedic implants, parts of the battery chargers for hands free headphones etc. These are costly items and the duty foregone element will be extremely negligible. These exemptions will crowd the columns of tariff and burden the arrears of end- use bonds. Such exemptions are the breeding ground for unfair practices. Automation is no cure for this.

On the excise side two prominent changes are the increase in the standard rate of the excise duty from 8 per cent to 10 per cent and the increase in the ad valorem duty on large cars, multi-utility vehicles and sports utility vehicles from 20 to 22 per cent. There is no change in the specific component. This will not mean a great increase in the prices and in any case these vehicles are for the upper income groups. Small scale manufactures have been given a deserving benefit, namely the credit for duty paid on capital goods in a single instalment in the first year. However, this should have been given for all industries for boosting growth. The inputs for manufacture of rotor blades for wind energy have been exempted which is unnecessary because they get input duty credit in any case. Once again, a cess has been imposed on coal. Rather than abolishing the cesses on several items, particularly education cess, the proposal is to have one more cess. Exemptions with fine distinctions are being introduced. Goggles will attract 10 per cent duty but goggles which correct vision will attract nil duty. Balloons will pay 10 per cent duty but not toy balloons. Making these fine distinctions will keep the officers busy, the manufacturers hassled and readers of newspapers entertained when Supreme Court judgments come out on them. These exemptions remind us of earlier exemptions on bindi, vanity bag and writing ink.

In regard to service tax this Budget has been the biggest non-achiever. The Finance Minister says that he had the option to bring all services under service tax. Then he adds he is "not doing at this stage". I wish he had explained why. This is exactly the stage when a comprehensive service tax should have been introduced. The GST is one year away. Practically all services have come under the tax net. Only very marginal services taxes have been brought under the tax net. If the comprehensive service tax had been introduced now, the officers would have got one full year to settle the disputes and come to workable solutions. Now what will happen is in April, 2011, when GST is introduced is that waves and waves of new ideas and changes will practically overpower the tax payers and the tax collectors. One year of preparation period has been lost. On the other hand, small little exemptions have been given on the service tax side. One of the exemptions is from service tax on technical testing and inspection certificates provided by the government agencies for seeds. The certificates usually cost about Rs.500 to 1000 and the tax relief could amount to Rs.50 to 100. Is such populism necessary even now?

In conclusion, we can say that the Budget has shown signs of courage in increasing petrol duty in taking mature economic decisions in regard to partial rollback of excise duty relief and in giving relief to small scale. But by giving too many exemptions, including populist ones, it has created the impression that even after GST comes, the old habit of giving exemptions may die hard.

Sukumar Mukhopadhyaya, Former member, Central Board of Excise and Customs

smukher2000@yahoo.com

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BUSINESS STANDARD

EDITORIAL

GOOD HOUSEKEEPING

A VERY FINANCE MINISTRY TYPE OF BUDGET

One joke about Bollywood endings, one quote from Kautilya, but para after para of 1980s-style sector-specific duty exemptions made finance minister Pranab Mukherjee's budget speech a rather dull affair, but for the noisy interlude provided by a united Opposition that was determined to play spoilsport. The dullness was, however, understandable since Budget 2010-11 was almost along predictable lines. The fiscal deficit to GDP ratio was brought down to exactly the level the finance minister had promised: 5.5 percent, not a decimal point less or more; the excise duty rates were hiked by 2 percentage points, as we first reported they would be in the columns of this newspaper; not much tinkering with customs duties, despite the Economic Survey's suggestion that the peak rate be brought down to 7.5 per cent; and, a series of plans and schemes aimed at making the growth process more inclusive. While Mr Mukherjee has earned his brownie points on fiscal deficit reduction, his social sector spending plans have meant that the revenue deficit still remains at around 4 percent of GDP, a fact that he surprisingly did not mention in his speech. Indeed, this may well be the first budget speech to have omitted any reference to the revenue deficit number!

 If there was one surprise, and for many a welcome one, it was the hefty Rs 26,000-crore direct tax give-away to an inflation-stressed salary earning urban middle class. This unexpected concession would not only find favour with a vocal urban middle class, but could also contribute to higher household savings. It is a pity that the minister did not choose to introduce a comprehensive services tax this year and experiment with its rollout in time for the goods and services tax next year. Apart from the revenues he hopes to garner through higher excise duty and services tax, Mr Mukherhjee also hopes to bridge the deficit by selling public sector stock and auctioning 3G telecom licences. Fiscal purists may quarrel with this strategy but Mr Mukherjee will argue he is keeping faith by his promise to keep his date with the introduction of a new direct taxes code and the rollout of GST. He has also promised to simplify tax administration and widen the tax base through better compliance at reasonable rates. The only jarring aspect of the tax proposals is the multitude of tax exemptions. Why magnetrons used in microwave ovens and toy balloons should attract the specific generosity of the finance minister is not very clear!

The finance minister is right to regard fiscal consolidation, improving the policy environment for investment and turning the agricultural economy around as necessary elements of consolidating the growth process. Going beyond his tax and spending proposals, the budget speech also proposes some well considered and much needed reforms in the energy, agricultural and social sectors. The idea of setting up a Coal Regulatory Authority, with competitive bidding for coal block allocation, is a good reform step. The national social security fund for unorganised sector workers is also a welcome measure.

