BUDGET 2013

                                                   BUDGET 2013

                                  
                                   Some time back my only obsession in budget would be about the income tax slabs and some of the commodities especially electronic gadgets. However in my current capacity with a little theoretical knowledge about financial institutions, I wish to present my views about the Budget 2013-14.Please show some leniency on my naiveties but don’t forget to point out them.

                               I have the proclivity to look out for numbers at the outset in any budget than the policy statements and their concomitant procedures. Hence containing the fiscal deficit (FD) within the promised revised estimate of 5.3% of GDP would be acceptable though the budget estimate was targeted slightly lower at 5.1%. FD refers to the total financial liabilities of the government mobilised through external borrowings from resources outside India and the internal borrowings mainly monetised through sovereign bonds dealt with by RBI.

                             

                             But the fact that the total sovereign debts had been steadily raising and have reached over 50% of the GDP is an ominous caveat which is quite obvious from the data that over 25% of the revenues are raised through debts. I have never seen my mother relying on meeting over quarter of our household expenditure through credits from others. But this is a political reality in a re-emerging economy like ours with a great deal of inequalities both social and natural resources.

                          

                            With not sufficient fuel resources in the country, the dependency on crude oil is enormously large and would be so for a longer period till an Indian surplus fuel alternative is identified. The bureaucratic red-tape procedures and the associated delay in awarding clearances of the energy sector projects when supplemented by the over-envious private sector motivated to increase profit at any cost as seen in the Krishna-Godavery Natural Gas basin and the over-enthusiastic socio-natural activists opposing development projects make dependency on import of energy resources like coal, crude oil incumbent. Hence we have no alternative but to import energy resources which entails larger dependency on foreign currencies.

                          

                          Increase in imports when compared to the exports would increase the Current Account Deficit (CAD). The widening CAD which is indirectly a measure of foreign exchange demand in the economic system makes foreign investment inevitable and the announcements like allowing Foreign Institutional Investors to invest in Debt funds and rationalising portfolio investors are aimed at increasing it. The other source for meeting the CAD is through external commercial borrowings (ECB). So increase in ECB would be a reality considering the current scenario reduction in FII and FDI.  

                          

                      And the Finance Minister had attempted to create an impression as if he has generously provided each ministry with increased funds though the fact is that the increased allocation is with respect to revised estimates (RE) and not the budget estimate (BE) 2012-13.Never wonder we are able to achieve the 5.3% FD target by having a dent on the planned expenditure for about 20%(about 1 lakh crore rupees) compared to the BE-2012.

                      

                       Reduction in Plan Expenditure is akin to my mom withholding expenditure on my educational and health needs without convincing me to reduce my pocket money or denying me a vacation trip. Planned Expenditure would help in boosting productivity by vesting the citizenry with necessary physical infrastructures like transport, irrigation, communication facilities etc and social infrastructure like health, education etc which are necessary for continued employability. Non-plan expenditure includes the maintenance expenditure like running the administration, subsidy etc.

                   

                     Also to his comfort he had called reference to the RE and BE without consistency. For allocation under Food Subsidy, his increased allocation is with respect to BE but to RE in majority of the cases. So it is all about juggling with the numbers for his convenience. The financial and other administrative ministries apparently are ready to appropriate money through supplementary and additional grants which is evident from the larger gulf between BE and RE and also the actual estimate. BE refers to the estimates of revenue and expenditures as initially planned and presented to the legislature for a financial year whereas RE refers to the revised estimate that is modified BE reflecting the recent realities of the ongoing financial year. Fiscal adeptness entails closeness of the financial estimates with the reality.

                       

                        Sector wise, I would rate the proposed plans for agriculture as the most convincing one as good deed know no periodic restrictions. The allocation for crop diversification in the Green Revolution rich areas which had become ecologically vulnerable with increased land salinity and reduced water table level is a ‘delayed’ welcome step. And ideals of extending green revolution in the Eastern areas should keep in mind the sustainable agriculture practices. Promotion of nutrition rich fortified grains in nutrition deficient areas would have to be carefully persuaded.

                      

                 The above prospective plans in agriculture could well be read as the governmental effort of wide-basing its skewed food grains basket which is in favour of wheat and rice.  It is also a positive step that government has promised to create a fund(5000 Cr INR) for promoting decentralised storage of grains at the panchayat level. While total production of food grains is over record 250 million tonnes for the successive years recently, we have seen increasing cases of malnutrition too in the recent times. This paradox could be sternly dealt with through decentralised construction of storage facilities preventing stress selling by farmers for want of storage options and also is an indirect acknowledgement of the role of Panchayat Raj Institutions.

