Detailed Analysis of Budget Speech with Comments
Here is an attempt to analyse the budget with special focus on budget speech of Finance Minister. First the relevant portion of Budget Speech is reproduced and them comment on that subject is appended.
1. “towards a sustained growth of 7-8 per cent or above within the next 3-4 years”
Comment: Mr. FM is aiming too low; its show approach is incremental rather than disruptive. It also shows the lack of innovative thinking. Playing by same rules of games doesn’t always work. No one would have blamed him if he had stretched finances for year or two but without substantial fiscal stimulus, path of higher growth trajectory is not feasible.
2.” it would not be wise to expect everything that can be done or must be done to be in the first Budget presented within forty five days of the formation of this Government.”
Comments: That’s lame excuse. This is what happens when lawyers defend their weakness/incapacity in areas outside their domain. This show the lack of preparedness on part of opposition (now party in govt.). It shows the opposition didn’t have the institutional knowledge of budget and condition of economy. The people who were involved in such process like former finance minister and Chairman of ‘Standing committee on finance’ were entirely shunted out, so were the people with some innovative thinking. Need to institute the practice of ‘shadow cabinet’ which is common practice in Westminster system of government. If such an attitude continue then public be get ready to get the typical campaign of next election centred on ‘5 year is not enough to show the result. We have provided direction the results of which will be seen in next years to come. So please vote us again to deliver.
3. “While higher growth is a sine qua non, we cannot be oblivious of the fact that there is a large population of this country which is below the poverty line.”
Comment: What he is smoking. It show the same thinking as of Mr. Rahul Gandhi who used to say redistribution is priority rather than growth. The subsidy is solution rather than infrastructure. People’s mandate was not for this. They were looking for growth. Growth benefits all not just rich. It is even more important for removal of poverty. It is the poor who suffer the most from lack of growth. (Suffer from what? Poor Growth, right?)
4. “We also must address fully the problem of black money which is curse of our economy”.
Comment: Just a cursory pass on the main election issue. It show even the intention are not serious. Just after formation of government, there was some controversy on appointment of Attorney General. The MP & crusader against the black money Mr. Ramjethmalani has protested against appointed of anyone who is against the drive of bringing back black money. But Mr. Mukul Rohtagi – ‘Member of Club 160’ was nevertheless appointed AG. In public life perception matters lot and if present government depends on same set of people who are ineffective in opposition for last decade then it can’t hope of build a sustained positive perception & deliver on commitment made to people.
5. Faced with these adversities we have no option but to undertake some bold steps in order to enhance economic activity and spur growth in the economy. These steps are only the beginning of our effort to revive the growth spirit of the Indian Economy. They are directional.
Comment: But there weren’t much old steps nor there seems to any direction in budget.
6. Committed to provide a stable and predictable taxation regime that would be investor friendly and spur growth.
Comment: Isn’t it cliche when everyone talks about investor friendliness. Government is supposed to public-friendly who elect them. Why give such an undue emphasis on Investors. Let them treat just a set of public. They are just instruments not the end in itself. The end objective is welfare of people, whatever instrument is required in that they should be treated equally.
7. “Tax demand of more than ` 4 lakh crore is under dispute and litigation before various Courts and Appellate authorities.
Comment: That is about 1/3 of annual Tax & Non-tax receipt. This is not just serious concern of taxpayer but also general public. Even if half of that is realised in fair manner it would not only make budget surplus but also bring the economy back to double digit growth rate if same amount is put to right use.
The only aim should not be reduction of litigation. Tax evasion is common practice and it would be wrong on part of government authority to convey the message that all these litigation are baseless & taxpayers is right in all cases. In most of cases the IT department is correct in initiating the proceeding but the system is too complex and rigid and incentive to close the proceeding in time bound manner should be focused. The corruption & pervasive incentives should be done away with not the litigation process. This would create an environment of impunity among the tax-evaders or avoiders.
8. I propose to set up a High Level Committee to interact with trade and industry on a regular basis and ascertain areas where clarity in tax laws is required. Based on the recommendations of the Committee, the Central Board of Direct Taxes and the Central Board of Excise and Customs shall issue appropriate clarifications, wherever considered necessary, on the tax issues within a period of two months.