It is clear that few in government can resist the temptation of creating more committees, authority and funds. So the finance minister must be excused for announcing the creation of one council, one authority, one commission and two funds. Hopefully, though, his Financial Stability and Development Council will not devalue the institution of the central bank. In fact the governor of the Reserve Bank of India should chair this council, if at all such a council is really needed. The FSDC should not become an instrument to weaken central bank authority. The idea of cleaning up the legal infrastructure of the financial sector, a job that the proposed Financial Sector Legislative Reforms Commission will be asked to do, is a welcome proposal.

The paradox of Mr Mukherjee's budgetary strategy this year is that while it meets almost all expectations, of markets, businesses, households and investors, it falls short of what was, both politically and economically, warranted, desirable, and indeed, even feasible. After a long time a ruling coalition finds itself relatively secure, even if the opposition has become suddenly belligerent, and there are no elections around the corner. This was the year for some big picture stuff, some daring reform initiatives, and not just the kind of risk-averse incrementalism we saw. Mr Mukherjee has presented a good budget, perhaps even a very good one under the circumstances, but he has shied away from presenting a great budget. One that he would be remembered by in years to come, like Dr Manmohan Singh's 1991 'reforms budget' and Mr P Chidambaram's 1997 'dream budget'. Good housekeeping is very important, and that is what a good finance ministry does. But, as every housewife knows, good housekeeping doesn't get you into the history books.

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BUSINESS STANDARD

COLUMN

SOME WELL-TIMED CHOICES

PRANAB WALKS FISCAL CONSOLIDATION PATH WITH PRUDENCE

MUKESH BUTANI

 

Budget 2010 was expected to be more than just an exercise in annual fiscal management and first indications are that the Finance Minister managed a delicate act in balancing fiscal consolidation and economic prudence. Supplementing the data released in the Annual Survey, the FM pegged the GDP growth for the current fiscal at 7.2 percent and laid an ambitious path for double digit growth. Revised estimates shows fiscal deficit for the current year at 6.9 percent; only a marginal deviation from the original Budget Estimates though disappointing third quarter growth of 6 percent. Other important indicators of macro-economic health were encouraging with tax-to-GDP ratio at 10.3 percent, despite huge fiscal stimuli throw-in over last eighteen months to keep the economy afloat (tax stimulus alone totaling to 3.5 percent of GDP).

While the fiscal stimulus of $37-billion for the 15-month period offered much needed impetus, the Budget was expected to set the tone for strategic shift in the government spending pattern and a calibrated roll-back to tame deficits and ever-increasing debt-to-GDP ratio. The 'big bang' expectation in terms of a roadmap for key reforms in direct and indirect tax other than announcing date of April'11, did make the budget exercise appear a mere formality. Industry was pinning its hopes on major announcements that would have given the much-needed push to key strategic sectors such as infrastructure, renewable energy, education and healthcare. None of those materialised.

Fiscal prudence prevails

Though the Budget contained proposals for rationalisation of tax rates, the fundamentals for managing the fiscal deficit and achieving inclusive economic growth guided most of the announcements. The broader focus clearly was on revenue mobilisation rather than (non-plan) expenditure curtailment in line with the recommendations of the 13th Finance Commission. The key recommendations on which the FM acted include a calibrated exit strategy from the expansionary fiscal stance and capping the combined debt of the Centre and the States at a sustainable proportion of the GDP.

 

Additional revenue mop up of Rs 25,000 crores from disinvestment programme and even more ambitious deficit targets for next three fiscals (deficit pegged at 4.1 percent in 2012-13) would be a tall order.

 

Tax rates swing

Decent direct tax collections in a slowdown allowed the FM to rationalise Income tax rates for individual tax payers, which is expected to benefit at least 60 percent of individual taxpayers. A status quo in the corporate tax rate barring a marginal reduction in surcharge from 10 to 7.5 was no surprise, as there was little room to maneuver. Increase in the Minimum Alternate tax rate would, however disappoint India Inc, particularly Oil E&P and refining sector enjoying tax holidays.

 

No change in the service tax rate was indeed a pleasant surprise, as the FM targeted excise and custom duty rationalisation for mopping up targeted revenue collections. Much as expected, a full or partial excise duty exemptions available to several items has been proposed to be withdrawn and duty imposed at 4 percent or 10 percent. The peak custom duty rates however, remained unchanged at 10 percent.

 

Rejigging of petroleum taxes

The Kirit Parikh report announced early this month made its recommendations for petroleum sector reforms. Whilst the FM acknowledged the expert group recommendations and assured discussion of recommendations in due time, significant rejigging of taxes for petroleum products were proposed in the Budget. As the peak custom duty on crude oil was restored to 5 percent, duty on petrol and diesel was raised from 2.5 percent to 7.5 percent and for other specified petroleum products to 10 percent. Also, the standard excise duty on petrol and diesel has been increased by Re l per litre.

 

Restoration of custom and excise duty rates for petroleum products is likely to hurt the end consumers, as oil companies shall pass the burden in totality. These measures may not, however, give any relief or immediate respite to oil companies reeling under a de facto pricing regulated regime and one has to wait and see what the Ministry of Petroleum does for implementing Parikh committee recommendations.

