LACK of vision and imagination marks the railway and general budget. Finance Minister Pranab Mukherjee does not know how to tackle the critical price situation that has now started bothering the Prime Minister’s Economic advisory council and put lakhs of people out of job.
Railway Minister Mamata Banerjee has presented a budget that looks too expansionist while the need was to consolidate. She has made proposals to show that she wants to do a lot forgetting the weak health of the railways is not capable of doing it. She has gone beyond her brief.
Railways are not supposed to get into non-core areas of activities like education, health and culture. The Railway Minister Mamata Banerjee alone could say why she has ignored the basic issues of security and safety and improving its economic health. There is no economics in her budget. She has not taken care of brand Indian Railways. No concern has been shown for what the railways world over do – passenger km, freight km and turnover km. Railways have social objectives but it does not mean to take it to unviable, impractical routes of extension – both in terms of adding to new track and introduction of new trains. The railways is doing something which neither it has capacity to do nor has enough rolling stock or manpower. The Bengal janata election express may benefit her but it might severely constrict the railways. She has ignored the basic issue of consolidating the system.
The Railway Minister has saddled the railways with a net loss of over Rs 26,000 crore – Rs 10,000 crore borrowings by Indian Railway Finance Corporation (IRFC) and Rs 16,000 crore budgetary support. Why should railways seek budgetary support? Of course it also exposes the myth the previous Railway minister created about its “efficiency and profitability”.
The Finance Minister also has tried to do too many things and spread the money thinly all over. He should have cut on government expenses. His objective of higher growth and fiscal consolidation is likely to run into severe problems as the budget would prove inflationary and does not address the basic issues of food security, employment and agriculture. It is certain he would have to resort to mid-term corrections but then it might be too late.
It is slightly misleading to tell the people that fiscal deficit- borrowings-at Rs 381408 crore would be 5.5 per cent of GDP against 6.9 per cent, including oil bonds, last year. The Finance Minister does not say that he has taken a higher GDP base to reach his calculation. He has done some jugglery even projecting that figure. His budgetary deficit, minus oil bonds, in 2009-10 at Rs 414041crore (6.7 per cent of GDP) is Rs 1345 crore higher than his budget estimates of Rs 400996 crore which he had pegged at 6.8 per cent of GDP. Even in the new fiscal year his actual deficit would be much higher than the estimates. This means the non-government sector would be constrained on getting credit and may result in further increase in taxes mid-term or next year.
The budget speech mentions the aam admi five times. It has not taken care of providing him jobs. The aam admi is being squeezed on two counts. He is not getting employment opportunities and has to pay almost 20 per cent higher prices for food grains and essential commodities. The budget has not taken care to limit the prices. Indirect tax proposals of Rs 46500 crore would further increase the prices. Even if taxes on petroleum products- 7.5 per cent customs duty and Re 1 excise-are partially withdrawn its cascading effect on prices, including higher expenditure for railways and industry, would not be negated much. The aam admi has to prepare for double digit inflation.
It is also difficult to understand why the burden of international oil prices is thrust on public sector oil companies alone. The private sector oil companies spud oil onshore and offshore in the country and are allowed selling it in the international market. They pocket high profits on the wealth that belongs to the nation. Private companies too have social responsibilities. The government needs to act and direct them to share it with the people of this country. Indigenous production goes to the benefit of some individuals forcing people to pay high prices.
The FM has not been kind to the homeless aam admi. He now would have to pay 10 per cent service tax for purchasing a flat. It means for a house costing Rs 20 lakh, one has to pay an additional Rs 2 lakh. It may stymie development of the sector. He may, however feel happy, his luxuries like mobile phones, watches and microwave ovens would be cheaper.
The road map for creation of jobs either in rural or urban areas is not clear. The National Sample Survey Organisation states that unemployment has risen to 8.28 per cent from 7.31 per cent in 1999-2000 despite addition of 1.5: lakh jobs during last one year. It is evident that benefit of the stated growth is not reaching the urban and rural poor.
Budgetary provisions were aimed at about three crore income-tax payers. The FM has, however, not freed them of TDS liabilities on bank deposits. The relief of Rs 26,000 crore to them should have driven them to spend more. But the higher prices, which are now to affect manufactured goods as well, would prevent them from doing so. It needs to be pondered how the government would achieve the targeted growth of 9 to 11 per cent. In December 2009 growth was 6 per cent. The final figure may be less than that.
It was expected that the budget would initiate measures to strengthen the public distribution system, as was advised by a key advisor to the government, economist Arjun Sengupta, and focus on agriculture. The public investment in agriculture in real terms has witnessed steady decline from the Sixth Plan to the Tenth Plan. Growth in GDP in agriculture and allied sectors has come down from 4.7 per cent in 2007-08 to a mere 1.6 per cent in 2008-09. The sector accounted for 18.9 per cent in terms of GDP in 2004-05. Now it has come down to 15.7 per cent. Still it provides employment to 52 per cent people.
Crop production is estimated to fall short of target of by 26 million tonnes and if kharif crops made it up then shortfall at a total production of around 215 million tonnes would be almost 18 million tonnes short of the production in 2008-09.
Lower crop production-rice, wheat, coarse cereals, pulses, oilseeds, sugarcane and commercial crops like jute, cottons-also means resulting in lower employment-job losses -in the rural areas. The allocation of Rs 400 crore to six states for a “green revolution” is too small amount to usher in any change. The Mahatma Gandhi Rural Employment Guarantee Act (MREGA), which has got only Rs 1000 crore more allocation from Rs 39000 crore last year, for covering higher number of people, cannot mitigate the problem of the rural workers. How would the FM achieve his growth target ignoring 52 per cent of the population employed with agriculture and almost 62 per cent depended on it?
Growth is fueled by power generation. It remains deficient. A mere 3454 MW capacity was added against Eleventh Plan target of 78,700 MW. The government has granted a token of Rs 5130 crore to the sector, hardly enough to add about 1000 MW. Despite knowing that power sector is the highest coal consumer, taxes on coal has been increased. It is bound to increase electricity tariff and make manufactured products expensive. His proposal for a Coal Regulatory Authority is indicative of opening up this sector to foreign players, which might further raise coal prices.
Overall the budgetary proposals are likely to cause more problems for all sectors, including railways and the industry, and the projected growth may be more on paper. The Finance Minister should have limited his focus to agriculture and power and not spread out his small kitty for political rhetoric in this difficult situation.
(The writer is senior political and economic journalist and ex Sr Editor of The Financial Express. He can be contacted at [email protected].)