Ever since, Union Finance Minister presented 2011-12 budget of the Central Government on 28th February, 2011 there has been a kind of race amongst the commentators to proffer opinions and in the media to mobilize the commentators and promote the trend of the deliberations in the direction that the anchor person in his or her wisdom chooses and also boast about TRP rating.

The common citizen must have been bored, if not tired of reading and/or listening to the comments, yet half full of understanding of the impact of the budget on his daily life. This column, though deliberately written after a bit of calm on the impact of the budget on the common man may eventually turn out to be yet another monotonous  piece.

The common man likes to understand, appreciate and absorb the possible impact of the propositions made by the Finance Minister in his speech and/or the budget proposals on his pocket; to buy, save and/or invest. The increase and/or decrease in income and expenses are in turn influenced by the trajectory that the economy traverses, level of taxes and inflation etc. Evaluation of the budget proposals from such a perspective would possibly better help the common man.

The speech and the budget proposals inter alia sharply focus on the following four areas: (a) Fiscal Consolidation (b) Reforms, in particular financial services, (c) Boost to investment in infrastructure and (d) Improving governance.

The fiscal consolidation is sought to be engineered by: (i)  containing the fiscal deficit to 4.6% along with a road map for compliance with the Fiscal Responsibility and Budget Management Act (FRBM), by 2014. (ii) Limiting government borrowing to Rs.3.4 lac crore, which Finance Minister bravely proposes to achieve without raising the rates of taxes – both direct and indirect. In fact, marginal relief to individuals and corporate tax assessees is envisaged by raising the minimum exemption limit and bringing down the surcharge on corporate income tax. Even in the case of indirect taxes lowering of rates in customs and central excise that was announced as stimulus measure have been retained. (iii) Implementation of Goods and Services Tax (GST) and Direct Tax Code (DTC) as from 01.04.2011. As a prelude it is proposed to improve the governance process through greater and deeper information technology intervention during the year 2011-12. (iv)  Bring down debt to GDP ratio to 46%; much lower than 56% recommended by the Thirteenth Finance Commission.

The earnestness of the Union Finance Minister to achieve greater fiscal consolidation is apparent. Fructification of the Fiscal Consolidation proposed will have duality of favorable impact: (a) controlling the inflation, and (b) sparing the crowding out of the private sector: This will culminate into propensity of greater investment in the economy, eventually leading to the possibility of higher rate of GDP growth, which will make the common man happy; more income and less expenses. However, the skepticism over the possibility of achieving the preposition stems from the likely impact of both internal and external environment on the expenditure of the government, in particular via the subsidies, which does not seem to have been even substantially factored.

Reforms in financial services sector include amendment to Insurance Act, LIC Act, SBI and Subsidiaries’ Act, RBI Act, Banking Regulation Act, Companies’ Act, Indian Stamp Act etc., approval of Pension Fund Regulatory and Development Authority (PFRDA), setting up of Debt Management Authority, continued disinvestment of public sector and recapitalization of Banks. A significant move is to permit direct investment by foreigners in Mutual Fund schemes; also a baby step towards full convertibility of Rupee. The reforms in the Financial Services sector have the potential to enhance investment rate and thereby greater capital formation, which should eventually result in higher income to the common man.

Actually, financial sector reforms proposed is an announcement of clearance of arrears that had piled up on the legislative desk of Finance Minister. With the main opposition party apparently on board, it is possible to surmise that the reforms will go through. In fact, but for the political courage, which the Political Executive could not marshal, these reforms would have been delivering the fruits by now. Will Finance Minister muster that courage during the financial year is a question mark?

Infrastructure sector is expected to be the beneficiary of number of measures to facilitate financing: (i) declaring new areas as infrastructure sector/sub-sector, (ii) issue of tax free bonds, (iii) raising of corporate debt limit for foreigners, and (iv) lowering of withholding tax on dividend etc. on investment by the foreign entities. He has increased the outlay for Urban and Rural infrastructure – both physical and social, which includes education, health and housing, road and metro et el to Rs.2,14,000 Crore up 23.3% from the last year. Improved infrastructure will enhance GDP growth and thereby the per capita income. However, reforms like: (i) land acquisition policy, (ii) building up of strong regulatory framework, and (iii) ways to fund large scale financing requirements have not been addressed. In the absence thereof one wonders whether the infrastructure sector – the inadequacy of which can adversely impact the GDP growth going forward will really get a boost.

Improvement in governance has been envisaged by simplifying procedures, direct transfer of subsidies and greater intervention of technology et el. Better governance will not only leave higher amount of money in the pockets of common man but will make his life easier and happier. However, such announcements have been made in the past with very little serious efforts to execute. Improving governance is a formidable challenge and cannot be achieved by yearly statement and lip service.

The fusion of all the four factors stated above where sharp focus is saught to be laid, if achieved in full measure can have the twin benefit of enhancing the GDP growth and thereby the income, and controlling the inflation thus reducing the expenses of the common man.

However, peripheral nature of the prepositions suggest that inflation will continue to rule high, which Finance Minister himself has stated will hover at around 7% and GDP growth will land at the pre-predicted percentage. No big bag reforms have been announced in either of the two core sectors viz., agriculture and manufacturing. India commenced its journey of reforms in 1991 with end product – services. Two decades later it continues to travel on the same track. Hence, scaling up the economy to the next orbit of double digit growth is ruled out until then. 

Even though, in a vibrant democracy like India social and political issues take precedence over preponderance of economics; yet there comes a stage in the life of a nation, what management pundits call an ‘inflection point’, when economics must lead the way in the interest of prosperity and happiness of the society at large. Currently India is at that inflection point now. Inadequacy of political courage to undertake what is good and necessary has the propensity to delay, if not derail the much talked about India’s   century.

Summing up it would be fair to state that the budget speech and proposals portend positivity. However, the speed and sagacity of the journey of legislative work and narrowing gap between intent and outcome, will eventually determine its impact on the lot of teaming millions of Indians. Mr. Common Man keep your fingers crossed.