Comment: This is positive measure which incorporates the feedback mechanism and prompt action.
9. To encourage development of Smart Cities, which will also provide habitation for the neo-middle class.
Comment: Which show the lack of comprehensive approach? Cities are vibrant places where all section of society is present. It can’t be targeted at particular class. It is opposed to be inclusive rather than exclusive for particular class. A sustainable city contains people from all socio-economic class with basic amenities of life and job opportunities.
10. Requirement of the built up area and capital conditions for FDI is being reduced from 50,000 square metres to 20,000 square metres and from USD 10 million to USD 5 million respectively with a three year post completion lock in.
Comment: This is basically- in plain term- increase in FDI in real estate sector which can be speculative. (What was need of hiding this behind the smart cities cliché?) Without simplification and streamlining of land related procedures especially anarchic practice of conversion from agriculture to residential, it is not going to work. Also the Real estate regulator is need of hour. Most of FDI would come in High Range Luxury Building rather than affordable housing. The main requirement is in affordable housing which is near to impossible to take off without above reforms.
11.Projects which commit at least 30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built up area and capitalization requirements, with the condition of three year lock-in.
Comment: This would serve as effective conduit to bring back black money & nothing else. Otherwise which foreign investor is going to invest less than $5 million in any real estate?
12. The Prime Minister has a vision of developing ‘one hundred Smart Cities’, as satellite towns of larger cities and by modernizing the existing mid-sized cities. To provide the necessary focus to this critical activity, I have provided a sum of `7,060 crore in the current fiscal.
Comment: Here there was big opportunity to reform the JNNURM and launch the next phase of urban renewal mission. But alas, FM was caught unprepared on this front also.
13. Kissan Vikas Patra (KVP) was a very popular instrument among small savers. I plan to reintroduce the instrument to encourage people, who may have banked and unbanked savings to invest in this instrument.
Comment: Need to read the report of committee (Usha Thorat Committee) which recommended the discontinuation of these small saving instruments. What was the rationale? Then can comment critically. One of possible reason was that KYC was not strict so it was used as conduit for investing black money.
14. Skill India A national multi-skill programme called Skill India is proposed to be launched. It would skill the youth with an emphasis on employability and entrepreneur skills. It will also provide training and support for traditional professions like welders, carpenters, cobblers, masons, blacksmiths, weavers etc. Convergence of various schemes to attain this objective is also proposed.
Comment: But there is financial commitment for this? No budget allocation? What kind of skill will you provide to cobblers? To blacksmith?? It is more of waste of money if they are not being prepared to work with modern technology which can only be possible with change in institutional set-up. One possible way forward can be association of such trades on lines of Farmers Producer Organisation (FPO))
15. Pradhan Mantri Krishi Sinchayee Yojana – I propose to set aside a sum of ` 1,000 crore for this purpose.
Comment: what will happen to existing schemes of Micro and Macro Irrigation in which central government was providing financial support in tens of thousands crores. What would be architecture and what would be focus …nothing is spelt out clearly. Just Rs 1000 Crore for Irrigation? It’s just peanuts. Also it is one of biggest area prone to corruption. The recent Maharashtra Irrigation Scam & Scam of Andhra during tenure of Y.S. Rajshekhar Reddy? What is accountability and monitoring mechanism to ensure that it doesn’t become a conduit for politicians to make money though public contracts.
16. Shyama Prasad Mukherji Rurban Mission will be launched to deliver integrated project based infrastructure in the rural areas, which will also include development of economic activities and skill development. The preferred mode of delivery would be through PPPs while using various scheme funds for financing.
Comment: What will happen to PURA scheme? It wasn’t just UPA legacy but idea of our former president Mr. A P J Abdul Kalam. Either you need to absorb PURA within it or make formal announcement of closer of same. Most probably it would be continuation of PURA scheme with new name.
17.“Deen Dayal Upadhyaya Gram Jyoti Yojana” for feeder separation will be launched to augment power supply to the rural areas and for strengthening sub-transmission and distribution systems. I propose to set aside a sum of ` 500 crore for this purpose.
