Sinha’s babu budget bids goodbye to fiscal discipline

NEW DELHI, FEBRUARY 29: With the government running true to form, and completely failing in its attempt to curb runaway expenditure as on ...

NEW DELHI, FEBRUARY 29: With the government running true to form, and completely failing in its attempt to curb runaway expenditure as on subsidies, the middle classes are expected to foot the bill once again. Fresh taxes are to fetch Rs 5,080 crore, of which Rs 3,252 crore will come from “rationalised” excise duties.

There’s more bad news. Additional surcharges of ten percent put by Finance Minister Yashwant Sinha in his previous budget, on both personal taxes as well as customs duties, will be continued for another year. And for those whom Sinha calls the “relatively better-off sections,” the additional surcharge is to be hiked from 10 per cent to 15 per cent — so, for those who earn more than Rs 1.5 lakh per year, the income tax rate will go up from the existing 33 per cent to 34.5 per cent.

The budget has made valiant attempts to come up with big ideas, but sadly these fall far short of what was expected from the Millennium Budget. Sinha’s decided to cut government equity in banks to 33 per cent, but has ruled out privatising them — the public sector structure, according to him, is to be maintained. Chronically sick banks are to be recapitalised, not closed down.

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With the government getting just around a fourth of its disinvestment target of Rs 10,000 crore, the expected announcement of privatisation thrust never happened. Instead, Sinha has once again come up with a new target of Rs 10,000 crore. And, no, this is not to be used for retiring debt — just a tenth, Rs 1,000 crore, is to be used to retire debt.

Constrained by coalition politics, and unable to do much about runaway expenditure, Sinha’s chosen to set up several committees, one to advise on managing the fiscal deficit, to advise on how to increase the tax on services, and so on. Total expenditure for the current year, meanwhile, have overshot the target of Rs 284,000 crore by a whopping Rs 20,000 crore.

With this year’s fiscal deficit is expected to be 5.6 per cent of GDP as against the original estimate of 4 per cent, the target for the next year is pegged at 5.1 per cent. In other words, Sinha’s bid good-bye to the entire fiscal correction planned over the decade. From 6.3 per cent in 1993-94, the central fiscal deficit went down to 4 per cent of GDP in 1996-97, shot up to 4.7 per cent in 1997-98, to 5.6 per cent this year.

While Sinha’s failed to curb subsidies this year, he’s made a valiant attempt to cut it next year. Food subsidies, which crossed the target by Rs 1,000 crore, are to be cut by Rs 1,100 crore next year. This is to be done by hiking ration prices savagely. From Rs 2.50 per kg for wheat for those below the poverty line, prices are to be hiked to Rs 4.2 from the 1st of April. For rice, the hike will be from Rs 3.5 to Rs 5.85.

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At the end, constrained from all sides, Sinha’s budget ends up being an accounting exercise. Exemptions from an excise duty hike for a host of small items like cutlery and knives, electric bulbs which cost less than Rs 20, and soap sold through ration shops, shikakai powder (without additives), to name a few. Special import duty cuts, apart from the peak rate cut of 5 per cent, include — import duty on jumbo rolls of films are to be cut from 15 per cent to 5, those on cell phones from 25 to 5, camera equipment from the existing 40 per cent is to be cut to 15 per cent.

In short, it’s much like the budget presented by Sinha two years ago — that one too, was full of minute exemptions/sops for individual sectors/interests. As Jairam Ramesh of the Congress put it: “Sinha’s catered to everyone in the NDA budget — Nagpur Davos Alliance — and has fallen between not two, but three stools.’