While black money is supposedly one of our biggest concerns, the agriculture sector continues to be untaxed. As a result it has become an avenue for the high and mighty to evade tax. With they being well connected and a large number of politician themselves being beneficiaries of these largesse (directly or indirectly), this is not an issue that is even thought fit for discussion
Both the Economic Survey and the Budget has been very explicit about the threat that inflation poses. However, during the entire budget speech, there were only nine references to inflation, mostly passing and the only explicit measure (if I may call so) was dependence of hope. Hope that inflation will come off due to the lag effect on tight monetary policy and the base effect. There has been some mention of improving supply response of agriculture to the expanding domestic demand and expecting the states to do something agricultural marketing policy but no definitive announcement were made to underline real intent
The budget also talked about implementation gaps, leakages from various public programmes and the fact that quality of outcomes pose serious challenge. But, as has been the case of all the earlier budgets, no serious intent have come forth which shows that the government is serious about administrative and bureaucratic reforms that can help plug the loopholes. Way too much hope, it seems, is pinned on the UID programme, which is not supposed to be mandatory in any case
To me, however, the biggest disappointment is the way deficits are being treated. it is important to note here that during the previous budget, the government expected to garner about Rs.350 billion from auction of 3G spectrum. In reality, they garnered close to Rs.1,000 bn. With such a cushion, it was widely expected that the actual deficit numbers for FY11 would be much lower than that of the budgeted. While the budget estimate for FY11 was for a fiscal deficit of 5.5% of the GDP, in effect it came at around 5.1%. Despite the one-time windfall gain through spectrum auction and some positive tax buoyancy, the fiscal deficit was as high was 5.1% of GDP. In fact, the extra revenue from the auction (than what was budgeted) was about 0.8% of the GDP. In effect, the government clearly slipped on the fiscal deficit front. In fact, the actual deficit at Rs.4.01 tn was higher than previously budgeted at Rs.3.81 tn. On the other hand, the revenue deficit, was turned out to be lower than what was budgeted (at Rs.2.7 tn as against Rs.2.77 tn).
Even, at first glance, some of the assumptions seem to be questionable. During FY12, the subsidy burden is pegged at Rs.1.44 tn as compared to Rs.1.64 tn during FY11. This, at a time when oil prices are expected to remain on boil. The government’s best bet is the so called move toward market related pricing. And there is a big if. When diesel is not market related and continues to be subsidized as inflation fear holds grip, how can mere adherence to market related petrol prices serve the purpose? Also, even though the petrol prices are market related, these do not rise immediately, thereby adding to the subsidy burden. The greater fear, of course, is the international price level itself. The uprising that started in Tunisia has spread to Libya with a much more destructive connotation. As the turmoil spreads from North Africa to Middle East, oil prices are expected to remain at elevated levels going forward. This can and will add further fuel to the subsidy fire. Add to that the subsidy implication of the food security bill, and there is very little chance of the subsidy bill remaining under check. With subsidy being the holy grail of Indian politics and with five states scheduled to go for polls during FY12, not much hope can be pinned on the government being able to control subsidy, let alone reduce it.
Even the expected growth in nominal GDP is a bit suspect. The budget document assumes a 14% growth in nominal GDP during Fy12. Given that the government expects the inflation to be at 5%, the targeted real GDP growth rate is a pretty optimistic 9%. This will be a real tall order, especially given that rising interest rates are expected to slowdown domestic demand, Europe expected to just muddle through or even experience contraction in some economies reeling under steep budget cuts and US unlikely to hold onto the stimulus driven rebound in growth for long.
One thing is sure though. Fiscal deficit for FY12 is most likely to be on the other side of 5%, irrespective of what the so called roadmap might want us to believe.