 

From an Income tax standpoint, the Budget is a mixed bag for the petroleum sector, as the midstream sector saw relaxation in the threshold for common carrier pipeline capacity from 1/3 to 1/4; the upstream sector would be hit with narrowing scope for beneficial deemed profit regime for oil-field service operators.

 

R&D incentivized

In line with expectations, the Budget proposes to introduce renewed and more impactful tax incentives for R&D activities across all industries. The enhanced weighted deduction for in-house and outsourced R&D most certainly underlines the importance given to promoting state-of-the art technology.

 

Tax reforms top on agenda

Without taking his eyes off the reform agenda set out in his last budget, the FM has re-affirmed the government's commitment to pursue two most important tax reforms in the country: introduction of the Direct Tax Code and Goods and Service tax by April 1, 2011 though he seemed less upbeat about GST in his speech. Though, delayed by one year, GST if introduced by the revised deadline would be path-breaking and read with Finance Commissions recommendations to disincentivise states playing spoil sport, developments in this space would be most watched. Although I would have felt more reassured if GST rate was brought down from 2 percent to 1 percent, it seems the government is still seeking the consensus of all states for GST implementation.

 

Budget with sound fiscal vision

Given the difficult economic landscape with early signs of recovery just showing, I believe the FM has done a tremendous job of aligning medium-to-long term growth objectives with economic realities. As the FM himself said in the speech – "Managing a complex economy is a difficult task…and yet, choices have to be made and they have to be well-timed".

 

Well said, Pranabda!

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BUSINESS STANDARD

COLUMN

BATTING ABOVE AVERAGE

LOOK OUT FOR A HIGH-SCORING ECONOMY IN THE COMING YEARS

AJIT RANADE

Invariably a Finance Minister trying to navigate between growth and fiscal restraint invites comparisons to a cricket shot that has to score a boundary, but remain between mid-on and mid-off. Not much firepower in those straight shots although they are less risky than hooks and pull shots. So an effective budget is workmanlike, refrains from announcing big bang reforms, but scores runs nevertheless. That's what this budget has done admirably.

 But the cricket metaphor this time is appropriate for a wholly different reason. For, this budget comes after two decades of India's economic reforms, a period that also coincides with the reign of cricketing maestro Sachin Tendulkar. And just as Sachin's magic is still in the ascendant, so perhaps is the story of reforms. Indeed, the backdrop to this budget is not merely the very visible economic recovery, but major policy milestones, such as the 13th Finance Commission's recommendations, the once in 50 years revamp of direct taxes, a completely new company law and, of course, the rollout of GST. Beyond these major economic policy steps is something even more momentous, which the cacophony of the budget headlines may have drowned out. The Cabinet approved the women's reservation bill, a feat which has taken 20 years –as long as Sachin's career! When this bill is passed in Parliament, as is expected, it will be a remarkable milestone in India's democratic journey.

For his part, the Finance Minister did announce initiatives with far-reaching reform-like implications. The Right to Food legislation which he said will soon be drafted, will have a big impact on inclusive growth. Just as the NREGA sceptics have dwindled in numbers, so also the Right to Food naysayers will have to eventually eat crow. The UPA government in its two innings would have scored a hat trick of enshrining and giving teeth to laws such as the Right to Information, employment and now, food. And that's not counting the recently legislated right to education. That's an impressive record for a government committed to inclusive growth. This rights-based approach entails a huge fiscal burden which critics object to for two reasons: (a) that we cannot afford it; (b) that the bigger problem is in implementation. But in a democratic framework we simply cannot give up because of implementation failure. However inefficient the delivery system, it can only improve. And as Amartya Sen says, we cannot allow the best to be the enemy of the good.

Other equally important policy initiative is in financial sector reforms. The setting up of a Financial Sector Reforms Commission will hopefully give much needed coherence to the reforms journey. Incidentally, the announcement of allowing newer private sector players entry into banking is an acknowledgement that we need huge amount of banking capital. If India needs a consistent 9 percent GDP growth it will need large doses of bank capital. Moreover newer players can only enhance financial deepening and financial inclusion. The requirement on new entrants can be stringent, transparent and can also include compulsory dilution in a specified time. The marriage of technology (UID, mobile telephony) and financial services can indeed have big bang impact on the development of the financial sector.

Even though it offers an opportunity for presenting an economic policy vision, ultimately the budget is about numbers, an annual financial statement with projections for next year. Judged in this narrow sense, the budget stance is pro growth, with of course an inclusive agenda. Lower income taxes will increase disposable incomes, leading to more consumption spending. The mix of spending also has skewed toward more Plan (i.e., capital) spending, with a bigger share of infrastructure, which contributes to long term growth. On fiscal discipline there are several positives. Firstly there is greater fiscal transparency, as oil and fertilizer subsidies are no longer hidden elsewhere but show up in the budget, and are now paid in cash instead of illiquid bonds. Secondly there is noticeable expenditure control, as the total has risen only by 8 percent whereas GDP may rise by 15 percent in nominal terms. Thirdly the projected borrowing for next year is lower than market expectations, which perhaps explains the exuberant response of the markets. This may put less pressure on interest rates, although with inflation and the 5.5 percent projected deficit, interest rates have limited room to go down. Lastly the mention of explicit numerical targets for the next two years conveys a greater commitment. As such with GST and widening of the tax net, fiscal relief will come from growth and compliance much more than expenditure compression.

