Opinion The list is long

In this,and in deficit numbers,there is disconnect between the budget and the survey. The survey provided a fiscal deficit/GDP of 4.8 per cent in 2010-11. The budget says 5.1 per cent. Where did the missing 0.3 per cent go? Had fiscal deficit/GDP been 4.8 per cent in 2010-11,budget estimates for 2011-12 would have had fiscal deficit/GDP of 4.3 per cent in 2011-12,unlike 4.6 per cent mentioned.

Therefore,the budget probably provides slack for some fiscal slippage,because of three reasons. First,2010-11 benefited from high nominal GDP growth that boosted the denominator,a phenomenon that might not continue in 2011-12. Second,food security has not been budgeted for. Third,notwithstanding the disinvestment target of Rs 40,000 crore,it is possibly recognised that non-tax revenue might be lower in 2011-12 than in 2010-11.

Having said this,the budget is fundamentally not about big bang,but about taxes and expenditure. Big-bang policy changes are necessary to correct an impression of permanent policy paralysis (PPP) characterising UPA II,but that is best done outside the budget. This is India’s 80th budget. To use this year’s budget’s nomenclature,it has become a very senior citizen (VSC). Notwithstanding increases in life expectancy,budgets (and hype over them) must die out. The budget must become irrelevant. Taxes and expenditure must both become predictable and standardised,with no yearly variations. Once that happens,budgets can become public documents,debated in public before the Finance Bill is passed. That’s what happens in many developed countries. Unlike transient vagaries of Indra,we then rely on a more permanent Lakshmi. But for that to occur,FMs must let go and eliminate discretion.

So one test of a budget is whether we are headed that way. Take direct taxes. Exemption limits attract attention,but are irrelevant from the big picture point of view. We will have the Direct Tax Code from 2011-12. Because of increasing demand for public expenditure,tax/GDP ratio must increase to around 22 per cent. That can only happen through removal of exemptions. If we are convinced that we will be able to get rid of exemptions,why do we have MAT (minimum alternate tax)? Markets are delighted,because they expected MAT to increase to more than 18.5 per cent and had also factored in increases in excise and service sector taxation rates. But the point is different. With MAT,we are making it more difficult to remove exemptions from April 1,2012. It would have been better to reduce MAT and not lower corporate tax surcharges.

In a similar vein,if filing of income tax returns is going to become easy and compliance costs reduced,why are we excluding some categories of salaried tax-payers from this requirement? Is it because we don’t quite believe compliance costs will actually be reduced?

Let’s take customs duty as another example. The speech tells us the peak will be 10 per cent and there will be unification at 2.5 per cent,with three rates of 10 per cent,5 per cent and 2.5 per cent. There have been welcome reductions and some standardisation. But is that invariably the case? Not quite.

There is reluctance to let go of discretion and this is true of expenditure too. Expenditure needs to be decentralised,Central sector and centrally sponsored schemes must be scrapped,artificial distinctions between Plan/ Non-Plan and Revenue/ Capital must go. The budget has effectively passed the buck to C. Rangarajan and Nandan Nilekani. (On the latter,Aadhaar is clearly going to become mandatory and we will get nowhere on this until we have licked the BPL conundrum.) But since budget talks about direct cash transfers for kerosene,LPG and fertilisers,it might as well have announced a negative income tax. Stated differently,a big bang was possible,not for visible items like pensions,insurance,labour market and retail,but for smaller items that fit UPA II’s purview. Instead of doing that,why do we have these large number of schemes,with token amounts of expenditure?

Not only are we reluctant to let go of discretion in taxation,we are reluctant to let go on expenditure too. The public expenditure efficiency case would have been far more convincing had there been a ZBB (zero-based budgeting) of schemes and ministries/ departments and if we had been told what was found when 62 government departments undertook the Programme Monitoring and Evaluation System. Does the Centre need to decide salaries of Anganwadi workers,regardless of location?

It’s not that there are no trees in this budget — there is self-certification for customs,there are infrastructure debt funds,amendment to the Stamp Act,FII investment in mutual funds and budgetary reporting for SC and tribal sub-plans. There are 13,889 words in the budget speech. It meanders and loses focus. It is not clear what the big picture is. The wood is so large,sprawling and extensive that one tends to miss the trees. But perhaps that is what was intended.

The writer is a Delhi-based economist