Centre for Comparative Studies
The Mysterious Indian Higher Education System
July 18, 2014
Critical understanding of the Indian budget 2014-15: The Case of Excise on Cigarettes
July 21, 2014A Note on the Budget Discussion Organized by Centre for Public Policy Research (CPPR) in association with Federation of Indian Chamber of Commerce and Industry (FICCI) on 14-07-2014 in Kochi
CPPR in association with FICCI organized a discussion on the Union Budget 2014-15 titled “Union Budget 2014-15, Critical Analysis and Way Ahead for the Indian Economy” on 14th July 2014 in Kochi. Two eminent speakers, Dr. Charan Singh (IIM-Bangalore) and Mr. Madan Sabnavis (Chief Economist, CARE Ratings), shared their thoughts on the budget. The session was enlightening because of two specific factors that the speakers highlighted with clarity. The first is that it placed the budget in‘perspective’; andthe second is that an ‘objective’ analysis was made on the macroeconomic implications of the budget. For the participants these factors combined were a novelty compared to the often clichéd political argumentations surrounding annual budgets.
The Budget in Brief: Some Highlights
Federal budget of the India 2014-15, provided mixed responses from different quarters of the Indian polity and economy.For the pro-market advisories, the budget fell short of what was expected from the BJP led NDA government, given the hype surrounding their election agenda. For the laymen, the budget needed unravelling its baggage to understand specific impacts. Measure to tame inflation in general and food prices in specific were arguably missing. For the federal states, some felt excluded, while the north-eastern states found a lot of space in the budgeted expenditure. Twenty industrial clusters, hardware manufacturing corridors in Andhra, Chennai and Karnataka, six textile clusters, redefining Medium and Small Scale Manufacturing Enterprises (MSMEs) for higher capital requirements, encouraging more risk capital for start-up companies were highlights for the industrial sector. But the general resentment on this front was that much had to be achieved in terms of infrastructure before venturing on industries. Agriculture was offered more subsidies as against the notion of a reform oriented budget outlay. Schemes for assured irrigation and new agricultural and horticultural universities were announced. Sixteen port projects, new airports and approximately 38,000 crore Rupees for highway development added to the infrastructural outlay. Infrastructure also found sufficient mention with urban renewal missions, low cost housing for urban poor, smart cities and new metro projects. Citizens were provided with some concessions on personal income tax as well as an increased investment limits for saving scheme under the public provident fund. Tax rates were retained at pre-budget levels. On the non-tax revenue side the budget proposed disinvestment to the tune of approximately Rs 60,000 crore. In addition there were indications that a lot of schemes under the earlier United Progressive Alliance (UPA) government would now be revised or at least renamed; and that includes modifying the functioning of the erstwhile Mahatma Gandhi National Rural Employment Scheme(MGNREGS) to redirect its focus towards productive activities in agriculture. Measures which became sited much in the media included the announcement of a Kisan Television, currency notes which would use braille, excise increase on cigarettes, sports universities and encouraging sports in Himalayan region and so on. Trade was also sufficiently motivated through standardising or reducing earlier customs duties on specific products and by announcing clearance facilities for traders, 24×7 customs facilities at 13 airports for exports. For a total outlay of approximately Rupees 18,000 Crore, the estimated fiscal deficit was 4.5 and the revenue deficit was 2.5 percent of the Gross Domestic Product (GDP).
Observation of the Discussants
Dr. Charan Singh: The keynoteaddress by Dr. Charan Singh valued the budget by providing a backdrop to it based on the current situation of the economy. Dr. Singh lauded the rail-budget for its innovative schemes including the proposed bullet train and its guarantee to provide security and facilities to the female travellers. However, he noted that the context in which the budget was presented was an Indian economy which had slowed down, where exchange rates were poor and where food inflation was a looming concern. Subsidies, expenditure on defence and interest rates were eating the revenue from the budget. Dr. Singh observes that given these conditions the proposed budget, although lacking overall focus, is laudable for being growth and employment generating. A 7-8 percent growth was prudent given that the objectives including smart cities, investments in agriculture and so on were growth generating. He thought that the implementation of the Goods and Services Tax (GST) during this governments tenure, as well as developing knowledge institutions were possible measures that could be expedited . Empowering local bodies as well as the memorials and statue of unity were considered as important steps in ‘triggering young minds’. However, Dr. Singh notes that the budget had certain missing features. According to him these include a loose focus on industry, inadequate measures for a social security strategy, neglect of age related issues, lack of mention of gold and absence of any proposals for think-tanks in India. On the macroeconomic front his expectations were that total investments and savings would not rise much and real GDP would also likely exhibit a slow growth. He envisions the need for an overall consensus for fiscal reforms in India.
Mr. Madan Sabnavis: Madan gave a perspective from which we could view and understand the budget. The annual budget could be seen as a policy document, a political statement or a pure statement of account. Since all or most reforms go through the parliament, budget as a policy statement is a fallacious concept. As a political statement, Madan believes that this budget was not much different from the predecessor’s budget; but that too is not deemed as a problem given that much would have to be retained given the short period of shift in governments. A budget could rather be objectively evaluated if treated as a pure statement of account. In this sense the fiscal deficits of above four percent would require a GDP growth of approximately 5-5.5 percent. If this is not the case, he believes that it could lead to revenue slippages which in turn would lead to cutting down capital expenditure. However, such a policy need not be wrong under these circumstances. Raising revenue through disinvestment and promoting subsidies to ensure redistributive justice was not wrong until leakages in the system are efficiently addressed. His specific concerns were on the fact that the budget had nothing much on offer for attracting Foreign Direct Investments (FDI) at least as expected, and there was no clear picture provided on retrospective taxes. The macroeconomic implications of much of the budgetary provisions are considered minimal, although he believes that the budget has a positive implication considering that it sticks to its efficient management of fiscal disciplines. The government would have to borrow for sure, it will have to increase its investments however, and there wouldn’t be substantial measures to increase savings correspondingly.
Reflections
In spite of the various views on the budget from across the country, a general feeling that emerged post the CPPR discussion is that it reflects the intentions of the government. The budget was much appreciated for being growth and employment generating. Rather than suspending it as anti-reforms, a wait and watch policy would reflect budget 2014-15’s short and long term consequences. For D. Dhanuraj (chairman CPPR), an analogy with sports provides more insights to how we should receive our new budget. The season of world cup football has ended with enough red and yellow cards and as we move to the season of cricket we should be ready to give the batsman all the benefit of doubt that he deserves. The Finance Minister might need these considerations before he starts to build his innings.
Rahul V Kumar
Research Consultant, CPPR