The reforms in the coal sector are also significant and overdue. A coal regulator and an auction mechanism to allocate coal blocks will greatly enhance efficiency. e need bigger steps to extract this energy source more efficiently. Hence the baby steps in coal sector reform are timely and welcome. Of course the budget speech also gave a nod to the environment angle, and has introduced a tax on all fossil fuels, a sort of carbon tax. This is a progressive long-term measure.

Overall, this is a budget with a pro growth stance with an attempt at fiscal restraint and some initiatives with major long term implications. It stays within mid-on and mid-off but does score boundaries. After twenty years of India's reforms, nay his debut, Sachin recently scored four test centuries and an awesome ODI double ton. His best is not over. Assuming his journey is mimicking India's economic journey, with GST and DTC round the corner, look for a high scoring economy in the coming years.

Ajit Ranade, Chief Economist, Aditya Birla Group

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BUSINESS STANDARD

EDITORIAL

A REASONABLE EFFORT

BUT MARKETS WILL NOT ACCEPT TARGETS WITHOUT CREDIBLE ACTION

AKASH PRAKASH

 

The budget presented by the finance minister yesterday was notable in that there were no nasty surprises, and a grateful market responded (largely through short covering) by rising upwards of 1.25 percent. Market expectations were obviously muted, and the FM managed to satisfy these low expectations.

First of all, on the positive side, the FM began his speech by talking about the need to concentrate on social sector spending and create an enabling environment for growth without getting involved in every sector. This is an usually clear and forthright statement from this government.

The FM also took on the issue of PSU disinvestment directly, budgeting for a revenue mop-up of Rs 40,000 crore from divestment and talking about the advantages of selling government stakes in these companies. This is again a far more direct approach and there no longer seems to be any need for apologies on this count.

The willingness of the government to accept the 13th Finance Commission recommendations on the targets and transparency of approach towards fiscal consolidation is another positive. The desire to move to a fiscal deficit target of 4.1 per cent by FY 2013, and hopefully 3 percent by 2014 are all good. The willingness to accept a public debt/GDP target is again a sea change. The clear statement that the government will not issue fertiliser or oil bonds and pay all subsidies in cash is positive for companies in these sectors and also ensures transparency in the fiscal calculations. The ability of the FM to hit the 5.5 percent fiscal target in 2011 has also cheered the market as has the lower net market borrowing target of Rs 345,000 crore (at least Rs 25-30,000 crore below market expectation).

The FM must also be commended for using quite credible macro targets. It looks as if the budget document is using nominal GDP growth estimates of about 13 percent and net tax revenue growth of 15 percent, both of which look quite believable. Expenditure is also moving in the right direction, with a strong 15 percent plus growth in plan expenditure and only 6 percent growth in non-plan, though one can question the government's ability to hold total spending at just 8.5 per cent.

The recasting of tax slabs so as to leave an additional Rs 25,000-30,000 crore in the hands of the middle class is another huge boost to urban consumer sentiment and helps consumption. The hike in MAT to 18 percent is, to my mind, a positive as it will force us closer to the DTC ideal of a low rate of tax which every company has to pay, with limited exemptions. The excise rollback of only 2 percent is also a positive surprise to the markets.

Other associated reforms like the move to auction coal blocks and have a coal regulator, the seeming willingness to open up new bank licences to the private sector, incentives for legal reform are major positives.

The problem I have with the budget is it is again a case of reforms pushed out. The FM has managed to bring the fiscal deficit down to 5.5 percent of GDP from 6.9 percent, despite only a net Rs 20,000 crore incremental incidence of taxation. The budget maths relies heavily on being able to keep expenditure growth under control at 8.6 percent, and being able to raise Rs 75,000 crores from disinvestment and 3G auctions, neither of which is fully under government control. The only real revenue-raising measure is the hike in duties on petro-products, which is invariably going to be inflationary. In fact, the bond markets, after initially gaining on the lower borrowing programme for 2011, gave back all the gains as the inflationary consequences of the fuel hikes sank in.

Real structural changes on the expenditure side are still not in sight. There was no movement on the Kirit Parikh report, no further details on the nutrient-based scheme for fertilisers and no movement on targeting food subsidies. The fiscal remains very vulnerable to any serious spike in crude prices. Can we really continue to keep total expenditure growth at sub 9 percent beyond 2011, with the Right to Food Bill and the Right to Education Bill costs still to enter the budget arithmetic?

Both the major revenue reforms, the GST and DTC will happen only in 2011-12. There was also no further clarity on what will actually go into the direct tax code, or the expected rates to be adopted for GST. One can only hope that the government manages to convince the states to accept the finance commission's view of a single rate with limited exemptions. The unfortunate tendency to micro manage on the tax side continues, with micro-level changes in sector specific tax rates and exemptions.

The budget has the big positive of being committed to the fiscal targets of the 13th Finance Commission and the FM deserves full marks for that. Investors both local and international will applaud the targets outlined, but the details of how we will get there are still not clear. In terms of key reforms still to be implemented like GST/DTC and subsidy rationalisation, the hard decisions are still ahead of us. Markets are for the moment happy with the fiscal targets outlined, but will eventually start focusing on how we reach these targets. If one is willing to give the government the benefit of the doubt, then one can say that the details on both the expenditure and revenue side will become clearer over the coming 12 months.

