by FP Staff Mar 1, 2013 12:58 IST
Even though finance minister P Chidambaram has been criticized for falling short of the right prescriptions in taking 'game-changing' steps to boost investment demand and reviving growth, a few supporters have lauded him for opting for austerity rather than free-spending populism despite it being the last budget before the general elections of 2014.
Swaminathan S Anklesaria lauded Chidambaram for rejecting populist giveaways in an election year. Terming his good economics as 'risky but bold, Aiyar said that Union Budget 2013 spells out concrete outcomes in the form of faster growth and lower inflation rather than mere freebies and tax breaks to lure the voters.
"Success on these counts will win votes in the coming elections. It is a less showy approach than a farm loan waiver, but could be as effective," he says. Read more here
After all rather than introducing regressive tax measures like inheritance tax, estate tax or increasing the tax slabs, the finance minister just proposed a temporary surcharge of 10% on high-income individuals and corporates for one year.
Rupa Kudav, MD and CEO of Crisil, is of the view that the finance minister has got the ball right this time by focusing on fiscal prudence and monitoring expenditure, although falling prey to ppopulism during the year could undo his efforts.
Writing in the Indian Express, she says "He could have either gone the populist way to placate voters, given that India goes to the polls next year, or walk the tight-rope of fiscal consolidation. I believe he has taken the more responsible route of fiscal consolidation. However, whether the measures will actually result in concrete outcomes will depend on their implementation and the government sticking to its expenditure roadmap as the elections draw near."
Economist Pronab Sen, who has always been critical of the current government's subsidy bill, too, felt the Budget was realistic since it has cut expenditure by at least 30 percent, enabling it to achieve its fiscal deficit target. He, however, is doubtful of the government achieving its revenue deficit target of 3.3 percent.
"This is where the going will get tougher. It is not only ambitious but critical because that will entail a shift in the expenditure pattern. Achieving such a revenue deficit target will require kick-starting big projects, which are currently stalled. So, the projects that will actually bring in the revenue are not there," he says in a column in the Business Standard.
Both Mint and BusinessLine called it a no-harm budget with no great surprises or announcements that could upset the public at large. Taimur Baig, chief economist at Deutsche Bank too echoed this view and said though the budget was a "do-no-harm" budget it fell short of high expectations.
Anil Padmanabhan of Mint,thinks Chidambaram has, after all, presented a budget the Congress party can go to the polls with.
If you leave the fiscal math aside, the intent of the Budget is impressive as Chidambaram has managed to please his party without burdening the exchequer, upsetting investors or fuelling inflation by keeping service tax unchanged.
"By calibrating spending, Chidambaram has protected his own books. At the same time, by targeting new political constituencies, he has served up a distraction that will help him gloss over the fact that the government has done little to walk the talk on several of its promises, such as the one on health. The underlying arithmetic suggests that Chidambaram is either underestimating the subsidy payout or that he will, later in the year, effect another round of increase in the prices of diesel and petrol—since the inflationary potential of this is staggered (unlike last year when then finance minister Pranab Mukherjee went in for a savage increase in indirect tax levies), it is unlikely to cause any immediate political damage," he says.
Agreeing that Chidambaram was not in a position to do more or less, TCA Srinivasa Raghavan of the Business Line believes all in all, the finance minister presented a good budget.
"Chidambaram deserves to be congratulated mainly for presenting a benign Budget. This is important because of the background of the last three Budgets which, in many ways, had been reminiscent of the Budgets of the 1970s.
In that context, those who had expected Chidambaram to reverse some of his predecessor’s decisions will not be happy.
The Finance Ministry would have liked to reverse them but its room for manoeuvres was very limited. It needs the money very badly," he argues.
Though others are doubtful of Chidambaram achieving expenditure control, a few like MS Swaminathan, renowned for his leading role in India’s "Green Revolution", are impressed with Chidambaram's emphasis on the need for caring for women, children, youth and the poor, while Prashant Jain, ED & CIO, HDFC Mutual Fund feels the FM is right in increasing the customs and excise duties on gold
According to Swaminathan, Chidambaram's budget will be remembered not only for its strategies to stimulate economic growth and control fiscal deficit but also for the importance given to the needs of the economically and socially underprivileged sections of society. The approach is not one of charity and patronage but of skill, knowledge empowerment and asset building."
