HE giveth with one hand but taketh with another. In the Union Budget 1996-97, the stick shows up despite a conscious attempt to hide it with carrots.
Take the non-voting shares which will allow companies to raise capital without diluting their control over the company. But at the same time, Chidambaram has allowed mutual funds voting rights for the shares they own in a company. The two proposals neatly cancel each other out. FIIs can now own up to 10 per cent in a company, but total FII holding in any company is kept unchanged at 24 per cent. So not much real change there either. While the Budget proposes many good strategies to overhaul our creaking infrastructure, it gives very little extra money to any of these sectors, such as power, telecom, coal and roads.
While there is promise of a simple excise structure in a year or two, the maximum import duty stays. While excise and customs have been reduced on a host of items, a uniform special impost has been slapped on all imports. So companies may end up paying more or less the same taxes on their imports, though in a more complicated way. A longstanding demand of industry has been the removal of the 15 per cent surcharge on corporate tax. Chidambaram has tried to satisfy both sides of the argument by halving the surcharge.
Perhaps the biggest myth about this Budget is that it's "pro-poor". Allocations for rural development, employment programmes, health and family welfare, even education, have slumped in real terms. As a proportion of GDP, the budgeted social sector expenditure is only 2.07 per cent in the current fiscal year. It was 2.31 per cent last year, and 2.17 in the previous. Its share in total expenditure too has gone down from 10.34 per cent to 9.93 per cent. What has gone up really is Central assistance to states/Union territories, by 10.67 per cent compared to a deceleration last fiscal. It is improbable that the increased grant is entirely for the social sector, although the move is laudable to the extent that it implies greater freedom for states to initiate and prioritise spending.
Where the Budget scores is in its consolidation in textiles, and spending on irrigation (a large section of this will go to benefit rich farmers, though the rise in productivity may trickle down to the rural poor over time). But it is silent on many areas crucial to macro-stabilisation—insurance, tax reform, controlling revenue expenditure, labour policy, raising savings and investment—even as plan expenditure dips steadily from 5 per cent of GDP in 1994-95, to 4.49 per cent last year, and only 4.39 per cent this year, unadjusted for inflation. Perhaps the stick will find its true direction in the coming months.
