Budget 2013-14

Budget 2013-14

 As the 2014 Election is fast approaching and nothing much has changed for the UPA II in last one year, media and economists are not expecting many surprises in the budget to be presented on Thursday. Common man who lives on hopes and expectations still dream about a budget that will bring some relief to his mounting woes. From this perspective, FM could factor in some of the following thoughts while he finalizes his budget speech:

Agriculture

Agriculture deserves more attention from planners and policy makers, not just on the eve of annual Budget. This is a neglected sector for historic reasons. GOI should look at agriculture not only from the angles of farm sector production, food security and the millions of agricultural laborers who cannot migrate to urban areas. In the changed scenario, there is need to project agriculture as a sector which should graduate to self-supporting stage viewed from a ‘business’ point of view. This will need:

• Land reforms including need-based cultivation of crops required for consumption and export/commercial purposes
• Change in the approach to agricultural income and taxation thereof
• Nationalization of idle lands which can be used for cultivation or commercial/infrastructure purposes.

Pay back time for super-rich

The present RBI Governor Dr Subbarao has been all along articulating his expectations from the FM by way of fiscal policy support for central bank initiatives to tame inflation. As time is running out let us think differently and suggest some one-time measures which the FM could consider some measures like:

(i)                  Steps to price land and other resources being ‘gifted’ to corporates and rich individuals under various pretexts at market rates and plan recovery of costs as and when such ‘gifts’ start giving return

(ii)                 A one-time surcharge on income tax payable by super-rich and create a rolling fund for financing social sector

(iii)               According to one assessment, a ten per cent surcharge on the tax payable by taxpayers who report an annual income of more than Rs 1 million will fetch about Rs 110 billion in a full financial year. As the last few years have been more strenuous for those with annual income level below Rs 1 million and that category deserves some ‘cross-subsidization’ from the super-rich, FM should consider a one-time surcharge in Budget 2013-14, on the tax payable by those with income above Rs 1 million. The rate of such surcharge could be 10 to 20 per cent depending on policy perceptions. This surcharge collection should be ear-marked for creating a corpus for ‘additional’ funding of social sector which has been neglected in recent years. The ‘below moderate’ rise in plan expenditure, at 6% over the previous year, shows the saturation level GOI’s capacity to mobilize resources for social sector, within the budgetary framework. But this should not dishearten FM. Money is accumulating outside the government fold, almost with the same speed at which heaps of garbage are growing in cities and suburbs. It is government’s responsibility to canalize such hoardings for productive purposes. Even if money outside government accounts are not accounted in the budget, GOI’s guidance expressed through Budget Speech should be clear about the social responsibility of people who ‘grow’ exploiting nation’s resources. Perhaps the responsibility to develop infrastructure for healthcare, transport, education, old age care and so on in geographical areas close to large industrial establishments could be entrusted to the industrialists concerned. Tata has been doing this voluntarily in certain areas.

New Pension Scheme

Abolish New Pension System (NPS). This will absolve employers’ commitment to make ‘matching contribution’. As financial position improves, employers including GOI should create pension funds to honor future commitments. Simultaneously, the Employees Provident Organisation should be strengthened and the scheme implemented by that organisation made more popular, integrating the essential rationale for introduction of NPS. 

External compulsions

FM need not buy all the ‘products’ coming his way from rating agencies and brokerages whose allegiance is more towards ‘developed world’ which is struggling to keep its head above neck-deep debt and other problems including stagnation in growth since a few years. Chidambaram should look for India-specific solutions for India-specific problems. As the country is at a different stage of development, FM need not worry about the comparative figures of growth rates, savings rates, return on investment or inflation in countries like USA or Australia. Same holds true about SLR norms for banks and GOI dependence on captive sources like SLR. FM should not hesitate to subsidize social sector or at least improve funding of social sector (including nutrition/food security, education, healthcare and poverty alleviation) even at the cost of other sectors as the dwindling resources flow is impacting further development.

Interest rate subsidy

 Stop subsidizing interest rates on loans for any purpose including agriculture beyond reasonable levels. Kerala has come out with zero-interest rate short term agricultural loans. If states do this on their own like this, introduce disincentives.

Rating India

It is high time, rating agencies, or for that matter whosoever judges the performance of economies, changed their parameters, to factor in the inherent strengths and weaknesses of nations. Countries like India with huge resources including human resources and much less consumption needs as compared to ‘developed’ countries which are permanently dependent on outside markets for sustenance and perennially building up capacities for unproductive purposes like war and journey to Mars are measured on the same scale. This is unacceptable. Viewed in the above context, time is opportune for India to think in terms of setting up a rating agency of international standard which will understand India and advise stakeholders about the health of domestic financial institutions and the financial institutions and governments abroad with which India has dealings. Agencies like Standard and Poor and Moody’s are doing their work within their limitation and even they would be benefited. If FM makes a mention about his intention to set up an internationally acceptable rating agency in India, the Global Rating Agencies will be more than pleased.

(M G Warrier is a freelancer based in Thiruvananthapuram. His email ID is mgwarrier@rediffmail.com)