Budget 2008-straight from the heart
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Budget 2008 is both populist and popular. P. Chidambaram has certainly heeded Edmund Burke that "mere parsimony is not economy. Expenses and great expenses may be an essential part in true economy." The substantially enhanced Gross Budgetary Support for the Plan, coupled with massive outlays for agriculture, education, health and skill development, has scant respect for parsimony. We can only hope that the outcomes are acceptable and they will play an essential part in "true economy."
Like all Budgets the conjuncture and configurations are important. Elections look to be sooner than later. Coming back to power is more important than pursuing sound economics. The configuration of continued economic buoyancy, rising revenues and multipliers generated from years of continuing fiscal stimulus increases the room for manoeuvre. Balancing the objectives of growth and stability and populism with progress is never easy. The need to secure near term gains coupled with irritating coalition politics and looming elections compounds the problem.
So let us look first at the some of the pluses.
First and foremost, a recognition that food security and improved farm incomes is central to our growth and social cohesiveness. The emphasis on agriculture is welcome. So is the emphasis on irrigation, optimum inter basis water use, research and development, and allied activities like horticulture. One hopes that these do get implemented.
Second, recognising the advantages of demographic differentials and social tensions from rising unemployment, the priority in extending the access to educational opportunities at multiple levels with skill inculcation as well as vocational training, is timely. Nonetheless, the policy reforms on education remain unaddressed, like incentivising private investment in education, encouraging competition and more importantly fully implementing the recommendations of the Knowledge Commission.
Third, calibrating the tax rates has been sensible. The marginal reduction in excise apart from giving fillip to the manufacturing sector will help align the roadmap for a GST in 2010. Raising the slab for income tax exemption is appropriate but should now be inflation indexed. The corporate tax, particularly the realised rate, is modest and needed no break. The withdrawal of the transaction tax is sensible. There is a case for elimination of the Fringe Benefit Tax. What is however disappointing is that surcharges and cesses have been continued when tax buoyancy afforded an opportunity for their elimination.