On the whole, not a bad effort as it has given the government a little more breathing time to implement some of the more difficult structural reforms. However the government has to realise that at some stage it will have to deliver on these big ticket items. The market will not accept mere targets without credible action forever.

Akash Prakash, Founder and CEO, Amansa Capital

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BUSINESS STANDARD

EDITORIAL

LIVING ON A PRAYER

RELYING ON A NARROW SET OF ADJUSTERS IS PLAIN RISKY

JEHANGIR AZIZ

 

The Finance Minister has presented a budget that appears to balance the need to consolidate without having to withdraw the stimulus provided in the last two years on the ground that the recovery is still fragile. No one can argue against this logic. Recent data flow has rudely reminded us that material economic and policy risks abound in the global economy. At the same time almost all demand indicators in India have turned hot and despite the deficient monsoon, FY2010 GDP growth will likely top 7 percent. And all this without India's biggest growth driver, corporate investment firing. If this happens, as one expects, FY2011 GDP growth could go well above 8 percent. This will inevitably stretch capacity and raise core inflation, which has already started to pick up. Thus, it was important for the government to join the RBI in moving policy stance from easy to neutral quickly, sacrificing near-term growth to extend the medium-term expansion and minimise any concerns of a hard landing in the second half of the year.

Two weeks back, I had written that the government would target a deficit of 5.5 percent of GDP. The budget did that that and more, targeting 4.8 percent in FY2012 on the way to meet the FY 2015 target of 3 percent as recommended by the 13th Finance Commission. This is a good thing as it once again frames the budget in a medium-term framework.

But then why do I get the feeling that things may not turn out the way they should? I was concerned that in trying to reach the 5.5 percent deficit target, the government would base the consolidation narrowly on a few adjusters, such as the cyclical upturn in the economy and divestment, and not reverse more of the cuts in indirect taxes. Sadly, that's what the budget does. It expects tax revenues to grow by 18 percent when nominal GDP is projected to grow at 12.5 percent. The buoyancy of taxes is high when an economy is coming out of a downturn and the budget expands the base of service tax, which is another positive since this is the largest sector of the economy. But if the government truly thinks that the recovery is fragile, wouldn't it have been wiser to be more conservative as it was last year?

The budget assumes Rs76, 000 crore in disinvestment and 3G license fees –a whopping 1.1 percent of GDP. This may well be realised, but it again it would depends on continued strong foreign inflows and benign risk-aversion among investors. Separately, in a bold move the FM promised to do away with off-budget bond issuance for oil and fertilizer companies and move all subsidies in the budget to a cash basis. What is surprising is the budget of just Rs 3,000 crore in oil subsidies. This may be sufficient if oil prices remain below $80/barrel or the government reforms the retail petroleum products pricing policy. We saw the entire opposition walk out during the budget speech for a Re 1 increase in excise duty. I wonder how they will react to the freeing of oil prices.

As we have seen recently, the global recovery can turn up nasty surprises and create enough anxiety to keep domestic financial markets volatile. Relying on a narrow set of adjusters is plain risky. If a few things go wrong, the budget will look shaky.

But beyond the numbers there were several positives. The budget reaffirmed that the direct tax code and the national GST would be rolled out by April 2011. The service tax base was expanded to include real estate, air and rail travel. This may be a negative for these sectors in the near-term, but for the economy expanding the base rather than the tax rate is always a better alternative. On the financial sector, increasing the number of private banks will improve competitiveness that is sorely needed to reduce the cost of domestic financial intermediation. Increasing the capital base of PSU banks will also help to provide greater stability to the system, but one hopes the government uses this as an opportunity to also consolidate public sector banks. The creation of the Financial Stability and Development Council to oversee systemic financial and corporate macroeconomic stability and provide a forum for more formal inter-regulatory coordination went almost unnoticed in the media and the market. This can turn out to be a critical step in ensuring financial market stability in the future.

The last budget disappointed the market because it was expecting a lot after the government had just won a decisive electoral victory. This time we had come to expect less. The stock market cheered up as the budget delivered a bit more than expected. The bond market hasn't really reacted because it is looking for the devil in the detail. So in the coming months we will be living on a prayer for continued high growth, high global liquidity, low global risk aversion and low oil prices.

Jehangir Aziz, India Chief Economist, JP Morgan Chase
These are the author's personal views

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BUSINESS STANDARD

EDITORIAL

AN EMERGING COHERENCE ON FISCAL DISCIPLINE

EXPENDITURE CONTROL, SPECIALLY OF NON-PLAN REVENUE EXPENDITURE, SHOULD BE THE FOCUS

INDIRA RAJARAMAN

 

The Union Budget 2010-11 was presented under favourable growth circumstances, notwithstanding the low growth figures just issued for the third quarter.  The nominal GDP growth in 2009-10 is likely to be much higher when the provisional estimates are issued because a real growth of 7.2 per cent with inflation at present rates is just not consistent with nominal growth of only 10.6 per cent.  The final deficit percentages for 2009-10 will, therefore, be a touch lower and those projected for next year will be lower, too.

