People's Democracy

On Union Budget 2004-05

The Polit Bureau of the Communist Party of India (Marxist) issued the following statement on July 8, 2004.

THE 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.

It 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.

Further, 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 necessary.

The 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.

The 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 effective.

The 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.

The 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.

Part 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.

Certain 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.

The 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.