Union Budget: Is it the FM's job to be kind? - Views on News from Equitymaster

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Union Budget: Is it the FM's job to be kind?

Mar 16, 2012

Pardon us for sounding impractical. But given the economic circumstances that the Union Budget 2012 was presented in, there were some faint hopes of bolder strides. However, the Finance Minister seems to have chosen to stick to his mild disposition. Quoting Shakespearean verses about the need to be 'kind', he nailed the fact that the Budget announcement was all meant to be politically and not economically convincing.

Citing the need to amend the targets of the Fiscal Responsibility and Budgetary Management (FRBM) Act, at the very early stages of his speech, the FM did show an inclination towards better economic governance. But as he proceeded to dole out more subsidies, the hopes for an accelerated economic makeover fizzled out. At 5.1% of GDP in FY13, the fiscal deficit target may be realistic but distant from its earlier destination (3% of GDP).

The Direct and Indirect tax structures too remained on predictable lines. Ignoring the need to be more revenue reliant, the current budget, like its predecessors continued to bank on disinvestment proceeds for capital expenditures. At Rs 300 bn, the disinvestment target is once again ambitious! In fact, the reliance on foreign funding seemed to have also been moved to the top gear. Sectors ranging from aviation to infrastructure to power to roadways are to rely on them to meet funding needs. The decision on FDI (foreign direct investment) in sectors like retail and aviation remains clouded. While there was no clear proposal for bailing out players in the aviation sector, reframing policies to suit them was facilitative enough.

India Inc had little to cheer with most of the key road blocks to growth finding no remedy in the FM's fiscal planning. While some supply bottlenecks like that of coal may get eased out, higher excise levy and a wider service tax net would dent profits. Some timeliness in implementation of Goods and Services Tax (GST) and Direct Tax Code (DTC) can be a consolation.

For the 'aam aadmi', the FM played the role of Santa Claus to the tee by keeping tax slabs benign and offering sops for savings and investments. His kindness to the agricultural community, however, remains unchallenged with interest subventions being doled out by the dozen. If only these subsidies reflected in the economic well being of the small and marginal farmers who are driven to suicides within months of the Budget speech! How does the government plan to squeeze in Food Security subsidies in this frail budget remains as much as mystery to us as it is to you.

Overall, the FM has done a good job of being 'kind' if that is the mandate that has been elected for. Ensuring that the economy does not go into obsolescence and reform measures are taken proactively seems to be a forsaken job. For that requires some ruthless policy making and some aggressive implementation. But alas that is not how politicians retain their seat!

Tanushree Banerjee

Tanushree Banerjee (Research Analyst), is the editor of Stock Select and, ValuePro Equitymaster's oldest recommendation services. She is also the editor of Equitymaster's most popular newsletter read by over 300,000 subscribers, The 5 Minute WrapUp. Tanushree started her career at Equitymaster covering the banking and financial sector stocks and scrutinising RBI policies. Over the last decade, she developed Equitymaster's research processes that helped us pick out various multibaggers, across all sectors. A firm believer of "safety first" when it comes to investing, Tanushree closely follows the investing philosophies of Warren Buffett, Jeremy Grantham, and Joel Greenblatt.


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2 Responses to "Union Budget: Is it the FM's job to be kind?"

Gopal MOR-Jaipur

Mar 16, 2012

Not a bad budget for Share-market.

Like 

Ananth

Mar 16, 2012

The Finance Minister has done harm to people in the poor and old age category by increasing service tax by 2.06% (including education sess). This means increase in utility bills, telephone bills, all kinds of repairs and services for every thing you can think of. The income tax exemption from 1.8 Lakh to 2.0 Lakh does not benefit all. FM should have spared service tax hike, and focussed incvreasing excise, customs etc. more on luxury items.

Lack of consistency is hall mark of any FM. STT was reduced. Any reason? (A few years back Fringe Benefit tax was introduced on SuperAnnuation, which was removed 2 years later). Overall budget is becoming a gimmick every passing year.

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Equitymaster requests your view! Post a comment on "Union Budget: Is it the FM's job to be kind?". Click here!

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