The budget projects a pro-poor image, while covertly playing to the market
The news of Sachin Tendulkar hitting the 100th century replaced Union Budget 2012-13 as the main news within three hours of its presentation. Those who expected Finance Minister Pranab Mukherjee to be a la Tendulkar in fiscal management are disappointed.
The budget size is same as that of the last year: around 14 per cent of the country’s GDP. But it has proved all speculations in the run-up to the budget wrong. Given the political and global economic context, the budget should be analysed more on its general message than on hard fiscal decisions.
Politically, its message is clear: the government is not planning for snap polls. Ruling alliance may get a makeover. Economically, its message is louder and clearer: the government will continue to adopt a conservative fiscal policy. This means through creative accounting it will project a pro-poor image while covertly playing to the market by not increasing borrowing to spend on development programmes.
There are two key features of the budget. First, it has tried to enlarge the credit access of rural communities and the poor. The government has tried to replace declarations of sops with access to easy credits. Second, through various fiscal initiatives like amending the Fiscal Responsibility and Budget Management Act of 2003 (FRBM Act), it has given the private sector the message that reforms are on track, at least those concerning government's direct market impacting activities like borrowing. As if to make the message of striking balance more heard, Mukherjee took a pause to announce: “Temporary arrangement to use disinvestment proceeds for capital expenditure in social sector schemes extended for one more year.”
There are no big-ticket sops for the rural sector. It has marginally increased the budgetary allocation. But it has remarkably increased and facilitated the poor's access to credit. Target for agricultural credit has been raised from Rs 1,00,000 crore to Rs 5,75,000 crore in 2012-13. A credit refinance fund has been proposed to enhance the capacity of regional rural banks (RRBs) to disburse short-term crop loans to small and marginal farmers.
For self-help groups, new rates of interests has been proposed with further incentive of rebate for timely repayment of loans. The budget has proposed a “Women’s SHG’s Development Fund” that will help such groups with corpus funds, essential to access further credits. These groups are critical to the government's National Livelihood Mission. To improve the flow of institutional credit for skill development, it proposes to set up a separate Credit Guarantee Fund. There have been talks of large number of people being left out of the formal credit system as well as low priority lending from banks to such people.
Finance minister has also introduced amendments to the FRBM Act. Two of these amendments are important: One, introduction of the concept called effective revenue deficit, and two, the medium-term expenditure framework statement. The effective revenue deficit means the difference between the revenue deficit and grants for creation of capital assets. The Central government gives grants to states for various capital projects. Earlier the revenue deficit was thus highly overestimated. This will show the revenue deficit close to reality.
As under the Act, the government is bound to meet revenue deficit target that decides overall spending pattern. This rationalisation will help. The medium term expenditure framework sets forth a three year rolling target for expenditure indicators. So from 2012 to 2015 the government will project expenditure and trends. This, according to experts, gives the private sector the message of fiscal consolidation. This is where the real message of the budget. The government continues to be conservative in its fiscal policy.
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