That by itself is not great cause for comfort. The revenue deficit for next year at 4 per  cent is well above the 3 per cent promise in the medium-term fiscal plan (MTFP) presented with last year's Budget.  The fiscal deficit for FY 2011, however, is in keeping with last year's MTFP. This fiscal correction is to be achieved by a substantial measure of expenditure control, of non-plan revenue expenditure in particular. The nettle of subsidy control is beginning to be grasped. The fertiliser subsidy will be reconfigured to a nutrient basis, with advantages that are more than just fiscal. 

The petroleum subsidy has been deferred for further consideration, but in the interim there is a hike in the customs duties on crude and refined petroleum. The announcement of this hike precipitated an uproar so loud that a good bit of the subsequent speech of the Finance Minister became inaudible. The proposal to have competitive bidding for allocating coal blocks for captive mining is an example of the kind of institutional reforms recommended by the 13th Finance Commission as a supplement to what has hitherto been a purely target based approach to fiscal correction. Thus, the objective of fiscal discipline has been recognised directionally, if not in terms of the distance travelled towards it. 

There was coherence in other respects as well with the objectives as spelled out in the terms of reference of the 13th Finance Commission.  Growth is given a push with the attention to infrastructure, the Delhi-Mumbai dedicated corridor, and mega power plants.  The infrastructure package includes the additional tax deduction up to Rs 20,000 for taxpayers investing in infrastructure bonds. There is continued support for the Pradhan Mantri Gram Sadak Yojana whose extension of last-mile connectivity has been the single most productive factor behind the spatial dispersal of growth to the rural areas. The four-pronged approach to agriculture recognises the critical need for an integrated approach for raising productivity, especially in rain-fed pulses and oilseed cultivation for curbing the runaway inflation in these commodities.

The environment issue is frontally addressed with recognition of the 'polluter pays' principle and with the establishment of the Clean Energy Fund.  Convergence has been achieved between the newly enhanced excise on goods at 10 per cent and retention of the reduced tax on services at 10 per cent.  All of this augurs well for the future integration of goods and services in indirect taxation and moves the fiscal system towards greater coherence.

There were disappointments and a few negatives as well. The continued support for Special Ecoomic Zones needs justification in view of the tax expenditure involved and the impact of lower tax buoyancies at the Centre on states and, after the acceptance of the Finance Commission recommendations, on local bodies as well. 

The Clean Energy Fund is to be funded through an enhanced levy on coal.  This mode of financing is entirely sound environmentally but poses an additional burden on coal-based thermal generation, which accounts for 60 per cent of total electricity generated.  The poor financial health of the power sector is one of the major unsolved fiscal problems of states today. Here again is an example of a measure whose impact on states has not been sufficiently thought through.

Indira Rajaraman, Honorary professor, Indian Statistical Institute, New Delhi. Member, 13th Finance Commission

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BUSINESS STANDARD

EDITORIAL

NOW FOR THE HARD PART

CUTTING THE DEFICIT THIS YEAR WAS THE EASY PART; THE REAL FISCAL CHALLENGE LIES AHEAD

Pranab Mukherjee is like the kind of general that Napoleon wanted, a lucky man. He has come out smelling of roses because he has done the most important thing in the Budget, and fulfilled his promise made last July. He has reduced the fiscal deficit to 5.5 per cent of GDP—an announcement that immediately woke up the stock market from its stupor, at high noon on Budget day. But he has been able to deliver, and that too without breaking a sweat, only because he has had most unusual good fortune on his side—in the form of a series of one-time benefits that, cumulatively, make for what can only be considered a windfall. It is important to understand this if one is to anticipate what now lies ahead.

The finance minister has managed to slash the fiscal deficit for next year by 1.4 per cent of GDP (from 6.9 per cent to 5.5 per cent) because he has got benefits in as many as five different ways. First, he does not have to pay Rs 15,000 crore for the bank loan write-off, as he did this year. Second, he does not have to pay arrears of pay and pension, on account of the Pay Commission award, as he did this year—saving him another Rs 16,643 crore on civil sector pay alone. Civil sector pension arrears and defence sector pay and pension arrears would be over and above that. In sum, the windfall gain on the Pay Commission arrears account would be Rs 20,000 crore, probably more.

Then he has assumed Rs 15,000 crore extra on disinvestment, and perhaps Rs 35,000 from the one-time sale of telecom spectrum to 3G bidders. Finally, he has not had to provide for any extra subsidy on the oil account, saving him Rs 10,306 crore. Take all five together and the one-time benefit in this Budget is about Rs 95,000 crore. By a magical equivalence, that is almost exactly the reduction in the deficit, of 1.4 per cent of GDP (which is projected at Rs 69.35 lakh crore for next year).

Such heaven-sent gifts don't get handed to finance ministers every year, which is why Mr Mukherjee has grabbed the chance offered by the Finance Commission to lower expectations for the future. In his Budget speech in July last year, he had promised to reduce the deficit further to 4 per cent in 2011-12. He has now modified that, to 4.8 per cent, to be followed up with 4.1 per cent in 2012-13—which happens to be the same level as was there in 2005-06.

