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The most important aspect of Union Budget 2011-2012 is the proposal to replace commodity-based subsidies with cash transfer, as it will transfer the risk from the government to people, thus protecting the state, not people, said Narendar Pani, eminent economist and professor, School of Social Sciences, National Institute of Advanced Studies, Bangalore. He was delivering the 12th Malayala Manorama Budget Lecture here. He also called for effective utilisation of farm land.
Excerpts from the speech:
Subsidies
An immediate effect of the removal of subsidies and giving cash instead will be the inflationary impact. It will instantly result in an increase in prices. More importantly, the subsidy will move away from kitchen, as people will not necessarily spend the money to buy these commodities. Also, there is always the leakage in cash transfer.
Agriculture
The finance minister did not do enough to contain the food inflation. Unfortunately, lucky number allocation of money for specific programmes is not going to do much [Mukherjee has allotted Rs 300 crore each to a number of agricultural projects]. The Budget once again ignored the structural issues that have been hampering the growth of the sector.
Fiscal deficit
Since no bonanza like the last year's 3G spectrum windfall [it earned the government about Rs 71,000 crore] is expected this time, there will be a dip of Rs 95,000 crore in the non-tax revenue. The finance minister is planning to make up for this with an expected hike of Rs 1 lakh crore in tax revenues. But how is that possible without any significant additional tax proposals? The finance minister's announcement to bring down the fiscal deficit to 4.6 per cent is just based on speculation, as he might be expecting a revised auction for the 2G spectrum.
Manufacturing
The much-talked-about demographic dividend of a young workforce will turn out to be a demographic burden if they do not get jobs. The manufacturing sector's slow growth could have a detrimental effect here. The finance minister has suggested a manufacturing policy to take the sector's share in the GDP from the current 16 per cent to 25 per cent. But he does not have a clear plan to achieve this.
Political economy of the Budget
In this Budget, the finance minister reiterated his commitment to 'growth before distribution', a line often used by [Congress general secretary] Rahul Gandhi. There is also a continuing effort to influence the influential—something started by Prime Minister Manmohan Singh when he was the finance minister—by providing grants to a handful of eminent institutions.
Excerpts from the speech:
Subsidies
An immediate effect of the removal of subsidies and giving cash instead will be the inflationary impact. It will instantly result in an increase in prices. More importantly, the subsidy will move away from kitchen, as people will not necessarily spend the money to buy these commodities. Also, there is always the leakage in cash transfer.
Agriculture
The finance minister did not do enough to contain the food inflation. Unfortunately, lucky number allocation of money for specific programmes is not going to do much [Mukherjee has allotted Rs 300 crore each to a number of agricultural projects]. The Budget once again ignored the structural issues that have been hampering the growth of the sector.
Fiscal deficit
Since no bonanza like the last year's 3G spectrum windfall [it earned the government about Rs 71,000 crore] is expected this time, there will be a dip of Rs 95,000 crore in the non-tax revenue. The finance minister is planning to make up for this with an expected hike of Rs 1 lakh crore in tax revenues. But how is that possible without any significant additional tax proposals? The finance minister's announcement to bring down the fiscal deficit to 4.6 per cent is just based on speculation, as he might be expecting a revised auction for the 2G spectrum.
Manufacturing
The much-talked-about demographic dividend of a young workforce will turn out to be a demographic burden if they do not get jobs. The manufacturing sector's slow growth could have a detrimental effect here. The finance minister has suggested a manufacturing policy to take the sector's share in the GDP from the current 16 per cent to 25 per cent. But he does not have a clear plan to achieve this.
Political economy of the Budget
In this Budget, the finance minister reiterated his commitment to 'growth before distribution', a line often used by [Congress general secretary] Rahul Gandhi. There is also a continuing effort to influence the influential—something started by Prime Minister Manmohan Singh when he was the finance minister—by providing grants to a handful of eminent institutions.