                               But with every penny allocation opens the window for corruption which when compounded with bureaucratic insensitivity makes the total effort futile. The allocation of agricultural loans reaching landlords with agricultural farm house lands and large farm-hold farmers are manifestations of unclear technical procedures and insensitivity. A PSU bank employee promised to provide me with a jewel loan at 6% if I could submit an agricultural land tax chellan even in someone else’s name. Hence procedural formalities of the ambitious allocation of 20000 cr INR for Rural Infrastructure development and 5000 cr INR for rural housing have to be reflective of the needs and the realities with sensitivity to the needy poor.

                              Efforts have been made to create positive investment climate and to boost manufacturing by reducing or parting off the customs and excise duties in textile and traditional handicrafts industries,aircraft MRO(Maintenance,Repair,Operation) machineries and by providing with 15% investment allowance for investments over 100 cr INR in plant and machinery. Ideals of establishing Semi-conductor wafer fabrication is certainly positive so that indigenisation in defence or electronics actually is indigenous.

                               Also the prospects of 10000+ buses to be purchased for improving urban connectivity would be welcomed by commercial vehicle manufacturers. Here the requirements have to be carefully drafted such that the vehicles are accessible to the differently abled persons and the old aged who together constitute over 25 cr of Indian population and thus the promised universal access is complied with.

                            The allocation of 5000 cr INR to SIDBI to refinance Micro Small and Medium Industries would provide relatively easy credit access to MSMEs which contribute over 40% of Indian exports and employment opportunities. But the demand for relaxation of capital norms that would qualify one as a MSME defined very earlier in the past is not heeded to and warrants a re-look reflecting the inflationary tendencies and the value of plant and machineries.

                       Physical infrastructural announcements like new ports, Industrial corridors would provide impetus to investments and also help in increasing productivity. Road Regulatory Authority(RRA) envisaged to be set up is a reflection of the mis-management of PPP mode of road and highways construction contracts and have to be appropriately empowered to deal with dilatory, low service quality in addition to swiftly granting clearances for such projects. The discretion with which the contractors collect user fee for accessing roads and the lack of accountability and transparency in such contracts are matters of immediate concern to the RRA.

                     Renewable energy enthusiasts are enthused by the declaration of generation based incentive for wind energy but the desperate financial situations of the state run power distribution companies(Tamilnadu Discom has over 50000cr INR loss) responsible for purchase of the grid connected power would make them cynical. It is a well known fact that under-pricing of electric energy in order to woo prospective electorates on the one hand and paying at higher rate for private power generators without invigorating public power generation capacity at the other hand are quintessential mal-administrative reasons for such a whopping loss.   

                           Details of the 1000cr INR Public Sector Women only bank are not out and without personnel sensitivities and procedural simplicities, this proposed institution would become redundant. Also is the of 1000cr INR for women safety and security for which details are un-known. Similarly 1000 cr INR for National Skill Development Corporation aimed at imparting employability skills would be fruitful if realistically drafted, to meet the ambitious 10 crore new jobs in manufacturing sector and to facilitate the transition from agriculture to skilled and semi-skilled jobs smoothly. And there is no doubt about the bourgeois interest in inflation-indexed investment schemes as an alternative for non-productive gold, for which the details are to be announced.

                        In the revenue front, the target of 55000 cr INR through PSU disinvestment and allowance of 50000 cr of tax free infrastructure bonds are too idealistic estimate considering the performance in the recent years. The increase in surcharge for super-rich and the excise increase for certain commodities would mobilise extra 19000 cr INR only and hence the ambitious target of reducing FD within 4.8% of GDP is possible only through repeating this year’s tactics or by strictly following the words of Finance Minister himself that it is up to the individual ministries to deliver outcome through good governance,fiscal prudence,close monitoring and swift implementation. Rationalisation of Centrally Sponsored Schemes that entail redundant personnel structure at the states’ level is a step in this direction.

                                    Also the estimated reduction of subsidy by 25000 cr INR ostensibly would be attempted through reduction in fuel subsidy which certainly impact larger sections of vulnerable people. Duel pricing of diesel and domestic LPGs could well be attempted with safe precautions. And a mere allocation of 10000 cr INR for Food Security which would be a political trump card for UPA government is a clear indication that the promised right would not be vested in the immediate future. In food subsidy bill, a reduction of 5000 cr INR from the RE 2012 is planned which seemed to have been decided without considering the actual realities and with governmental ideal of providing food security.

                  Hence I would consider this budget as an attempt to strengthen the macro-economic indicators however without giving up the political demands for wooing the prospective electorates like farmers, women and youth.