Even if he delivers on those targets, it would have taken us seven long years to undo the fiscal damage caused by the "stimulus" of the last couple of years. And even then, the debt-GDP ratio would be higher, and so (therefore) would the share of revenue eaten up by interest payments. If the situation had to return fully to what it was before the financial crisis, it might take us a full decade. All those in love with fiscal stimuli, please note that goodies from the government don't come cheap; at some point, we have to pay.

To understand the costs involved, the deterioration in government finances, and the long uphill climb that lies ahead, compare the numbers for next year with what prevailed in the year before the crisis, ie 2007-08. In the three years between then and 2010-11 (as budgeted, with a 5.5 per cent deficit), the central government's tax revenue would have gone up by 21.5 per cent. But expenditure would have gone up by 55.6 per cent. The difference is made up by an almost exact 200 per cent increase in borrowing—from Rs 1,26,912 crore to Rs 3,81,408 crore. The result is that an extra 4.8 per cent of revenue will be eaten up by interest payments on the additional debt, which amounts to Rs 32,750 crore in a year—enough perhaps to pay for 8,000 MW of additional power capacity. That, as it happens, may be the new capacity that we will add next year in the public sector.

Consider also the deficit numbers in the same three-year period. The fiscal deficit goes up from 2.7 per cent of GDP to 5.5 per cent, or an increase of 2.8 per cent of GDP between 2007-08 and 2010-11. But the entire increase and more (2.9 per cent, actually) is on account of the revenue deficit, which goes up from 1.1 per cent to 4 per cent.

That's because capital expenditure financed out of the Budget has increased by only 26.9 per cent, while revenue expenditure has gone up by 61.3 per cent. This is the fiscal cost of taking care of those at the bottom of the pyramid, through the rural employment guarantee programme, providing for the building up of human capital, and so on. In a poor country, the expenditure is unexceptionable, indeed necessary, provided the money is spent well—and there lies the rub. If the money is spent wastefully, or misdirected and the poor don't benefit, then the Budget has been ruined for no good reason.

Whether the money is spent well or badly, the fisc has to be brought back into balance. And there is only one way to square what looks like a circle—ensure revenue buoyancy. The fact is that, even next year, tax revenue as a share of GDP will be only 10.8 per cent, well short of the 12.5 per cent that prevailed before the crisis. Taking the number back up by 1.8 percentage points (or Rs 1,20,000 crore!) will take some doing, and need time. The only hope of achieving this quickly is through the proposed introduction of an integrated goods and services tax next year, along with the simultaneous spreading of the service tax net to include all services, which will bring more people into the tax net, and improve tax compliance. Mr Mukherjee will have to stay lucky if he is to climb the big mountain that lies ahead.

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THE ECONOMIC TIMES

EDITORIAL

NEITHER GOOD ECONOMICS, NOR POLITICS

YASHWANT SINHA

Unprecedented events have taken place in Parliament over the last two days. The first was a discussion on price rise even before a discussion on the motion of thanks for the President's address was taken up. The second was the finance minister intervening in that debate and putting forth his views on price rise a day before he was due to present his Budget. The third was the walkout by the entire Opposition midway through the finance minister's speech in protest against what he was proposing in the Budget. Clearly, we are passing through difficult times.

Every Budget is prepared in the context of the economic situation prevailing at that time. The most important challenge facing the finance minister this year was the unprecedented price rise of essential commodities including foodgrain and a wholesale price index threatening to go into double digits. The two other challenges before him were of reining in the ever-increasing fiscal deficit and stepping up the growth rate of the Indian economy. While these three challenges are no doubt interlinked, they are also in contradiction with each other

and the finance minister had to use all his skills to harmonise them. Unfortunately, Mr Pranab Mukherjee has failed to do so.

Everyone agrees, including the finance minister himself, that what drives the Indian economy is domestic demand and domestic savings. If the Indian economy has to prosper, we must ensure that prices are controlled so that consumers are attracted to spend money. Second, there must be money and cheap money in their pockets to buy. Only then will the consumer buy. Both have been adversely impacted by this Budget.

The agrarian economy is in a crisis. There is precious little for agriculture in this Budget. So, the agrarian crisis will continue. The impact of the loan-waiver scheme has already spent itself. The increased allocation for NREGS is limited to Rs 1,000 crore only in this Budget, less than what it will lose by way of inflation. Demand from the rural sector, therefore, is not likely to increase dramatically.

As far as the industrial economy is concerned, its recovery is still fragile. As the Economic Survey notes, there was strong growth in consumer durables and intermediate goods, moderate growth in basic and capital goods, and sharp deceleration in consumer non-durables. A double-digit inflation will threaten this fragile recovery.

Interest rates in the economy are already firming up. This will make money expensive and will act as a deterrent to consumption growth. According to the Economic Survey, the percentage growth in per-capita consumption, after touching a high of 8.3% in 2007-08, declined to 5.4% in 2008-09 and further to only 2.7% in the current year. Gross domestic savings have declined from 36.4% in 2007-08 to 32.5% in 2008-09, a massive drop of nearly 400 basis points in a year.

Public sector accounts for a decline of 360 basis points out of this total of 400. Growth in credit for industry and for personal loans and services has actually decelerated as compared to last year. The Indian consumer is still wary of consuming more. This Budget will be a further disincentive for him.

