Experts also question the wisdom of pushing the states to the market route. What happens if some states like Bihar and West Bengal are not able to raise resources from the market and seek central guarantees? That would again play havoc with the deficit and upset rating agencies. "Despite the country's external strengths, the high fiscal deficit stands in the way of India achieving an investment-grade rating in the near term. As this budget was neither very reformist nor a very tight one, it will do little for India to move up the scale," said Shelly Shetty, India analyst at Fitch Ratings.
And that's a real tragedy. Because PC's fourth effort stands out as one of the post-reform era's most-missed-opportunity budgets. It's only reform appears to be to cut the clutter in the tax system, personal IT in particular, and heading towards an exemption-free system for all. It is also an attempt to build a second-generation economy by keeping the growth engine humming as long as the going is good. Says Andrew Holland, executive VP, dsp Merrill Lynch: "The budget keeps the pot boiling since a cut in IT means domestic consumption, a growth driver, will remain high. There is also an emphasis on infrastructure, including rural connectivity." At FICCI, PC told housewives to spend 60 per cent of the extra income and save 40 per cent.
But it goes only halfway through the long road. Says Arvind Panagariya, professor, Columbia University: "Rising aspirations of people have now been matched by declining expectations on the part of the budget commentators. This must be why a budget that substantially continues the practice of substituting expenditures for reforms (except arguably in the tax area) is being seen as a major triumph. What happened to the privatisation programme? Labour market reforms? Ending SSI reservation? Education reforms? Health reforms? Agricultural reforms? Uniform custom duty with no exemptions? And deficit reduction?" Even Deutsche Bank's Sanjeev Sanyal finds it a "cautious effort" but he's hopeful about five announcements that are in the future. "The VAT, the most ambitious tax reform in generations which could make or break state finances in the future, will go through. Second, FDI into areas like mining. Third, more SSI dereservation. Fourth, microfinance would include equity capital—this is key to trickle-down. And changes in the framework governing corporate debt."
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There is also Bharat Nirman, a host of social infrastructure schemes, and a financial sector programme with equal contribution from the RBI, plus much-awaited packages for the textile and sugar sectors, and some genuine efforts to create jobs.Still, at the end, PC's budget falls strangely short of expectations that had justifiably built up in the 15th year of reforms, even in the backdrop of the CMP. Why take privatisation out of the budget if one is to pursue it anyway through the National Investment Fund with a tentative target of Rs 5,000 crore? Why, says Australia National University director Raghvendra Jha, have a "VAT that is flawed since interstate transactions will still be taxed and states might still have a preference for using inputs from within their boundaries over out-of-state sources".There is also no attempt to cut subsidies and, if a senior North Block official is to be believed, no hope of serious restructuring anytime soon.Does it make sense to increase paperwork and scope of disputes through the FBT and withdrawal fee when the budget relies not only on aggressive targets but also arrear recovery? Says Partha Shome, special advisor to FM: "Only ten years ago, people said VAT can't be implemented as Indians don't keep accounts. Now it's done. We've seen the volume of bank transactions; we pay a lot on service charges or inter-state cheques. Why not then on withdrawal or FBT? At London airport, you pay 5 pounds to take out 100."
But amidst the furore and the confusion, PC is getting known as a man who means business. Tough, but effective. Don't forget, he's been a corporate lawyer. As he told off industrialists clearly: "It is the same person who votes me into this office and keeps your business going." With Left/party high command pressure or without it, he might end up singlehandedly cleaning up the country's tax system in the next four years. But he'll get credit for it, not hate, only if he ensures that these taxes are used completely and effectively on genuine development for the aam aadmi, and not remain another great Indian ripoff.
Paromita Shastri with Saumya Roy
