We all know what we would be doing in the forenoon on February 26. Like in the past, on Budget day, we turn on the television to watch the dull, dreary but still-considered-important Budget speech of the Finance Minister. Last year's speech had 11,700 words spread over 139 paragraphs. Once the speech is over there will be the usual mad scramble to figure out the implications of it. Since the speeches are—well, it can't be put politely—obscure, understanding the true implication of the Budget to your business or the economy at large could take hours, days or even weeks. How you wish if somebody had pointed out four or five key things to watch out for—exactly what we have tried to do here.
Actually shorn of the high-decibel claims and commitments—and often poetry—in the speech, the Budget is just an income and expenditure account. If all the measures announced are understood and interpreted with this perspective, making sense of the proposals becomes easier. For Budget 2010-11, other than the two indisputable goals of steering the economy back to the trajectory of 9 per centplus growth and redistributing the gains amongst the poor, there will have to be another new deliverable: Fiscal correction.
The strategy of supporting growth through high deficit has reached its limits. The fiscal deficit hit a 16-year high of 6.8 per cent this financial year. The UPA may not get a better chance than this year to set the fiscal house in order. There aren't too many state elections this year and Finance Minister Pranab Mukherjee has four full years to set out short and medium terms targets.
Of course, no annual budget can be evaluated in isolation, so too this year. In fact, delivery on just five of the following promises of Mukherjee's last Budget (interim Budget 2009-10), can address most of the economic issues of the day. As will be clear, if broken down to the specifics, Mukherjee's task, though not easy, isn't unattainable either. He has identified the problems rightly and promised to come up with the right solutions too. A little resolve is all it will take to come good on these promises.
RETURN TO FISCAL RESPONSIBILITY and BUDGET MANAGEMENT TARGETS AS SOON AS THE NEGATIVE EFFECTS OF THE GLOBAL CRISIS ON INDIA HAVE BEEN OVERCOME.
With GDP growth set to cross 7 per cent in 2009-10 and the latest rate of growth in industrial production as high as 17 per cent (for December 2009), Mukherjee will wind down some of the stimulus measures. The specifics of a medium term fiscal policy and targets could be determined by the recommendations of the 13th Finance Commission that are already with him.
INSTITUTIONAL REFORMS ON SUBSIDIES, TAXES, EXPENDITURE AND DISINVESTMENT.
The Kirit Parekh report on fuel pricing is in and a proposal for cleaning up the fertilisersubsidy mess is also before the Cabinet. The Planning Commission has been toying with the idea of a system for direct transfer of subsidies to farmers, which other developments such as Unique IDs and widening networks of bank accounts can aid. The political will is not strong enough to push all these in one go, but expect some announcement on all these fronts.
EXPANSION OF THE TAX BASE BY MAKING THE TAX SYSTEM LESS COERCIVE OVER FOUR YEARS.
The Direct Tax Code and comments on how to make it useful are with Mukherjee, though he failed to table the final code in Parliament during the Winter Session. The implementation of the code from 2010-11 looks tough, still a reformed version will be signalled.
INTRODUCTION OF THE GOODS AND SERVICES TAX (GST) WITH EFFECT FROM APRIL 1, 2010.
Perhaps the biggest tax reform since Independence, the Finance Minister's promise last year of implementing it from April 1, 2010, was born more out of hope than a realist assessment of preparedness. But setting deadlines, even unrealistic ones, are important. Especially when the reform to be undertaken is so important and intricate. Expect a clearer road map for implementing GST, latest by April 1, 2011.
DIVESTMENT PROCEEDS FROM TRANSFERRING THE WEALTH OF THE NATION HELD IN PUBLIC SECTOR UNDERTAKINGS INTO THE HANDS OF THE PEOPLE.
A detailed list of PSUs where stakes can be sold for good returns is ready and actionable—the minor glitches with the NTPC follow-on offer notwithstanding. Disinvestment will take off in 2011, albeit with less noise than in the past.