First, let me make one point clear. Before the Budget, there are various expectations from different groups. It is impossible to fulfill the expectations of all the people. Budget making, in India, is therefore a very difficult exercise.
First,let me write about the Domestic Budget. If we spend more than what we earn, what will happen? In other words, if there is big gap between income and expenditure, what will be the outcome?. Only two things can happen. One is that we will begin to borrow from friends and relatives,if that is possible. The wisest way is to cut down the expenditure. Secondly, we will begin to dispose some assets like gold or family silver. The wisest way is to to cut down the expenditure to the level of income or atleast reduce the expenditure gradually
.
In rare cases, if we are lucky, our income levels will rise owing to promotion etc and bring down the gap between income and expenditure.
Using this analogy, I will write about the Union Budget
In the Union Budget. the Finance Minister gives an estimate of projected income and expenditure for the current year. If the income exceeds expenditure, it is Fiscal Surplus. If the expenditure is more than the income, it is called Fiscal Deficit. I have been following Indian Budgets since 1961 and I have not seen Fiscal Surplus ever.What is this Fiscal Deficit for the current year? . The Finance Minister expects the Fiscal Deficit to come down from 6.7 per cent to 5.5. this year. This figure of 5.5. percent is in relation to GDP.
There has been an over all increase in expenditure for the last two years owing to macro-economic crisis and a rise in subsidies due to high commodity prices.
The only solution to bridge the gap is to improve long-term finances. This long-term finance can be improved only if there is a growth in economic activity. The Government has to look into the demand drivers of the economy such as allocation to to various develpment initiatives ,infra-structure segments etc. Reduction in subsidies is not possible as of now. In an economy like ours, we can-not completely do away with subsidies.We have to look at providing a boost to private sector. Reduction in Income tax rates will put more money in the hands of the individuals and will drive demand.
Can the government achieve this reduction in deficit levels?. They are expecting to do the following:
1)Just like an individual sells his family silver, the Government is planning to collect Rs 40,000/ crores through disinvestment of their holding in Public Sector.
2)They envisage a less than expected increase in overall expenditure.Their efforts in this direction will not be very successul,particularly i view of the weak monsoon.
3)Apartment from disinvestment, the Government is also planing to raise big money though auction of 3G telecom licenses.
What will happen if the deficit is not 5.5. per cent as expected. Just like individuals, considerable percentage of current revenue will go towards payment of interest on Government borrowings. This again is a vicious cirlce.
The only way we can move forward is by gradually reducing this Fiscal Deficit. We should have targets for Fiscal Deficit for the next five years and achieve those targets. Unless this is done, our dream of becoming a developed country by 2020 will remain only a dream.
As for current budge,I feel it is growth enabling though the increase in central excise taxes will lead to mild inflation.
Given the circumstances, it is a balanced budget.
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