Union Budget 2007-08

In the context of the inflationary crisis affecting the economy, Budget 2007-08 comes as a disappointment. The Finance Minister has not exploited the many opportunities for additional resource mobilization, especially by taxing the rich whose income shares have increased. He has kept expenditure increases under a tight leash while restructuring it in a way that goes against the interest of the working people and the State governments. The Budget fails to seriously address the problems of unemployment and inflation. While the ban on futures trading in wheat and rice is welcome, the Budget has failed to do away with the ad valorem duty structure on petroleum products which would have helped in bringing down fuel prices.

While the need of the hour was an extension of the public distribution and an enhancement of food subsidy, the actual increase in proposed outlays on food subsidy is just 6.2 per cent which actually implies a cut in real terms when inflation of 6-7 per cent is taken into account. Likewise, the increase in purchasing power of the poor delivered through special employment schemes is almost negligible. Total expenditure on rural employment is budgeted to rise by just 3.5 per cent. Even the sum total of expenditure on the three flagship schemes – NREGS, SGRY and SGSY – is just 7 per cent which amounts to stagnation in real terms. The number of districts covered by the NREGS is proposed to be increased to 330 from 200, but the outlay has been increased from Rs 11300 crore last year to only Rs 12000 crore this year.

The claim that the focus of this budget is the agricultural sector, which is in the midst of a crisis, is also not justified in terms of allocations. Central Plan outlay on agriculture has hardly been increased as a proportion of GDP. Moreover, no effort has been made to provide price support to distressed farmers. In the absence of price support, the reduction in customs duties on a range of agricultural goods would depress agricultural prices and farmers incomes further. It appears that the Finance Minister is choosing to combat inflation by adversely affecting the livelihoods and incomes of the farming community.

In the social sectors, the one area where the government does propose to increase outlays is education. The total allocation for education has risen by a creditable 33 per cent. Higher education outlay is also budgeted to rise by 29 per cent. This is welcome given the commitment to enhance capacity in higher education to ensure reservations of seats for backward classes. What is surprising is that in the midst of these increases the outlay for the Sarva Shiksha Abhiyaan programme has been cut. The allocation for ICDS has been increased by only Rs. 674 crore which is totally inadequate to meet the goal of providing an anganwadi in every settlement. While there is an increase in total expenditure on health by Rs. 3925 crore, this is still well below what is required to meet the NCMP commitment. The allocation for the National Rural Health Mission is still less than Rs. 10,000 crore. The entire provision for social security for labour has increased by only Rs. 1 crore and there is nothing in the Budget for workers.

Gross tax revenue is expected to increase by only 17 per cent which is the same as the expected growth of nominal GDP (assuming 9 per cent real GDP growth and 8 per cent inflation). Many opportunities to tax capital have been missed, such as the re-imposition of the capital gains tax and an increase in the Securities Transaction Tax. Further, the reduction of peak customs duties on non-agricultural products to only 10 per cent will adversely affect small producers and damage employment prospects.

Many of these failures are the result of the inability to mobilize additional resources. Overall, the Central Plan Outlay is projected to increase by 22.5 percent. Seen in light of that fact, the Finance Minister’s claim that the States have never had it so good is belied by the fact that Central Assistance to State Plans is expected to rise by just 8 percent. Even in terms of their shares in central taxes and loans and grants from the Centre to the States are expected to rise by 16.7 and 13.1 per cent respectively, which is less that the projected increase in nominal GDP.

In sum, the government has failed to deliver resources to warrant its rhetoric that the Budget serves the cause of a crisis-ridden peasantry, the working people and the poor. It has also failed to provide the required impetus to the Eleventh Five Year Plan. The Polit Bureau of the CPI (M) demands that the Finance Minister should enhance the Plan Outlay substantially in order to meet the pro-people commitments of the NCMP with regard to agriculture, education, health, employment generation, rural development and public distribution system. Resources for enhanced Plan outlays should be mobilized by taxing the affluent sections.

Originally issued: February 28, 2007