EDITORIAL

NCMP rhetoric, neo-liberal path

THE second (and the first full-year) Budget of the United Progressive Alliance government is not substantially different from its first. Long on rhetoric and somewhat short on allocations, the Budget continues what we had characterised in these columns last year as `a balancing act'. This time, though, with a slew of neo-liberal measures announced and acted upon in the weeks preceding the Budget, the Finance Minister could make greater concessions to the demands of the National Common Minimum Programme agenda in respect of allocations to agriculture, rural development and the social sectors. But these remain largely as concessions. The underlying thrust of the Budget is still one that is informed by neo-liberal policy.

During its tenure in office, the UPA government has pushed ahead relentlessly with those parts of its NCMP which are consistent with a neo-liberal policy framework while being far slower to deliver on its promises to the aam aadmi, whom it famously and successfully counterposed to the National Democratic Alliance's ill-fated and insensitive `Shining India' slogan. Thus, it has been divesting equity in profit-making public sector undertakings, hiking foreign direct investment caps in telecom, civil aviation and banking, reneging on the promise to review the Electricity Act 2003 in consultation with the State governments, and making daily concessions to foreign financial investment. At the same time, it has diluted its commitment to guaranteeing employment considerably and has been rather half-hearted in taking action on CMP commitments in the areas of agriculture, rural development and social sector.

Budget 2005-06 does provide substantial and welcome increases in allocations to education and health as well as rural development Thus, the Central Plan outlay on agriculture and rural development has been increased by 47 per cent over the original budget provision in 2004-05 and that on social services by 49 per cent. In comparison with the revised estimates for 2004-05, these increases are smaller but still substantial at 28 per cent and 35 per cent respectively. The Budget provides significant increases in allocations for such anti-poverty and social sector programmes as the Antyodaya Anna Yojana , the Integrated Child Development Scheme, the noon meal scheme and the Sarva Shiksha Abhiyan. It provides for an allocation of Rs.11,000 crores on the National Food-For-Work Programme as against Rs.4,020 crores in 2004-05. But it must be remembered that all these increases are from a relatively small base and provide far from universal coverage in relation to the population whose needs these programmes seek to address.

The overall central plan outlay is slated to increase from Rs.1,63,720 crores in 2004-05 (Budget Estimates) to Rs.2,11,253 crores in 2005-06. It is important to note, however, that these are outlays and the budgetary support to the Central Plan outlay is only of the order of 52 per cent, the rest being expected to be mobilised through internal and extra-budgetary resources. In 2004-05, actual Plan expenditures fell short of Budget Estimates by Rs.8,203 crores, with Plan capital expenditure falling short by Rs.6,033 crores.

Turning to the receipts side, there has been a shortfall of Rs.11,000 crores in gross in tax revenue during 2004-05 in relation to Budget Estimates, of which the shortfall in corporate income tax amounts to Rs.5,436 crores. This has to be seen against the Finance Minister's statement last year that he expected to mobilise sizeable `undisputed tax arrears'. This experience, as also those of many earlier years, suggests that his expectations of tax revenue realisation for 2005-06 are also overly optimistic. With respect to the new tax proposals in the Budget, they are strongly neo-liberal in character. The reduction in the corporate tax rate is entirely unwarranted, and the logic underlying the argument that corporate tax rates must be aligned with personal income tax rates completely specious. There is also a case for a higher rate of marginal taxation than the present 30 per cent on very high personal incomes, exceeding, say, Rs.20 lakhs per annum. The continued reduction in customs duties, especially on capital goods, is bound to pose serious problems for sections of domestic industry, and hurt employment. With the orchestrated outcry in the financial and other media against the tax on fringe benefits, we are likely to see a significant rollback or at the very minimum, considerable dilution of the proposed measure, as happened last year with the stock market transactions tax. The tax on cash withdrawals in excess of Rs.10,000 a day does not seem to be the most appropriate or effective way to tackle the problem of black money. It is, in fact, worth pondering why punitive measures against tax evasion are not considered; nor is a serious effort made to recover the large dues that the very rich owe to the banking system and the outstanding arrears of taxes.

Revenue and expenditure proposals apart, the Budget's neo-liberal orientation comes through sharply in the proposals pertaining to the financial sector and to foreign investment. The thrust on the `autonomy' of the banking system, including its regulator, the Reserve Bank of India, is not only unwarranted insofar as it may make these institutions unaccountable to Parliament, but also illusory in a world of free capital mobility across national borders. The wooing of foreign institutional investment has no unambiguous economic rationale. Even foreign direct investment, which would be welcome insofar as it augments productive capacity and technological capability in sectors where the indigenous option is unavailable, is not to be uncritically wooed. The proposals to allow foreign financial entities in pension funds management and FDI in mining and retail trade need serious reconsideration. The neo-liberal thrust implicit in the advocacy of crop diversification without ensuring food security is also a matter of concern. As against this eagerness to push the market to the forefront in agriculture, there seems to be considerable reluctance to step up investment in agriculture significantly.

The thrust on infrastructure in the Budget is welcome, but it will remain rhetorical unless greater public investment is undertaken, and the seductive appeal of `public-private partnership' is critically examined.

Overall, the balancing act continues, with the odds still heavily in favour of neo-liberal reforms. This is surely not consistent with respect for the people's verdict of 2004.

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