The Budget-2009 has struck some right cords but have mostly gone wrong as the player failed to recognise all correct cords in the harp.
Good points:
1. The budget has focussed on rural development, thanks to the belief that NREGA is behind poll-success of UPA. It has hiked allocations to NREGA in an unbelievable manner. I remember when NREGA was being drafted and being discussed for resource allocation, everyone was frowning that it would cost 1% of GDP...! Really, nothing sells in India like poll-success.
2. The abolition of FBT.
3. Rs. 300 crore for Drainage system in Mumbai. When Mumbai comes to satnd still due to waterlogging, India makes substantial economic loses as Mumbai is the financial capital of India.
Weak points:
1. NREGA is widely infested with corruption. So, where would the bumper hike in allocation would reach really...the poor’s pocket (if they have one!) or in accounts of government officials? Also, the government is forgetting that NREGA is just a ‘famine relief’ kind of model and it must be linked with other self-employment schemes to make the poor out of poverty.
2. The government should have raised the tax-exemption limit up to at least Rs. 3 lakhs per annum. The middle class in India is the most populous and prominent consumer class in India that has lot of unfulfilled demand. Tax exemption to this class would have given a big fillip to the aggregate demand in the economy. Does the Finance Minister have any idea how a family of five with monthly income of Rs. 25,000 struggles to make ends meet in a market where pulses are Rs. 75 a kg, Potato is Rs. 15 a kg and so on...!
3. Government should have increased tax rates slightly for the Upper and Upper-middle class. This would have raised enough revenue to more than offset the decrease in tax collections due to tax exemption of the middle classes.
4. Further, the abolition of Tax-surcharge on income more than Rs. 10 lakh is ridiculous. This class spends mostly on foreign-made goods so the Finance Minister is going to boost demand for foreign goods in India...! One more thing, what is more helpful to revive demand in economy: 10 middle class households purchasing washing machines, TV, fridges, AC or one super rich buying a Mercedes...?
5. What is logic behind putting custom duty on Gold and Silver on the one hand and on the other, totally exempting Branded jwellary from production duty...May be the finance ministry wants everyone in India to go for branded items...! Rural households would now find purchase of Gold and Silver costlier. They can't always forego such expenditures as it is customary in weddings. May be finance minister wants to give some more relief to those who are earning in or above bracket of Rs. 10 lakhs.
6. It is really great that the finance ministry has finally recognised the power and need of rural development but from where they are going to meet the expenditure out. Keeping a fiscal deficit as high as 6.8% is going to prove detrimental in time. Government borrowing in market would crowd out the private investment by hiking the rate of interest.
So, the budget-2009 is very good on the part of development of rural India but fails to take some harsh steps in order not to attract wrath of urban rich. This may stand in realisation of the true potential of an otherwise good budget.