It is in this context the increase in central excise duties, coupled with the increase in petroleum product prices, has to be seen. Controlling fiscal deficit was no doubt a challenge. But, having taken the fiscal deficit to unprecedented levels, the finance minister could tackle it only gradually. Mr Mukherjee should have chosen one of the two options: partially rolling back the excise duty concessions extended in the past or raising petroleum product prices. It is a combination of these two that makes the prescription deadly.

It is not going to do any service to the economy. What the FM has done in this Budget, therefore, is neither good economics nor good politics.

 

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THE ECONOMIC TIMES

EDITORIAL

FISCAL HEALTH GETS A BOOSTER SHOT

SWAMINATHAN S ANKLESARIA AIYAR

 

It's a middle-of-the-road budget,neither harsh nor soft, neither left nor right. Finance minister Pranab Mukherjee is neither a populist nor radical reformer. Curbs on non-Plan spending rather than stiff taxation (net additional taxes are barely Rs 20,000 crore) will reduce fiscal deficit to 5.5% of GDP next year, with further reductions to 4.8% and 4.1% in the next two years.

This conforms to the targets of fiscal consolidation in last year's budget. Banks are relieved that they will be able to fund the reduced borrowing requirement of the government. Disinvestment of public sector shares will fetch Rs 40,000 crore, and the 3G spectrum auction another Rs 35,000 crore or so.

This exceeded the markets' low expectations, and the Sensex zoomed 175 points. Reliance Capital was a top gainer, after the finance minister's statement that more private sector banking licences would be given out.

Conditions today were good for a reformist budget. Only one state election (in Bihar) occurs this year, and the current coalition partners lack the muscle to topple the government unlike the Left Front in the 2004-09 coalition.

But Mr Mukherjee avoided any significant reforms. FDI could have been allowed into retail and the FDI limit hiked in insurance; foreign investors could have been given voting power in line with their bank shareholding.

The budget assumes 8-8.5% real growth and 4% inflation, giving 12.5% nominal GDP growth. This very optimistic scenario assumes that the global economy will not slow down. If it does, all bets on deficit reduction are off.

The surcharge on corporate tax has been cut from 10% to 7.5% while the minimum alternative tax (MAT) has been raised from 15% to 18%. This will raise the overall effective tax rate. The tax break for software parks has not been extended, so the likes of TCS will now be taxable, but for the refuge they get in SEZs.

 

The aam aadmi will get more rhetoric than cash: NREGA gets just a marginal boost to Rs 40,100 crore from Rs 39,100 crore last year. The fiscal stimulus was rolled back very partially. Cenvat went from 8% to 10%, well short of the pre-stimulus 14%. Cenvat and service tax now stand unified at 10%, preparing for the transition to a single-rate goods and services tax next year.

Import and excise duty on crude and petroleum products were cut in 2008 when crude hit $112/barrel, and these cuts have been reversed in the budget. Petrol and diesel will go up in price by Rs 2.67/litre and Rs 2.58/litre, respectively. But petrol and diesel prices remain to be decontrolled.

The Economic Advisory Council recently said the fiscal stimulus comprised accelerated spending much more than tax cuts, suggesting that the rollback should focus on spending. Mr Mukherjee has followed this advice—non-Plan spending is up only 6%, and non-Plan outlays are actually down for several sectors, including defence, subsidies, police, economic services, social services and other general services. Plan spending is up 15%, a desirable trend change.

The middle class will be angry with the rise in petrol and diesel prices, and Mr Mukherjee has sought to mollify it with a widening of income-tax slabs, which will provide some relief. But inflation remains a major concern, and the budget hope that inflation will fall to 4% over the next year is a triumph of hope over experience.

 

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THE ECONOMIC TIMES

EDITORIAL

NOT QUITE AS GOOD AS IT LOOKS, PRANABDA

MYTHILI BHUSNURMATH

 

On the face of it, Pranab Mukherjee's first full Budget in the UPA government is an improvement over his July 2009 Budget. The main macro number, fiscal deficit (FD)/GDP ratio, is a tad below the Budget estimate (BE) of 6.8%. Even better, it is slated to come down to 5.5% by March 2010.

Add to that the FM's apparent willingness to move away from the smoke-and-mirrors practice of the past, and present more transparent accounts, widen personal income-tax slabs, set a more ambitious target for disinvestment, hold out the prospect of additional banking licences to private players and make a beginning in the direction of legal reform, and it would appear that the stock market is not the only one with reason to cheer.

On the flip side, there is the small (2%) roll back of the reduction in central excise duties allowed last year as part of the stimulus package, expansion of the service tax net to cover more services, increase in central excise duty on petrol and diesel and on non-smoking tobacco, and some unwanted tinkering with tax rates on a host of items.

But none of this takes away from the general sense of Budget 2010 being a workman-like, no-nonsense Budget; one that will set the economy back on the track of growth along with fiscal consolidation. Or so it seems.

Until you look a little closer at the assumptions underlying the Budget, particularly fiscal consolidation. To begin with, the improvement in fiscal health reflected in the lower FD/GDP ratio conceals the worsening in the quality of the FD, not only in the revised estimates (RE) for 2009-10 but also in the BE for 2010-11 compared to 2008-09.