Comment: Rs 500 for transmission and distribution at national level. Mr. FM must be joking. He has allocated Rs 200 for improvement in transmission in NCT Delhi & Rs 500 for overall India. Also when distribution infrastructure in Private Sector , why Government of India is investing in transmission infrastructure in NCT ?
18. Gender Mainstreaming – Government would focus on campaigns to sensitize people of this country towards the concerns of the girl child and women. The process of sensitization must begin early; therefore, the school curriculum must have a separate chapter on gender mainstreaming.
Comment: This doesn’t have any relevance in budget speech. Budget is not for setting the social and whole agenda of government. May be he had forget we is just Finance and Defense Minister and not Education Minister presenting Education Policy!
19. In keeping with the Government’s focus on improving affordable healthcare and to augment the transfer of technology for better health care facilities in rural India, fifteen Model Rural Health Research shall be set up in the states, which shall take up research on local health issues concerning rural population.
Comment: This is one novel step in right direction. Such thinking is needed in all the sectors to solve the pressing issues facing the country. Such contextual approach with local needs in mind is need of hour.
20. A School Assessment Programme is being initiated at a cost of ` 30 crore. .To infuse new training tools and motivate teachers, “Pandit Madan Mohan Malviya New Teachers Training Programme” is being launched.(This is also a welcome initiative to improve the quality of education in country.) I am setting aside an initial sum of ` 500 crore for this.
To take advantage of the reach of the IT, I propose to allocate a sum of `100 crore for setting up virtual classrooms as Communication Linked Interface for Cultivating Knowledge (CLICK) and online courses.
Comment: Move to initiate School assessment is very good. When, I was going through Economic Survey, these though come to my mind after seeing lot of mention of ASER.
First we should not put too much reliance on one particular survey that is done by Private NGO while formulating public policy. The questions were earlier raised about its methodology and sample by NCERT. They may have very good intention but what if their methodology is flawed. It should be subjected to critical scrutiny. As next step, government should set up an independent assessment agency for all India survey. It could utilise the existing infrastructure of existing agencies like CBSE, NCERT, and State Boards in this large logistically difficult task. Design should be formulated by best educationist in Country.
It should give a more accurate picture reflecting the widest geography and socio-economic group. It would also have much higher legitimacy.
Also the survey should be design keeping in mind what government want to measure, what possible alternative scenario projections are and how their design could be optimised. It should be comprehensive assessment which could be utilised for developing suitable pedagogy, teaching model and financing model based on feedback.
De-facto place of ASER in any public policy discussion on primary education quality show lack of alternative. Monopoly can have devastating inefficiency whether it’s in private sector or public section. Competition always brings efficiency. Most of advocates using ASER are anyway advocating market based model. Competition in assessment should be starting point to provide more accurate picture.
21. It is proposed to launch a pan India programme “Digital India”. This would ensure Broad band connectivity at village level, improved access to services through IT enabled platforms, greater transparency in Government processes and increased indigenous production of IT hardware and software for exports and improved domestic availability.
Comment: Again insufficient fund allocation. Where will the fund set aside for Bharat Broadband Limited go? Is it different from scheme for connecting Panchayats to internet or just tweaking of same scheme? Clearly there is lack of knowledge or understanding of existing governmental schemes as most of schemes announce and fund allocated are just variant of existing running schemes. If such is case, why not merge them with new scheme and use full money to achieve the target.
22. Pooled Municipal Debt Obligation Facility: This facility was set up in 2006 with participation of several Banks to promote and finance infrastructure projects in Urban Area on shared risk basis. Present corpus of this facility is `5,000 Crores. …..it is proposed to enlarge it to ` 50,000 Crores with extension of the facility by five years to March 31, 2019.
Comment: This could be catalytic in ushering the reform in municipal finance. Step is move in right direction. This could kick start municipal bond market in indirect way but more reform would be needed in financial reporting and auditing procedures at municipal levels.
23. Urban Metro Projects in the PPP mode, which will be supported by the Central Government through VGF. In the current financial year, I propose to set aside a sum of ` 100 crore for Metro Projects in Lucknow and Ahemdabad.
