COMMENTARY

Budget 2010:
Big Bounties for the Corporate Biggies,
Empty Rhetoric and Soaring Prices for the Aam Aadmi
Sukanta Mondal

[“This budget belongs to the aam aadmi,” said Finance Minister Pranab Mukherjee in his budget speech. But what really is the UPA’s yardstick for the aam aadmi? Pranab Mukherjee has defined the aam aadmi for our benefit. The aam aadmi is not one of those 80 crore Indians living on a daily budget of less than Rs. 20, he is one with an annual taxable income of Rs. 400,000 or more. The 60% tax-payers who were handed out tax benefits in this year’s budget all belong to this bracket. In fact, the ones to get an annual tax reduction of more than Rs. 50,000 belong to the Rs. 800,000-plus club. While direct taxes fell by Rs. 26,000 crore, indirect taxes which do not distinguish between the rich and the poor, rose by Rs. 45,000 crore. 
While the budget has done nothing to check soaring prices, it has done everything to add fuel to the inflationary fire. The hike in petrol and diesel prices coupled with the pre-budget 10% hike in urea prices is sure to trigger a widespread upward push in prices affecting common consumers and small agricultural producers alike. The government has also announced the policy of decontrolling fertilizer prices leaving big fertilizer companies free to fix prices, while the Kirit Parekh panel report on deregulation of fuel prices is very much under consideration. With fertilizer and fuel prices continuing to be pushed upward, food prices too can only go up.
Any serious attempt to tackle the growing problem of food insecurity and food inflation should involve a two-pronged approach – expanding and improving the public distribution system to provide immediate relief to the needy and addressing the structural roots of persistent agrarian crisis. The budget does neither. While agriculture and peasants continue to get a raw deal, agribusiness and food processing industry have plenty to celebrate.
As usual, the corporate biggies are the biggest beneficiaries of the Finance Minister’s generosity. The amount of revenues foregone – and much of it translate directly into corporate gain – has reached a phenomenal Rs. 500,000 crore. This means a whopping Rs. 57 crore every hour or nearly 1 crore a minute (P Sainath in The Hindu, March 2, 2010)! There is of course much more for the corporate sector in this year’s budgets than these concessions and sops – a clear push towards faster and wider privatization. Public-private Partnership is the keyword in the railway budget and the railway’s “Vision 2020” and the General Budget too has opened major new avenues for the private sector. Disinvestment sale target has been raised to Rs. 40,000 crore, coal sector has been further opened up and most crucially, the RBI has been directed to hand out banking licenses to private players including NBFCs.
The budget makes noisy claims about rural employment, rural reconstruction and social security, but once again the claims find no reflection in allocations. A Social Sector Security Fund has been launched with an outlay of only a paltry Rs. 1,000 crore. The NREGS, now peddled in the name of Mahatma Gandhi, has a modest allocation of only Rs. 40,000 crore, and if the poor are lucky enough to get an Indira Awas sanctioned, the allocation is only Rs. 45,000 in plain areas and Rs. 48,000 in hilly areas (and this includes the mandatory commission deducted by the nexus of panchayat representatives, block officials and sundry middlemen). Contrast this to the relentlessly rising defence outlay which now stands at Rs 147,000 crore and the mother of all allocations – tax exemptions and revenues foregone that add up to Rs. 500,000 crore, and you know how serious the government is about its new-found catchphrases of employment guarantee and social security! Sukanta Mondal takes a close look at the UPA's 'Aam Aadmi' Budget. – Ed/- ]

The General Budget this year has been presented at a time when, despite tall claims of satisfactory growth, the external sector remains as sluggish as in the past two years due to a sharp drop in demand in the international market, even as domestic demands are sustained on a very narrow base of rich and well-to-do consumers flourishing on liberal credit. While putting up a brave front against the lingering effects of the global economic crisis, the FM did not show any serious interest in rolling back the stimulus packages earlier doled out to the corporate sector to tide over the crisis. With the Left decimated in the parliament and the squabble-ridden BJP yet to recover from its low-confidence syndrome, he took the opportunity to rush full steam ahead to carry forward the anti-people reforms agenda.
The Budget does nothing to tackle the pressing issue of food inflation either by way of strengthening and expanding the public distribution system or by addressing the structural roots of the persistent and deep agrarian crisis which lies at the heart of food insecurity and food inflation. It makes no move to hike public investment in agriculture or irrigation, or to increase the inflow of rural credit. Apart from some token announcements – such as Rs. 400 crore for ‘green revolution’ in some Eastern Indian states, and some talk of developing ‘climate resilient agriculture’ and developing ‘pulse and oilseed villages,’ or extending the deadline for farm loan repayment by another 6 months, the budget has no initiative on the agrarian front. In contrast to the inadequate and token allocations for agricultural investment, rural development and social security, the defence allocation has again been raised by 8.13% to Rs.1,47,344 crore, of which Rs.60,000 crore would be spent on purchase of arms alone.
Here are some other ominous features of the budget which are likely to have far reaching adverse effects on the working people of our country.

