Deep deficit, shallow response make hope, market sink

The unambiguous mandate that the Congress-led UPA received in the general elections had re-ignited expectations of systematic reforms over the next five years. Mukherjee did not manage expectations well and missed an opportunity to showcase UPA II’s commitment to bold actions on several fronts — be it disinvestment, labour flexibility, targeted subsidies or structural tax reforms.

On cue, the Bombay Stock Exchange Sensitive Index (Sensex) tanked 870 points or 5.83 per cent, the sharpest fall ever on a Budget day.

Mukherjee’s speech had all the accompaniments of a Budget that he would have presented 25 years ago. Old-fashioned but shrewd, the Finance Minister showered benefits on all stakeholders: marginal tax sops for the salaried, excise duty cuts on a host of items — from LCD panels to gems and jewellery — retaining excise, customs and service tax rates at existing low levels and, surprisingly, giving a bonanza to the upper middle class by doing away with the distortionary 10 per cent surcharge and doubling the threshold on wealth tax of 1 per cent to Rs 30 lakh.

He kept the central excise rate, customs duty and service tax rates intact. He hiked the minimum alternate tax for zero-tax companies to 15 per cent — not seen lightly by India Inc. Even as he did away with the commodities transaction tax, he retained the securities transaction tax creating arbitrage opportunities between two segments of financial markets. Mukherjee’s direct tax measures were revenue neutral, but in indirect taxes, the additional resource mobilization was a meagre Rs 2,000 crore.

After all, it was an expenditure budget.

He used all available resources for enhancing allocations of existing flagship programmes such as the National Rural Employment Guarantee Act.

He also set aside modest sums for new social sector schemes such as Rajiv Awas Yojana and Pradhan Mantri Adarsh Gram Yojana for villages which have a Scheduled Caste majority.

His large expenditure plan — the total spend tops Rs 10 lakh crore for the current fiscal — has given him the confidence to assume a growth rate of 7 per cent in the current fiscal with inflation stabilizing between 2 per cent and 4 per cent by March 2010.

Playing along the fiscal stimulus plan and recognising that infrastructure was one area neglected in the last few years, Mukherjee facilitated Rs 1,00,000 crore worth investment in public private partnership projects through a refinance window made available by IIFCL.

The veteran politician in Mukherjee ensured that his presentation was not chaotic — just two interruptions by Lalu Prasad Yadav and Mulayam Singh Yadav — and devoid of announcements that would evoke strong sentiments. “He did not have to make big announcements just for the market,” said Vijayan Krishnamurthy, Executive Chairman, JP Morgan AMC, adding these can be undertaken outside the Budget.

The speech, as expected after the poll outcome and the President’s speech, focused on inclusive growth and bridging the rural-urban divide by promising banking presence in all unbanked blocks, housing for urban poor, 1 per cent interest relief for farmers who paid short-term crop loans on time, 45 per cent hike in allocation for Bharat Nirman and a new scheme for 1,000 villages with Scheduled Caste majority.

Perhaps, Mukherjee believed that big-ticket reform measures need not be announced in the Budget. Yes, he did not steal the thunder of his Cabinet colleagues but did not read the pulse of the market either.