Its sad that one of the most pragmatic national budgets in recent times has been branded as populist by the media. Really, there is nothing wrong in being populist. The problem starts only when populism belies wisdom or medium term good. And there was little in the budget speech that was bordering on either.
Consider the stage on which Mr P Chidambaram had to deliver. With the US economy on the verge of correction and the EU and Japan failing to deliver the impetus, the world is looking at China and India to drive the immediate future. Any move by the Finance Minister to undermine the growth trajectory or domestic demand would have had a ripple effect on the world economy. And we are not even talking about the political pressure.
When in doubt, go back to the basics. Thats what the Harvard MBA did. Health, education and social security - you can do little wrong by increasing the outlay on these. Add to that the focus on developing skills that new-age India needs and you have the perfect recipe for sustained and inclusive growth. But wait theres more!
Taxation is always a tricky matter. You could either reduce the tax exemption limit, thereby increase the tax base and reduce the tax rates or you could heighten the tax exemption limit, thereby reduce the tax base and increase tax rates. But the lawyer chose to do even better. PC decided to reward the tax payers for the 15% excess over estimated tax collections and almost double growth in the last 3 years. He increased the tax exemption limit and kept the same tax rates. He hopes that the chain effect of bolstering the purchasing power of the masses will help corporates increase margins and hence saw no need to cut corporate tax.
But what about the farmers who are bleeding under the pressure of accumulated losses and loans and compelling one farmer to commit suicide every 8 hours? To them Mr P Chidambaram offered a loan waiver costing Rs 60000 crores. Now thats a huge amount. Thats over half the defence budget and almost 5 paisa of every rupee the government plans to spend this year. Moreover, this is completely unaccounted for in the budget. Fiscal imprudence? Probably. Short term relief measure? Yes. Populist benevolence? Certainly. Unnecessary? Certainly not. Lets agree, this was a crisis situation. Repeated crop failures and inability to meet the rising cost of cultivation has affected over 4 crore farmers. Thats almost 4% of the population. Desperate times need desperate measures and this was one of them.
Then there were corrections to past anomalies. Like the double taxation caused by the dividend distribution tax laws and the restrictive cash withdrawal tax. Both have been done away with.
The days of big-bang, dream and reformist budgets is gone. Having unleashed the third stage of economic reforms, all India needs are correcting kid gloves to ensure direction. And i guess, the most influential - if not powerful - economist in the world has done his job well.
Labels: 60000, Budget 2008, farmers suicides, loan waiver, P Chidambaram
