People's Democracy(Weekly Organ of the Communist Party of India (Marxist)
July 11, 2004
Union Budget 2004-05
Polit Bureau of the Communist Party of India (Marxist) issued the following
statement on July 8, 2004.
finance minister’s speech indicated his concern for agricultural development,
employment generation, health, education and the overall conditions of the rural
poor. The 2 per cent cess on taxes earmarked for expenditure on the education
sector is welcome. Other positive measures include the revival of the Rural
Infrastructure Development Fund, the proposals for repair of water bodies and a
nationwide water harvesting strategy. The intention to double the flow of
agricultural credit in three years, while not a budgetary measure, is also a
step in the right direction.
is to be hoped that the constitution of the Board for Reconstruction of Public
Sector Enterprises will lead to the revival of ailing public sector units. The
proposed equity support of Rs 14,194 crore to central PSEs also suggests a
commitment to the health of the public sector. However, the decision to divest
NTPC shares in this context is a source of disquiet.
the actual budgetary allocations for crucial programmes, such as rural
employment schemes, Antyodaya Anna Yojana etc, are no higher than had already
been provided for in the interim budget of the previous government. Much larger
allocations under these heads, as well as for the rural sector generally, were
expected, given the stated priorities of the Common Minimum Programme. The
increase in budgetary support for the central plan of Rs 10,000 crore, although
welcome, is far from adequate and further increases in such expenditure would be
middle classes have been provided some relief by the exemption from the tax net
of those with annual incomes of less than Rs 1,00,000. The maintenance of 8 per
cent interest rate on PPF, GGF and Special Deposit Scheme and the application of
EET will adversely affect the interests of employees and pensioners.
extension of service taxes to a larger range of activities and the slight
increase in the rate are positive measures. The introduction for the first time
of a tax on stock market transactions is also to be welcomed, although the
proposed rate is too low. However, the removal of the tax on long term capital
gains was not called for; rather, its implementation could have been made more
assumption that a tidy sum can be easily recovered from tax arrears underlies
this budgetary exercise. If this does not translate into reality, then the
proposed expenditures necessary for improving people’s welfare would be
threatened. It is imperative that the finance minister protect such expenditure,
and enlarge it as promised, in all such eventualities.
reduction in the interest rate charged by the centre on loans to the states from
10.5 per cent to 9 per cent is a necessary step, but this reduction should have
been larger. In addition, measures to deal with the overhang of old debt of the
state governments are insufficient. Not only is there no write-off of non-small
savings debt as suggested by the Planning Commission, but the coverage of the
proposed debt swap is still extremely limited. Since state governments will be
required to play an important role in fulfilling the objectives of the CMP, the
strengthening of their finances is crucial.
of the constraint upon the centre’s undertaking of necessary expenditures
comes from the finance minister’s conformity to the Fiscal Responsibility and
Budget Management Act 2003 which sets arbitrary limits on revenue and fiscal
deficits on questionable theoretical premises.
measures announced in the budget speech are unjustified and are cause for
concern. The decision to raise the cap on FDI investment in three critical
sectors of telecom, insurance and civil aviation will give rise to reduced
national control over these strategic areas and cause unnecessary outflow of
foreign exchange through repatriation of profits. The government has no case for
allowing foreign companies with 74 per cent share to operate in telecom which is
a sensitive sector with security implications. In the insurance sector, the FDI
cap of 49 per cent goes much beyond what was decided by the previous government.
Measures to increase the caps on FII investment in domestic debt instruments and
in securities in certain sectors, as well as allowing banks greater exposure in
the capital market, can give rise to volatility without providing any evident
benefits to the economy. Since it is already evident that FIIs are simply
“using India as a parking place for dollars” and have not contributed to
increased investment rates, encouraging them further is uncalled for.
first budget of the UPA government will have to be seen in the context of the
mandate given by the people in the Lok Sabha elections. The CPI(M) will take up
with the government such proposals in the budget which are not in conformity
with the people’s interests. The party will go to the people to mobilise their
support on these issues.