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BW Businessworld

Look, The Ghost

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The finance minister abolished the 10 per cent income tax surcharge and raised the personal income-tax exemption limit by at least Rs 10,000, which should put some extra money in the pockets of consumers. This budget, however, has already become known for not what it has done but what it has not.

A hugely disappointed stock market that had pitched its expectations high hammered the sensex down by nearly 900 points. Some said it was the projected fiscal deficit, the gap between government expenditure and income, of 6.8 per cent of the GDP that unsettled it. Still others felt the market tanked also because of the minimum alternate tax, or MAT, which is levied on companies that pay too little income tax, being raised from 10 to 15 per cent.

Mukherjee said later: “I have taken the tremendous risk to create the fiscal space of having a higher deficit. I could have gone for the more conservative way of reducing the deficit and satisfied myself with six or less than that percentage of growth.”

In other words, the government expects growth to continue to be depressed and, therefore, the expenditure splurge.

The numbers tell the story: four months ago in the interim budget, Mukherjee had forecast a GDP growth of 7 per cent for 2009-10. In the budget, he has dragged the projection down to 6.5 per cent in spite of flourishing “green-shoot” theories.

Mukherjee set a target of 9 per cent growth but was cautious on when this would be reached. “It may not be in the next financial year, but my target is to reach there as fast as possible, at least 8.6 per cent if not 9 per cent,” he said.

Caution also marked the programme of divestment of government holding from public sector companies. He did not even mention the word in the budget but the divestment estimate provided in the papers named a conservative estimate of Rs 1,120 crore.

It was left to finance secretary Ashok Chawla to announce that divestment would kick off with Oil India and the NHPC. The market had, however, already taken note of the lack of clarity in the budget on divestment and made mincemeat of Mukherjee.

The wholesome figure of over Rs 10,00,000 crore he served up as the government’s projected expenditure for the year did not impress it. The market took little notice of the abolition of the much-maligned fringe benefit tax and the commodities transaction tax.

The Opposition was dismissive. “The budget has proved to be a damp squib,” said BJP president Rajnath Singh.

CPM leader Sitaram Yechury added: “Tangible benefits (are) going to Shining India and not to Suffering India.”

Whatever its private views, industry expressed its opinion in words the government would like. The Confederation of Indian Industry said: “The budget’s spending package for inclusive growth and large outlays for infrastructure and NREGS (the job scheme) will revive the economy.”

Just as reform was the mantra for solving all the world’s ills for the 15 years since liberalisation began, inclusive growth is the post-2004 shibboleth.

The government will spend 144 per cent more than it did in 2008-09 on the national employment scheme and an additional 45 per cent on Bharat Nirman, or rural infrastructure. For urban infrastructure development, the allocation has been raised by 87 per cent.

Mukherjee hopes that all these crores will deliver another percentage point or two of GDP growth and take care of deficit worries by generating extra revenue. If they don’t, the ghost would have spooked us all.

(The Telegraph)