Fuelling inflation

UPA-II’s Union Budget 2010 does nothing to rein in runaway inflation – rather, it proposes to promote inflation and make sure that the lion’s share of the burden of inflation is disproportionately borne by the poor and working people.
The most disquieting decision is to raise customs duty on petrol and diesel from 2.5% to 7.5% and to reintroduce the 5% customs duty on crude oil, which was withdrawn last year in the face of global meltdown. These apart, excise duty on petrol and diesel has also been raised by Re1 per litre. All this will definitely have a cascading effect on the prices of other commodities. The FM also indicated that proposals for steep rise in fuel prices in the Kirit Parekh report will be taken up by Petroleum Minister Murli Deora in due course. It may be noted that the panel headed by economist Kirit Parikh in its report had advocated total decontrol of oil prices, while recommending an immediate increase in prices of kerosene by Rs 6 per litre and LPG rates by Rs 100 a cylinder. The committee also pegged the losses of state-run oil marketing companies at Rs 40,000 crore on account of having to sell transport fuels at below cost. Price of petrol may go up by Rs 4.70 a litre and diesel by Rs 2.30 a litre if the government gives the pricing freedom to oil marketing companies. The Damocles sword of even sharper rise in prices thus continues to hang over the people.

Another inflationary measure proposed in this year’s budget is to raise the floor rate of Excise Duty from 8.24% to 10.3% across the board. This will trigger 2.5% to 3% hike in the prices of all essential commodities. Besides, Service Tax has also been hiked by another Rs.3,000 crore, which will have its own effect on the already aggravating inflationary situation. On the whole, direct tax yield is set to decline by Rs. 26,000 crore while indirect tax revenue is estimated to increase by Rs. 45,000 crore. This makes the tax system in India further regressive because the brunt of indirect taxes is always borne disproportionately by the poor and low-income consumers who constitute the overwhelming majority of buyers in Indian markets.
The third major contributory factor to the inflationary situation will be the huge fiscal deficit the Budget has projected. The projected deficit is Rs.3,81,408 crore, which is 5.5% of GDP. The FM has proposed to resort to market borrowing to the extent of Rs.3,45,010 crore to bridge the fiscal gap. But the deficit will surely go up, as it has always done in the past. For example, last year’s projection was for Rs.4,00,996 crore, which ultimately ended up at Rs.4,14,041 crore – a neat Rs.13,045 crore higher. One of the major reasons behind this was fall in actual tax receipts by Rs.37,203 crore due to recessionary effects. The global meltdown and the consequential stimulus packages granted to the big corporate sector have thrown the fiscal situation out of gear. The FRBM Act-dictated target for fiscal deficit for the last year was 3% of GDP, but the actual was 6.7% – more than double the desired limit. Too much of liquidity will push up inflation, which can hardly be tackled by tinkering with monetary policies like increasing the bank rates to control flow of credit liquidity into the market.
The country is already passing through a nagging phase of inflation contributed mainly by rise in prices of food articles. According to the “Macro-economic Framework Statement” submitted with the Budget, “nearly 67 per cent of the overall WPI inflation could be attributed to food items (primary and manufactured), followed by 12 per cent in the fuel and power commodity group, the remaining 21 per cent being explained by manufactured non-food and primary non-food articles. Among food items the major contributors to inflation are milk (20 per cent), eggs, meat and fish (over 20 per cent), rice (about 10 per cent), wheat (6 per cent), pulses (about 9 per cent), potatoes (9 per cent) and tomatoes (6 per cent).” The rate of increase in WPI of all commodities in 2009-10 is 7.3%, WPI for food articles is 17.6%, Food Index is 21.9%, CLI for Industrial Workers is 15.0%, CLI for Urban Non-manual Employees is 13.9% and CLI for Agricultural Labourers is 17.2%.
The escalating food inflation is bound to be aggravated due to reductions in subsidies on petrol, fertilizer and food in this year’s budget proposals. Apparently the subsidy bill is to be trimmed from Rs.1,23,936 crore in the RE to Rs.1,08,667 crore in the Budget Estimate (BE) for 2010-11. But in actual practice, the reduction is much bigger. The actual subsidy on these commodities last year works out to Rs.2,19,148 crore, if we include the Rs.95,942 crore worth of Special Securities, issued to the oil and fertilizer companies in lieu of cash subsidy, into the subsidy basket. In simple terms, food subsidy for the poor would be reduced by Rs.424 crore and the fertilizer subsidy for low income farmers would be pared by Rs.3,000 crore.
To make matters worse, the government has decided to introduce a ‘Nutrient Based Fertilizer Subsidy (NBS)’ Policy approved by the Cabinet Committee on Economic Affairs (CCEA) in July, 2009. According to the Budget, this policy will come into effect from 1st April, 2011. Under the new NBS regime, the retail prices of fertilizers will be market-determined but the subsidy per nutrient content would be determined in advance at the beginning of the financial year. A key change is that NBS would be routed through 4.20 lakh retailers using unique ID cards instead of through fertilizer companies as is done currently.
 
