What Pranab will not say in his Budget...

SOME TRUTHS YOU MAY NOT HEAR

I RISE to present the Budget for 2010-11. Historically, budgets have had massive fiddles to cloak the true fiscal deficit — by pushing the government's own borrowing requirements into the books of oil marketing companies, fertiliser companies and the Food Corporation of India. Smoke and mirrors were used by my predecessor to claim that he would cut the fiscal deficit to 2.5% of GDP in his 2008-09 Budget. In fact, the hidden borrowing requirements added up to another 2% of GDP. Let me confess that my last Budget used the same smoke and mirrors, despite which it projected a fiscal deficit of 6.8% of GDP. But from now on, the Budget will itself provide in full for all the subsidies dished out by public sector corporations. 

    The Fiscal Responsibility and Budget Management (FRBM) targets will be revised in light of our new transparent procedure, and will also be harmonised with business cycles, something that was never done earlier. This means we will run higher deficits in a recession, and aim at a budget surplus in the best years. Good years are coming, so we will aim at a budget surplus within five years. 
    We have for decades been giving huge, open-ended and unwarranted subsidies for petroleum products and fertilisers. This will end forthwith. Oil and fertiliser companies will be freed from price control. 'Cylinders only for rural areas, piped gas for cities' 
THERE can be no case for subsidising the consumption of petroleum products, given that they are imported, will rise enormously in price in coming years, and are major sources of carbon emission — which we have pledged to reduce. Fertilisers, too, are carbon-intensive. 
    In future, there will be no subsidy for petroleum products. In place of the kerosene subsidy, we will give solar lamps or LED lamps to poor people in areas without electricity. And those getting LPG cylinders should switch to piped natural gas. Cylinders should be limited to rural areas where piped gas may not be available. 
    For years, we have had hypocritical talk of inclusive growth, while financing schemes that do not reach the needy. Removal of price control on oil and fertilisers will yield bumper profits for public sector companies in oil, gas and fertilisers, which will be transferred to the Budget in the form of special dividends. This revenue bonanza will finance vouchers to families below the poverty line to buy essential items. Additional sums for inclusive programmes will come from rapid economic growth and GST reform. 
    Armed with this extra revenue, we shall substitute cash transfers for subsidies. We will abolish the food subsidy. Instead, we will give vouchers to poor people to buy food and fuel items of their choice from regular shops. This will end the current rampant diversion of PDS supplies from traders into the open market. 
    We shall issue education vouchers to people who wish to send their children to private schools, and not to government schools that are substandard. Similarly, we shall issue health vouchers. The new Unique Identification Number scheme will be harnessed to ensure proper delivery of benefits to beneficiaries. 
    A recent paper by Ramesh Ramnathan shows that different agencies have different definitions of BPL families, and only 6% of the Bangalore BPL families are common to all definitions. The food and civil supplies department estimates BPL families at 106% of the whole population of Bangalore! This chicanery must end. I propose to appoint a Committee for Identification of BPL families. 
    Disinvestment of public sector undertakings will fetch Rs 50,000 crore this year. Till now, we have refused to privatise profit-making PSUs. That will end and we will, in the next four years, privatise all public sector corporations, save a few truly strategic ones such as the State Bank of India and the Nuclear Power Corporation of India. This will yield enormous sums for improving public services, which should be the real purpose of the government. We will end the era when the government used tax money to build steel plants and heavy machinery while neglecting the delivery of essential services from law and order, justice and infrastructure to education, health and nutrition. 
    Budgets are mainly about changing tax rates. Last year, this was complicated by the fact that we cut excise duty by 6% and service tax by 2% to provide a fiscal stimulus to industries badly hit by the global recession. We also provided additional assistance to exporters and some other affected sectors. Several doses of stimuli were injected into the economy outside the Budget: the Budget itself claimed to be tax-neutral. I propose that the withdrawal of the stimulus will also be outside the Budget. Hence, my own limited Budget proposals are tax-neutral. 
    I know people will say I must give some hint of what the exit from the stimulus will be. Very well, our tentative plan is to reverse the excise duty cuts at the rate of 1% every quarter for the next six quarters, starting April 1, 2010. We plan to reverse the service tax cuts by 1% in September and another 1% next March. However, this schedule is subject to change, because it will depend on the speed at which the global economy recovers. There are fears of a double-dip recession, in which case we may extend the stimulus for a longer period. But if the global economy gathers steam, we may accelerate the reversal. Such flexibility is essential. 
    The universal Goods and Services Tax (GST) will not be in place by April, as I had hoped. I am not sure when the chief ministers will finalise state GST rates, and only after that can we fix a central GST rate. We will also need a Constitutional amendment, and all this will take time. The new GST should roll by April 2011. At this stage, let me simply say that the reversal of the excise duty cuts will also be linked to the new GST rates. The lower the GST rates, the less will be the rollback of excise duty cuts. 
    Direct taxes will remain unchanged until the Direct Taxes Code is thoroughly debated through the next financial year. We will then take a view of direct tax changes in the next year's Budget. Central sales tax will be reduced to 1% in April 2010, and abolished when GST is introduced one year later. 
    The law on banks will be changed to allow government holding in them to fall to 25%. This will enable public sector banks to keep raising additional capital. Foreign investment in public sector banks will have a ceiling of 24%, not 20%. In insurance, all limits on foreign holdings will be abolished. 
    I am confident that these changes will help accelerate India's GDP growth to 12%, and hopefully, we will soon overtake China to become world number one in growth. In the process, we expect government revenues to rise at 20% per year, financing vouchers for the poor and other inclusive programmes such as NREGA. In this manner, we will finally have growth with social justice.

FM STATION: If Pranab Mukherjee had his way, he would go for some bold steps like removing subsidies & controls