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UPA : Positive budget, but Opposition critical

	July 12, 2004

The budget dominated the week even as the BJP launched an offensive against tainted Ministers. The party’s top leaders took to the streets. The Congress reacted by saying the BJP was graceless in defeat. The media felt likewise. The removal of Governors has finally ended in a petition before the Supreme Court. But potentially, the most difficult issue is the removal of Ministers by all State Governments to fall in line with 91st constitutional amendment to the Constitution which restricts the size of the Council of Ministers to 15 per cent of the strength of the legislative assemblies.



The Budgets

The Manmohan Singh-led United Progressive Alliance Government at the Centre came up with two budgets for 2004-05 in Parliament within a week and the general political and public reaction to them was positive. First was the Railway Budget presented by Railway Minister Laloo Prasad Yadav on July 6. His speech in the Lok Sabha was boycotted by the opposition which has been leading an agitation for the removal of “tainted ministers” from the Government who are facing chargesheets. But that made little difference to the Railway Minister who presented a populist budget that proposed no increase in rail fares or freight. It presented sops for unemployed and handicapped persons as well as families of soldiers who had died in operations.

Then came on July 8 the widely anticipated Union Budget presented by Finance Minister P. Chidambaram who walked a tight rope in meeting the aspirations of the urban class as well as the farm sector and the underprivileged. The only major gain for city dwellers was the raising of the exemption ceiling of taxable income to rupees one lakh from Rs 50,000 at present. The removal or reductions in excise duties meant cheaper computers and mobiles. But the major thrust was for farmers with taxes on tractors and farm implements removed and a hefty allotment made for boosting agricultural production. The rise in service tax also meant celebrations, eating or dining would prove costly. The stock market did not react with too much cheer to the budget as the turnover tax was considered a big blow.



Mixed reactions

Congress president Sonia Gandhi has called the first general body meeting of the United Progressive Alliance (UPA) on Monday ( July 12). Sonia Gandhi, the chairperson of the UPA, will preside over the meeting that will see Prime Minister Manmohan Singh and Finance Minister P Chidambaram trying to clear the air about proposals in the Budget that have troubled some allies, especially the Left.

The idea is to settle differences and project unity when the Budget is taken up for discussion in both Houses of parliament this week. The Left has mounted pressure on the Government to rethink its decision to hike the foreign direct investment cap in the key sectors of insurance, telecom and aviation and not to raise the interest rates on provident fund accumulations. Though the Government has not till now showed any signs of yielding, it has conceded a dialogue with the Communists even as leftist trade unions are gearing up to launch a nationwide protest.

The nuanced statement of its politburo, prepared after exhaustive analysis by the party leadership and Left economists, supports P. Chidambaram’s aam aadmi (common man) - focussed budget with a few reservations.

Even as CPI MP Gurudas Dasgupta vehemently opposed the decision to increase FDI cap in insurance, telecom and civil aviation and vowed to take the issue to the streets, the CPI(M)’s criticism comes as late as the ninth paragraph in its 10-para statement.

Even on the issue of PF interest rates, the CPI(M) merely notes that the “the maintenance of 8 per cent interest rate on PPF, GPF and Special Scheme and the application of EET will adversely affect the interests of employees and pensioners.” The opening line of the statement reflects the Left approach - “The Finance Minister’s speech indicated his concern for agricultural development, employment generation, health, education and the overall conditions of the rural poor.”

It goes on to welcome the two per cent cess on central taxes for education, revival of the Rural Infrastructure Development Fund, proposals for repairing for water bodies and a nationwide water harvesting strategy. The expansion of the service tax net, fresh exemption from the tax net, and the reduction in the interest rate on loans to States have also been welcomed.

The criticism in the penultimate paragraph of the statement is also muted. “Certain measures announced in the Budget speech are unjustified, are causes of concern...Measures to increase the caps on FII investment in domestic debt instruments and in securities in certain sectors, as well as allowing banks greater exposure in the capital market can give rise to volatility without providing any evident benefits to the economy.” The decision to divest NTPC shares is “a source of disquiet”, increase in budgetary support for the Central plan of Rs 10,000 crore “although welcome, is far from adequate”.