Exclusive tax concessions to the rich
 
As an activist cynically but correctly commented, “The aam admi, according to this budget, is now a taxpayer, addicted to the corporate English language news programming on television.” Thus direct tax concessions flow only to the individual taxpayers whose annual income is above Rs.3 lakh. The basic exemption limit for individual income tax has been kept at the old level of Rs.1,60,000, whereas the limit for 10% bracket of taxation has been raised from Rs.3 lakh to Rs.5 lakh. Similarly, the range for 20% taxation has been raised from the present Rs.3-5 lakh to Rs.5-8 lakh and the limit for the highest 30% bracket has been raised from Rs.5 lakh to Rs.8 Lakh. So the benefit to the individual taxpayers having income in the higher brackets will range from Rs.20,600 to Rs.51,500, whereas the people at the lower brackets will not get any relief at all. This proposal, in itself, exposes the palpable pro-rich bias of the budget.
The rate of surcharge on corporate taxes have been slashed from 10% to 7.5% and the new Direct Taxes Code to be effective from next year proposes to reduce the rate of corporate tax from the present level of 30% to 25%. The ‘Tax Foregone Statement’ mandated by the FRBM Act, which was furnished along with the Budget Statements, revealed that, although the maximum tax rate applicable for the corporate sector was 35%, the effective tax rate after providing for the exemptions and concessions worked out to only 22.77%. According to the said statement, the total amount of tax foregone on account of various concessions granted to the corporate sector is projected at Rs.79,554 crore and that to the rich individual taxpayers is Rs.36,186 crore. The cumulative tax foregone by way of exemption, rebate, deduction, relief etc. to the taxpayers is a whopping Rs.5,02,299 crore, which is about 86% of the Tax receipts. If we add Rs.37,970 crore worth of subsidy and concessions to the export sector, the figure would escalate to Rs.5,40,269 crore. Similar figures for the last 4 years, i.e. from 2005-06 to 2008-09 were Rs.2.45, 2.89, 3.41 and 4.59  lakh crore respectively, showing a sharp upward turn from year to year.

Meagre social sector spending

Apparently, there is a 37% allocation of the plan budget for social services, including education, employment, social security, water and sanitation etc. But a deeper probe will reveal that there is, in fact, a nearly 13% drop in allocation for social security and welfare. Again there is just 6% rise in allocation for meeting nutrition needs at a time when India ranks 97th among 119 nations in the Hunger Index and has one of the worst nutritional levels in the world. Worse even, there is a drop in food subsidy by about Rs.424 crore this year and no serious effort is visible to pass the Right to Food Bill.

