|»5 Minute Wrap Up by Equitymaster|
On This Day - 16 MARCH 2012
A Budget as meek as it could be!
In this issue:
When millions don't even have food to eat, our government is thinking about bailing out multi-millionaire CEOs!
Is this government really made up of our representatives or is it on the payroll of those corporate giants?
We at Equitymaster feel strongly about this cause, and thus have started an Urgent Poll where you can read all about this and cast your vote to make your voice be heard!
We strongly recommend every Indian, who wants to make a change, to take a look at this.
At one point during the Budget speech, Finance Minister Pranab Mukherjee borrowed a Shakespearean line before presenting some of his proposals: "I must be cruel to be kind." But the Budget he presented was just too meek to wheedle any kind of change. He played it safe, keeping away from any radical reforms that could take the economy in a new direction. In other words, the game of politics won over economics and reason.
The Indian government failed terribly on the fiscal deficit front for the financial year 2011-12. Against a projected deficit of 4.6% of Gross Domestic Product (GDP), the year ended at about 5.9% of GDP. The deficit target for the next fiscal has been pegged at 5.1%. What is even worse is the fact that the Budget showed no inclination towards bringing down expenditure in the form of subsidies.
Also, there were no concrete steps to expand the direct tax net. Even the disinvestment target of Rs 300 bn was quite disappointing. How the government will achieve this remains obscure. But unfortunately, the proceeds from divestments still remain critical for capital expenditures. Moreover, the implementation of key measures such as the Goods and Services Tax (GST) and Direct Tax Code (DTC) has been left to a later stage.
So forget the mandate as per the Fiscal Responsibility and Budget Management (FRBM) Act to bring down fiscal deficit to 3% of GDP. That is already long forgotten. Will the government even be able to meet the 5.1% target? We can only pray. All in all, Budget speeches, akin to the Monetary Policy Review, are increasingly becoming mere rituals with no substance.
This move is certainly a precursor to the proposed Direct Taxes Code. But it is also an attempt to bring in more retail investors into the markets. It is indeed sad that Indian markets have to still rely on Foreign Institutional Investors (FIIs) inflows for its daily movements. Thus, if it has to have any hope of reducing this dependence, measures like the ones taken in the latest budget are more than welcome, we believe.
But the buck does not end here. The Finance Minister has also decided to widen the service tax net. Only services in the negative list would be exempt from the service tax. Services that are exempt include school education. Good for that. And to add to this, the tax rate has been increased from 10% to 12%. The only relief that the common man has is the savings due to the change in income tax rate slabs. But even there the savings is paltry as tax slabs have not been radically revised.
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