“Our concern was that it should reflect both the people’s mandate and the CMP,” politburo member Sitaram Yechury commented. Yechury was particularly happy with the decision to set up a Board of Reconstruction of Public Enterprises - a Left suggestion in the pre-Budget meets with the PM. Unlike the BIFR (Bureau of Industrial and Financial Reconstruction) which “takes an inordinately long time to take decisions”, the new board will take up cases one by one and expeditiously decide on a revival programme or alternative strategies, Yechury said. He, however, indicated that the Left would protest both inside and outside Parliament against the divestment of NTPC and on the FDI and FII issues.

Other allies have also indicated their unhappiness over various proposals. Steel Minister Ram Vilas Paswan of the Lok Janshakti Party wants a rethink on the excise duty hike in steel from eight to 12 per cent. “It will have a big impact on steel prices and adversely affect the industry as well as customers,” said Paswan. Steel producers say steel prices will increase by an average of Rs 1,000 a tonne, a burden that will primarily be shifted to customers and affect sectors like auto, tractor and construction industries.

Agriculture minister Sharad Pawar of the Nationalist Congress Party (NCP) wants that the sugar industry be also listed for priority lending. The sugar industry felt let down by the Budget with no mention of the sector’s demands for restructuring and rescheduling of loans, a special package and a three-year tax holiday among other things. With the industry mainly based in Maharashtra, where elections are a few months away, Pawar’s concerns are only expected.

Defence Minister Pranab Mukherjee has called a press conference to make his point that he was not happy with the allocation of funds for the armed forces. Most of the funds will go for repayment for the Russian aircraft carrier and the advanced aircraft, leaving not much for the forces. He remarked that his ministry might have go to the Finance Minister as early as September for more funds.

Civil Aviation Minister Praful Patel has sought a meeting with the finance minister to press him to reconsider the proposal to withdraw the tax exemption on leasing of aircraft or aircraft engines. Patel contends that the sector deserves some consideration as it is trying to come out of difficult times.

The Union Budget came in for obvious flak from Opposition parties as well. They expressed apprehensions of rise in inflation and accused the Congress-led UPA of not taking any steps to tackle the crisis in agriculture. Former prime minister Atal Bihari Vajpayee described the budget as a “mixed” one but expressed concern that it would lead to inflation. He wondered how resources would be mobilised for the many ambitious schemes mentioned in the budget.

Former Union Minister and Shiv Sena leader Anant Geete said that the budget was one full of gimmicks and was not tuned to ground realities. Another Shiv Sena leader Suresh Prabhu said the Finance Minister had failed to balance the budget during the “tightrope” walk between the Left and the Right to remain at the Centre.

Leader of another NDA partner JD(U), Prabhunath Singh, said nothing substantial had been proposed for farmers and the poor and the budget was only a gimmick. His senior colleague and former Union minister Nitish Kumar said the budget was disappointing sans any content.

Stepping up its criticism of the general budget, the BJP said the budgetary proposals were misleading. “It is a web of illusion and a jugglery of statistics tantamounting to playing fraud on the people”, BJP parliamentary party spokesman V.K. Malhotra told reporters. According to him contrary to initial impression that the income tax exemption would accrue great benefits, it has now become apparent that instead of any relief, the common man has been “burdened” with an across the board additional cess of two per cent.

“It is intriguing how the Government plans to mop up over Rs 10,000 crore in income tax more than that of the previous year, when it claims to have exempted a whopping 1.4 crore tax payers from the tax net. The mobilisation shows a 24.7 per cent increase achievable only with a GDP growth of 12 per cent”, he said. The BJP deputy leader in the Lok Sabha said it was also beyond comprehension as to how the Government plans to raise corporate tax collection by 40 per cent without effecting any increase.

The Opposition NDA members virtually put the Government in the dock on the Rs 3,225-crore economic package for Bihar and other select States by terming it as a farce. They wanted the Centre to clarify whether it was a fresh package or part of the Rs 4,000-crore package announced last year by the Vajpayee Government.