A roundtable discussion on Budget 2011 was held recently at the CPPR office. It was attended by members of Paripaakam, a senior citizens group in Kochi, and other guests. The speakers at the event included Aneish Rajan IRS, Professor K C Abraham, Civitas Research Associate Sampath Simon and CPPR Chairman D Dhanuraj. Research Assistant Lakshmi Ravindranath opened the discussion with an introduction on the budget process in India.

A budget is defined as a legal document that is passed by the legislature and approved by the chief executive or the President. The central elements of a budget are the revenue and the expense. The objective of a budget is for the optimal allocation of scarce resources taking larger social objectives into consideration. The Constitution of India does not define the term Budget. Article 112 says that the President shall in respect of every financial year; lay before both the Houses of Parliament, a statement of the estimated receipts and expenditure of the Government for that year, known as the ‘Annual Financial Statement’. The financial year for the Union and the State Governments in India is from April to March. The Union Budget is presented on the last working day of February by the Finance Minister of India. The Budget is currently presented through 14 documents some mandated by Constitution, while the rest are mere explanatory documents.

“The Indian budget making process and presentation is undergoing a transformation,” said D Dhanuraj. While 20 years ago, people hurried to buy household goods – from a tape to a television set – before the budget, today everyone is eagerly awaiting the budget announcement. Yet, the budget preparation and announcement is still in a transition phase. People may have to wait for a few more years to expect the complete revamp of this exercise, he said.

The only silver line is the announcement of ‘direct cash transfer’ schemes that indicate the vision of the Government and the policy that they will purse in the coming years. “Quite contrary to expectations, Budget 2011 did not state anything regarding the removal of state barriers for the transport and trade of agriculture products. With food inflation going through the roof, the Budget was an ideal opportunity to remove these barriers so that there would be only a single market,” Dhanuraj stated, adding that there are many loose statements in the budget. For example, allotment of Rs 300 crore for 60,000 pulse villages, Rs 400 crore for rice-based cropping systems. These numbers are very small, especially with the pilferage and leakage in the system. Involving retailers to maximise the efficiency of the food chain is another missing statement in the budget. Overall, there has not been any concrete statement from the part of the finance minister to arrest food inflation.

Sampath Simon explained the impact of the budget on the business sector. The year 2010-2011 should be analysed in the backdrop of a global economic meltdown and a fragile recovery. India also faced a major drought. Like all other economies around the world, India also announced a huge stimulus package in order to support and sustain the economy and the FM has indeed done a fine balancing act with the budget this time by not rolling back the stimulus measures, but also effectively trying to combat inflation, which is hovering at disturbing levels.

According to Simon, the hallmark of the budget was the fact that the government announced its plan to go back on the paths of fiscal consolidation and has also laid out a time-bound plan of action. Second, the government’s market borrowing figures are significantly lower than market expectations. This has a direct bearing on reducing the Current Account Deficit and also ensures enough availability of credit for the private sector. The Finance Minister has instilled confidence in the private sector to carry on with their ambitious plans by promising a conducive atmosphere for businesses to flourish. Third, by including more services under the ‘Taxable Services’ list, the Finance Minister has signalled to the rest of the world that the Indian economy has matured.