The most touted flagship social security programme NREGS has seen a meager Rs.1,000 crore increase this year despite the fact that nowhere near the guaranteed 100 days’ work is being provided in any part of the country. A ‘Social Sector Security Fund’ has been announced. But this is backed by a meager allocation of just Rs 1000 crore for a country having more than 40 crore of unorganized labourers. The allocation for social services in the total expenditure in the Union Budget was stepped up from 8.9% in 2007-08 to 10.4% in 2008-09. However, it was reduced to 10.1% in 2009-10 and remains stationed at 10.4% in the BE for 2010-11. As a proportion of GDP, the government’s total expenditure on social services showed a somewhat noticeable increase from 1.3% in 2007-08 to 1.6% in 2008-09; but it has remained stagnant in the last two Budgets.
The Union government’s total allocation for education in 2010-11 (BE) stands at 0.71 per cent of GDP, which is slightly better than the 0.64 per cent recorded for 2009-10 (Revised Estimate). However, such gradual and small increases in the Budget outlays for education cannot result in any effectual increase in overall public spending on education in the country. The Kothari Commission had recommended that the total public spending on education should be raised to the level of 6 per cent of GNP by 1986. Subsequently, many political parties reiterated this as a commitment in their election manifestos. The UPA, too, promised it in the National Common Minimum Programme (NCMP) in 2004. However, the overall public spending on education continues to be way below 6 per cent of GDP. What is most disconcerting about Budget 2010-11 is its complete silence on the financing of the Right to Education Act, which the Union government is reportedly planning to notify from April 1 this year.
The Union government’s allocation for health shows a negligible increase from 0.35% of GDP in 2009-10 (RE) to 0.36% of GDP in 2010-11 (BE). Thus, even after Budget 2010-11, the government is far short of the NCMP target of raising the total public spending on health to 2 to 3 per cent of GDP. Particularly disappointing is the lack of focus on children, who constitute 47% of India’s population.
Similarly, the unit cost of houses to be constructed under the Indira Awas Yojana (IAS) has been marginally raised to Rs.45,000 in the plain areas and to Rs.48,500 in hilly areas, as against the entirely justified demand of raising it to at least Rs.1 lakh.

More privatization of banking businesses

The FM has moved a step forward in the direction of large scale privatization of the banking sector by announcing that RBI is considering giving some additional banking licenses to the private sector players. Non Banking Financial Companies (NBFCs) could also be considered, if they fulfill RBI’s guidelines.
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by the Government or local authorities or other securities of marketable nature, leasing, hire-purchase, insurance business, chit business. A non-banking institution which is a company and which has as its principal business receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary Non Banking Company -- RNBC).
NBFCs discharge functions akin to those of banks; however there are a few differences. For instance, an NBFC cannot accept demand deposits and deposit insurance facility offered by the Deposit Insurance and Credit Guarantee Corporation is not available to NBFC depositors unlike in the case of banks. The reputation of the NBFCs/RNBCs in our country is not good at all. A number of such companies have time and again been pulled up for violating the RBI guidelines and misappropriating the common man’s, particularly the illiterate rural poor’s, hard -earned savings. In such a backdrop, giving banking license to the NBFCs/RNBCs would be to expose the security of the poor man’s savings to great risks. This will definitely open up floodgates of plundering the financial sector by unscrupulous private players.

Disinvestment of profitable PSUs

After a lull of several years, the government mopped up Rs.25,958 crore by way of disinvestment in FY 2009-10. Encouraged by the response last year, the FM has proposed to raise Rs.40,000 crore during the current year from disinvestment. Needles to say, such a huge sum can be mobilized only by selling the shares of Navaratna companies. This is tantamount to selling precious public wealth to the private owners and chances are that big private groups would corner big chunks of such shares to acquire big stakes in these companies and eventually, take over their effective control. The workers of the PSUs have been fighting against this policy since the time the neo-liberal reforms agenda was taken up by the government and this decision is bound to evoke strong resistance from them once again.
Though all the oil sector companies, except Reliance Industries Limited (RIL), are at present in the Public Sector, a strong move is already afoot to disinvest bulk of their shares in the near future. As if this was not enough, “a firm view on opening up of the retail sector” has been recommended; and gradual coal sector privatisation is also clearly on the agenda what with the setting up of the Coal Development Regulatory Authority.

The class bias of Budget 2010 being so very prominent, it has evoked responses along predictable lines. Even as the ‘Sensex salute’ came as a testimonial tribute to the policy of promoting privatisation and continuing with generous tax sops to the corporate sector, toiling people all over the country have come forward with powerful protests against the fresh onslaughts on their livelihood. In the days and months to come, the popular resistance will only intensify.