People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


Vol. XXX

No. 10

March 05, 2006

ON THE UNION BUDGET 2006-07

 

The Polit Bureau of Communist Party of India (Marxist) issued the following statement on February 28.

 

The Union Budget 2006-07 has failed to address many of the vital problems of the common people, particularly the peasantry and the unemployed.  While the budget has provided for an increase by 20.4 percent in the Budget Support for the plan, the proposed outlays for agriculture, health, education and employment generation are low and inadequate for meeting the National Common Minimum Programme (NCMP) goals. In view of the fact that the actual central plan outlays in all sectors except rural development and communications were short of the budget provisions last year, the current year’s meagre increases are a cause for concern.

 

In particular, the two central problems of the economy, agrarian crisis and unemployment, have not been adequately addressed in the budget. The reduction in the short-run interest rate for farmers and the proposed increase in farm credit are welcome measures, but these are limited in relation to the scale of the problem. Most of the recommendations of the National Commission for Farmers have been ignored, such as the creation of a price stabilisation fund for agricultural commodities and extension of crop insurance to all farmers and crops. No additional protection from imports has been provided for cultivators of raw cotton.

 

Far from extending the coverage of the Public Distribution System for food in the context of growing evidence of food insecurity and hunger deaths across the country, the finance minister has actually reduced the budgetary allocation for the food subsidy.

 

The projected increases in health and education spending are disappointing. The small increase in spending for the crucial Integrated Child Development Scheme (ICDS) programme will not  be enough even to meet the Supreme Court order to universalise the system. The UPA government has promised to increase expenditure on education to 6 per cent of GDP; instead, the projected expenditure will still leave the total  below 4 per cent of GDP. Health expenditure levels are far below those required to fulfil the promises of the National Rural Health Mission.

 

On the fiscal front, the increases in tax revenue in the current year (including through the collection of arrears) are a matter of satisfaction. However, the additional resource mobilisation through new fiscal initiatives is meagre despite the  immense potential for this at present. The increase in the securities transaction tax by 25 per cent is from a very small base of 0.02 per cent. The failure to impose a long-term capital gains tax on share transactions in the equity market is glaring and extremely unfortunate.  The reduction in customs duties on a wide range of goods will hurt small producers and cause job losses for workers.

 

The announcement of various financial liberalisation measures is a cause for serious concern. Allowing banks to divest government securities and increasing FIIs access to such securities provides a bonanza to foreign speculators. This makes government finances vulnerable to the state of the speculative market. Allowing Indian mutual funds to invest abroad creates the potential for financial volatility and allows domestic savings to flow out of the country at a time when the government claims that huge amounts of foreign savings are required for domestic investment.

 

Even though the increase in the cess on petroleum products will not impinge on consumers immediately, it will nonetheless take resources away from the public sector oil companies, at a time when they are already under financial strain. This would add to the pressure to raise consumer prices of oil products, which is likely to lead to an inflationary spiral.

 

Despite the increase in  revenue collection, the budget fails to utilise the opportunity to fulfil the major NCMP commitments.  This reflects the government’s refusal to make a break from the neo-liberal policy framework.