Comment: Present experience of PPP mode metro in Delhi Airport line and Mumbai Metro doesn’t augur well. Public transport facility is something which needs to support by government. The financing facilities of Multilateral institutes & bilateral support like from JICA should be enhanced and focus be kept on their operational profitability. The Delhi Metro model is kind of exemplary with focus on customer service, operational efficiency & fine management. Need for rethink on PPP model for Public Transit. Within a broader public mode components can be outsourced.
24.Malnutrition – national programme in Mission Mode is urgently required to halt the deteriorating malnutrition situation in India. A comprehensive strategy including detailed methodology, costing, time lines and monitorable targets will be put in place within six months.
Comment: If Food Security Act could be suitably amended with focus on nutritional security that would be much more practical and targeted approach rather than starting parallel mission.
25. India has emerged as the largest PPP market in the world with over 900 projects in various stages of development. …An institution to provide support to mainstreaming PPPs called 3P India will be set up with a corpus of `500 crores.
Comment: it is a welcome move which would help to build the institutional capacity of government to handle the PPP contracts.
26. India’s rich cultural, historical, religious and natural heritage provides a huge potential for the development of tourism and job creation as an Industry. I propose to create 5 tourist circuits around specific themes and set aside a sum of ` 500 crore for this purpose.
Comment: Travel, Tourism & Hospitality is one of biggest job creating sector world over and In India tourism is one of most neglected and underdeveloped sector with tremendous potentials. There is need for comprehensive and holistic approach to promote the tourism in India. A substantial funding is needed to provide the impetus especially in improving public facilities at tourist places and improving the system of governance in tourist cities to make it convenient & safe for tourist.
27. While preparing estimates of plan expenditure, attention was paid to the absorptive capacity of the Department and on achieving greater outcome with the same financial outlay. In 2013-14, plan funds to the tune of ` 4, 53,085 crore could be utilised. Plan allocation of `5,75,000 crore in the Main Budget 2014-15 mark an increase of 26.9% over actual for 2013-14
Comment: This is being mischievous. in same budget you say previous government cut the plan allocation to meet the fiscal deficit target and then go on to define same in terms of absorptive capacity of department. This is not done. If FM is cutting budget then how can you say the department is lacking the absorptive capacity?
28. In the interim Budget 2014-15, my predecessor had set revenue collection targets for direct taxes as well as indirect taxes, which appear to be ambitious. I propose to retain these targets and it shall be my endeavor to achieve the same.
Comment: It reduces the credibility when you play with books like the previous FM Mr. Pranab Mukhejee did by putting oil bonds off the balance sheet & Mr. Chidambaram did by postponing the expenditure and bringing forward the receipt like dividends by PSUs. It is also result of lack of financial oversight or scrutiny of budget that beside a minority, general public didn’t come to know about this at all.
29. To provide investment allowance at the rate of 15 percent to a manufacturing company that invests more than ` 25 crore in any year in new plant and machinery.
Comment: This is good move. Since there is no dedicated lobby for MSME sector, it may not be that much appreciated by lobby groups like CII & FICCI but would provide them level playing field.
30. The concessional rate of tax at 15 percent on dividends received by Indian companies from their foreign subsidiaries has resulted in enhanced repatriation of funds from abroad. I propose to continue with this concessional rate of 15 percent on foreign dividends without any sunset date. This will ensure stability of taxation policy.
Why we treat Dividend Income different from Salary Income? Is it due to effective and organised lobby of High Net Worth Individuals and Industrial families? How Selfish they can become can be seen from response of Mr. Rahul Bajaj yesterday on RajyaSabha TV. When asked about increase in DDT Tax Rate from 10 to 17.5% – His response was ‘are we stupid that we would be happy after increased in tax rate’. This is typical approach of these high class elites. They don’t care that salaries individual’s pay 30% of their taxes of their hard earned money while promoters of company pay just half of that as they receive most of money in dividends & even then they don’t stop cribbing. From this you can gauge the strength of their lobbying power.
31. To set at rest an on-going dispute, I propose to exempt PSF and PFY manufactured from plastic waste and scrap including PET bottles from excise duty with effect from 29th June, 2010 to 7th May, 2012.
Comment: We need to look at history of who is beneficiary here. It is also retrospective legislation even in tax exemption! This brings us to another required reform wherein such trivial duty matter should be settled through administrative machinery and Budget should be used to provide strategic and structural guidance to economy.