Welcoming, Chidambaram's proposal to start crop diversification, extending the yield revolution to eastern India, and the initiative for providing food grain storage godowns at the panchayat level along with nutri-farms, he said Chidambaram needs to be 'complimented for his holistic approach.'
Terming Budget 2013 as a tightrope walk between the need to reduce the deficits and attain social, political and growth objectives, Jain is of the view that temporary hike in custom and excise duty on gold can moderate demand for gold.
In perhaps the most unique view, Shankar Sharma Vice President of First Global, chose to blame the Reserve Bank of India for the current predicament of the Indian economy.
Effusive in his praise for the Finance Minister, Sharma had only one quibble and that was about GAAR not being totally done away with.
"The economy is still sliding. An excessive focus on the fiscal deficit means investment spending suffers. India needs lower interest rates, more than Chidambaram's Budget, to justify capital investments. But now that the RBI has broken India's growth momentum so solidly, a rate cut of 100-150 basis points simply won't work. The India growth story has been severely dehydrated by the RBI. It is on the stretcher. It needs saline. Water will not do."
But given that Chidambaram may have failed to deliver on the hype, economist Rajeev Malik of CLSA called him simply a firefighter.
"Pedestrian is the way I would describe the budget. There was a fair amount of halo around Chidambaram, but this is best described as a fire fighter's budget not a town planner's budget," Rajeev Malik, senior economist at brokerage, CLSA told CNBC.
For Sonal Varma, economist at Nomura the budget lacks expenditure control too.
“We think the quality of the consolidation is disappointing. The government has focused mainly on revenue, while spending remains high. With elections due in 2014, we doubt spending can be cut to create savings." If the current environment persists, next year’s target of 19.1 percent growth in gross tax revenue might not be achievable,” she says in a note.
Surjit Bhalla, Chairman of Oxus investments, writing in the Indian Express is dismissive of the budget and says that there is no way the Finance Minister can meet his targets of achieving tax reviews, growth and curbing the runaway fiscal deficit. Bhalla also says that the taxing of the super rich will at best be a cosmetic stop that won't even fuel the government's welfare scehmes:
"Assume for a moment that the average income of these individuals is an upper bound Rs 1.2 crore on which they pay an upper bound 30 per cent of taxes. Tax revenue from these individuals before the surcharge: 36 lakh times 0.428 lakh, or Rs 15,400 crore. Assuming full compliance, a 10 per cent surcharge will yield an extra Rs 1.54 thousand crore. Total tax revenue is scheduled to increase by Rs 1,98,000 crore. The surcharge will yield less than 0.8 per cent of the revenue increase and will yield less than half the projected increase in UPA 2's flagship in-the-name-of-the-poor corruption programme, MGNREGA," he argues.
Professor of economics at JNU, CP Chandrashekhar however argues that the Finance Minister's budget falls short even in his plan of meeting social welfare goals that he cited as his objective.
Pointing out that spends on welfare schemes like MNREGA has largely remained the same and the curbing of subsidies, particularly in the oil imports, as forecast by the Finance Minister would only fuel inflation, Chandrashekhar says there is no move to boost growth in the country.
" In sum, in an effort at fiscal consolidation on paper, the budget does not provide for any fiscal stimulus to reverse the growth slowdown, it reins in welfare spending, and would aggravate inflationary trends. The stagflation that India is experiencing is likely to intensify, and there is little in the budget for those who would be hit most."
Former chairman of Shell India, Vikram Mehta finds serious flaws in Chidambaram's speech when it comes to the oil and gas industry and the government following a revenue sharing model, instead of the existing profit sharing model, which he argues is unlike policy followed anywhere else in the world.
" It signals to the industry that the government does not trust it and that the international practice for auditing costs through well reputed external auditors is not enough of a safeguard. This signal will exacerbate an already tenuous environment. The industry has ongoing unresolved concerns related to the sanctity of contracts, the price of gas, transfer pricing, and this will only add grist to their mill."
According to Mehta this will dissuade companies from exploring for oil and gas in the nation unless they are certain of making discoveries that are profitable, and will not encourage exploration in high-risk areas.
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