Thought for the day
"Be not astonished at new ideas; for it is well known to you
that a thing does not therefore cease to be true because it is not accepted by
many."
-
Spinoza (Dutch 1632-1677)
Word for the day
Maudlin (adj)
Tearfully or excessively sentimental.
(Source: Dictionary.com)
Teaser for the day
If you are here only to serve people then why do you need
the designations like "Deputy CM" (not provided for even in the
Constitution)?
Elephant and the blind folded men
The presentation of Union Budget on last working day of the
February month every year is one British Legacy we have chosen to retain and nurture.
The only change in the practice from the Raj period is that now the budget
speech is read at Indian noon against the British noon.
Over the years I have observed the demeanor of various finance
ministers carrying that cherry color suitcase containing budget document to the
Parliament House and reading the budget speech. Regardless of their social,
professional, economic or political background - they bear a distinct feudal
look reflecting a sense of "Giver" to the subjects - rich and poor
alike.
In my view, giving so much importance to the annual budget of
the Union Government itself dissipates the importance of the Budget.
Budgeting is indubitably an important tool of financial planning
and management. However, it may prove seriously counterproductive if this
exercise in not continuous and dynamic.
It certainly defeats the purpose of an efficient government and
good governance if a good and urgent idea has to wait till next April for
implementation or a grave mistake in the tax laws has to wait for one year to
get rectified.
Insofar as expectations of various sections of people from the
Union Budget are concerned, I have concluded, after many years of observation,
survey and analysis, that it is exactly like the story of Elephant and six
blind folded people. Consider this:
(a) The Union Budget
is presented in two parts - (a) The first part is the Budget of the Union
government detailing from where the government will raise funds and how these
funds will be spent on various administrative, developmental and social
activities; and (b) The second part relates exclusively to the tax provision,
i.e., how the government proposes to raise revenue from taxation.
(b) The urban middle
classes, especially salaried people, are mostly interested in tax rebates on
income from salary, house properties and investments. They are usually not keen
to know about social sector and development expenditure.
(c) Businessmen are
usually keen to hear about concessions in indirect taxes and incentive for
investment. They do look for some business opportunities in social and
infrastructure expenditure budget. However, most of them who do not see an
opportunity for themselves find such expenditure wasteful if it would lead to
higher fiscal deficit and hence higher government borrowing and therefore
higher rate of interest.
(d) About 90% of the
country's population which does not pay any direct tax does not look forward to
the Budget. Although they are keen to know what more subsidies are being
provided for them, they wait till the "Schemes" are actually
implemented to get excited about that.
(e) Economists are interested in knowing a lot of things, but usually
watch the figure of fiscal deficit and means to fund that deficit.
Social
economists (usually left leaning academicians) are usually not concerned about
fiscal deficit and want the government to spend more on poverty alleviation and
development of social sector infrastructure in order to impart social justice
and minimize economic inequalities.
On the other
hand the market economists are seriously concerned about fiscal deficit,
government borrowing to fund such deficit and ratio of expenditure on social
and physical infrastructure.
Spending US$20bn
on food security is a serious reform for the social economists, whereas it
might be an unpardonable crime in view of market economists, given the current
fiscal gap.
(f) Traders in stock
market only wish for lower taxes that may cause a short term bounce in stock
prices, even for a day or two. Whereas bond traders expect tight fiscal
discipline that will cause a bounce in bond prices in the short term. They
hardly care even for three month impact of budget provisions.
(g) Foreign investors
look at the budget from an extremely myopic angle. They expect the government
to allow them more concessions and freedom to operate in the country.
Protection of their investment and promotion of their vested interest is their
only concern.
(h) Professionals,
regardless of their public posturing, take sadist pleasure in finance
minister's silly mistakes in writing the tax provisions. This allows them to
explore loop holes to save taxes for their clients. This also triggers more
litigation allowing them to make more money.
(i) Politicians from
ruling party expect the budget to buy votes for them through populist measures.
They could not care less for things like fiscal prudence, etc. Whereas the
politicians from the opposition benches
The point I am trying to make here is that "Big Bang
Reform" which the people are talking about and expecting seriously, is not
the same for all. It has widely divergent and often contradictory meaning for
various stakeholders.
It is obviously not possible for any finance minister to please
all; though sometime they do try and end up making everyone unhappy. Mostly,
however they stick to pleasing their political constituency.
Fiscal discipline, market prudence, investor friendliness, etc.
may be incidental and not the desired outcome of the Union Budget.
...to continue
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