Chidambaram?s Last Swing to Save Shehzada

By Jahnavi Prabhakar

On 17^th February the Finance Minister of India presented the interim budget for the year 2014 with a hope to boost the confidence of aam aadmis who might vote for them in the coming elections. Interim budget was presented instead of full budget due to the fact the elections would be held in the coming two months and full budget would then presented after the formation of the new government. The finance minister of India Mr. P. Chidambaram tried to self pat himself by showcasing the achievements of UPA-1 and UPA-2 in the last 10 years. Also how magnificently they have battled the economic downturn in the past and India’s progress in the past years shows that it has been undeterred by the financial crisis in the past.

The twin deficits that is current account and the fiscal deficit has been a matter of great concern for the finance ministry in the past, along with inflation which is an important issue for the RBI too. As the RBI has been taking steps to curtail it and pull it down. Coming back to the twin deficits, fiscal deficit will be contained at 4.6% of GDP for the year 2013-14 and as per the finance minister current account deficit which has been inflating like a big balloon in the past which could have exploded taking down the growth of the country in to the drains has well has been kept within the defined limits. Last year CAD (current account deficit) stood around USD 88 billion, while for the year 2013-14, the CAD will be curtailed at USD 45 billion, which cannot be denied, has been good effort by the government. Even the exports in the current fiscal has been estimated at $ 326 billion which has been positive sign as the exports have recovered sharply in this fiscal.

As per the budget, the foreign direct investment was liberalized with the incentive to attract higher investments into sectors such as civil aviation, pharmaceuticals, telecommunications and multi brand retail. Foreign direct investment has also improved in the last year by 15 billion$. The government has planned to allocate RS 1,15,000 crore in food subsidy under the National Food Security Act  and a combined Rs 2,46,397 crore  would be given out under fertilizer, fuel and food subsidy.

Doles and Freebies

Government has approved the one rank one pay pension for the retired jawans and increased the defense budget by 10 per cent. In the hindsight this was done to assure their vote base would get a strong foothold from all the defense personnel. Further moving over to indirect taxes, there has been excise duty cut in large, mid segment and SUV (Super Utility vehicle) cars which simply means that there has been a reduction in car prices which has been one of the prominent doles passed by the government with the focus on the common man who would be attracted with such proposition and might vote in favor of the government. The duty on scooters, trailers, small cars have been reduced from 12 to 8 per cent, while the reduction on large and mid segment cars has been 24 and 20 per cent from the earlier duty of 27 and 24 per cent respectively on these cars. This would give a boost to the auto mobile sector which has been reeling behind due to a poor demand leading to the slowdown of this sector. The general customs duty and service tax remain unchanged at 28.25 and 12 per cent respectively. Also, there was no change in personal and corporate income tax which implies there has been no change under direct taxes. There has been an excise duty reduction in capital goods sector from 12 to 10 per cent with the motive to stimulate growth.

The Finance Minister stated that the 296 projects worth 6, 60,000 crore has been cleared by the Cabinet committee on Investment which as per the minister indicates there is no policy paralysis within the government. Also under this scheme the funds will be released as central assistance to state plans thereby providing full authority and responsibility to the state which would help them monitor and implement the schemes more effectively. This indeed was required so that for all the progress and development done by the state, center should not come forward and take undue advantage of it by calling it as their ’pet project’ and they are the reason why the scheme or the policy turned out to be fruitful. State should get their due benefit.

Calculated Move

Government strategy of passing out the doles to the citizens in this budget with the aim that the people would return back the favor to the congress government came out too late and it was too little. Had the government passed on this budget last year, it could have had a shot at redemption, but so far this budget which is termed as the ‘election budget’ doesn’t seem to be going in the favor of the ruling government. Though, it is important to mention that this interim budget which would be implemented by the next/ new ruling government would be faced by challenges. As Mr. Chidambaram, during his budget speech pointed out to the ‘ten points’ advice it gave to the new government. It seems to be the calculated move as the interim budget which is made by the current government would be further elaborated and detailed account of the budget would be presented after the elections, but in this budget itself the finance minister has posed some hurdles which would be tougher for the new government to implement. For example the excise duty cut provided in the budget would make it difficult for the new government to achieve its deficit target. Similar case can be seen with the provisioning of food subsidy would affect the fiscal consolidation. Along with this, the seventh pay commission which would be implemented in the year 2016 would put additional burden on the economy.

It is imperative to include that Indian economy witnessed a growth rate of 4.7% for the third quarter ending on 31^st December, 2013 which has been the lowest/poorest in the last ten years and thereby it is quite disappointing.

The Finance Minister, who had been boisterous in showcasing how well the economy has been performing during their tenure, forgot to make a note on the falling growth rate. It is clear that Mr. Chidambaram wanted to focus on how well the economy was performing due to ‘their’ effort and fact that economy growth rate’s draws a stark contrast compared to rosy picture that minister was trying to paint, just goes on to show the delusion the minister wanted to pass on to the people. This was the last ditch effort by the minister to avert the crisis (general election) that looms large on the ruling government.

The Finance Minister mentioned that the government doesn’t believe in populism despite that, it retorted to such schemes. Sadly, the government doesn’t understand that the common man can no longer be bought by these freebies and has heard about tall promises made by the politicians in the past. It is time to see those actions and in this election the empowered common man might make Baba (read Rahul Gandhi) ‘empower less’.

Jahnavi is working with National Council of Applied Economic Research. She has previously handled projects sponsored by Commerce Ministry, Government of India. She has worked with National Council for Educational Research and Training in the past. She holds her Master’s degree in Environmental Economics from Ignou in collaboration with Madras School of Economics. She has a bachelor’s degree in Economics from Delhi University.