Above all, do no harm

Above all, do no harm

Lord Meghnad Desai, formerly at the helm of the famous London School of Economics, (LSE), hoped, in morning discussions, that the Finance Minister wouldn't rock the boat, saying : "Above all, do no harm".

Amongst the procession of the high and mighty from politics and commerce, the eminence grises, economic journalists, trade-body and stock market representatives etc. that followed with their comments, no one ventured to express high expectations.

And they were not disappointed. As it turned out, despite the deluge of relatively modest numbers and allocations to a large number of headings, one of the most pedestrian budgets in recent years followed.

It didn't do the kind of harm that Mr. Pranab Mukherjee's budget did, with his retrospective tax ideas, intended taxation of mergers and acquisitions of foreign companies with operations in India and going after those who appeared to be deliberately using loop holes to avoid tax, including foreign companies operating in India.

It tried instead to assume a posture of being pro-poor, pro- women and pro- infrastructure for the poor; but the credibility of the UPA Government's ability to deliver is so low, that no one was the least bit impressed.  But no doubt, the UPA will take the provisions of the budget out to the hustings to try and scare up votes in its favour when the time comes.

This must be the intent, particularly in the year or so left to go before general elections. But one can’t be blamed for being puzzled by the lack of passion.

However, this budget, is unlikely to please any of the target constituents. It is inadequate in every respect and cannot satisfy either in terms of allocations made, or in being administratively likely to provide very much in the short time left.

Mr. Chidambaram manfully kicked the ball on General Tax Avoidance  down the road to 2016. In fact, most of the intentions expressed in Mr. Pranab Mukherjee's 8^th and final budget as Finance Minister have been reversed by Mr. Chidambaram in his own 8^th budget presentation.

This bears the shadow seal of the prime minister who allegedly didn't think much of retrograde moves that drove away foreign investors at a time when growth itself was faltering.

We have had a slowing economy for some time now, and relatively gloomy forward projections, because even a 6% GDP growth level is insufficient to take care of the country's burgeoning needs. Particularly its welfare programmes, which  continue unabated. The overall expenditure though, already at a high Rs. 16.75 trillion, was hiked by a further 16% in the budget to suit.

There was nary a murmur of downsizing the Government, or tightening its belt. Instead a number of indirect taxes were imposed on the middle class to finance, or in fact, partially finance, the growth in expenditure. This back-door taxation was akin to the freight- rate hike and hike in reservation fees announced in the railway budget.

And these did not spare such everyday middle class items such as set-top boxes, cellphones, eating out at restaurants and flats being purchased which were larger than 2,000 sq.ft.. Neither did it spare the SUVs of the aspirational.

But there was no attempt at widening the tax base. For symbolic effect, because it is unlikely to yield much from the 42,800 people with declared taxable incomes of over Rs. 1crore, out of more than 1.3 billion people- there is a 10% IT surcharge on them, and a bump- up of corporate taxes as well.

The bulk of the thrust was on indirect taxes that the middle-class, some 350 million people, cannot escape.

The Finance Minister of Dream Budget fame in 1997 with his espousal of the Laffer Curve to bring in more willing tax payers was present today; but only in so far as he didn’t venture into death duties and a more onerous wealth tax.

All in all, this timid budget will not win the forthcoming assembly and general elections for the UPA. Neither will it annoy the intelligentsia or business particularly, because it lacks sharp edges. The stock market will continue to languish unenthused and the FIIs will wait and watch.

And none of the big ticket issues, such as inflation, growth, or revival of business, industry, infrastructure, the great common weal for that matter, will be touched by this budget. FDI will wait till after 2014.

This budget has been labelled “prudent” by many, mopping their brows in relief that it hasn’t set out to do serious damage. But it makes one wonder what the Government is most afraid of. Could it be change, let alone transformation?

(766 words)

February 28^th, 2013

Gautam Mukherjee