A budding economist takes a crack at analyzing the union budget

Shiekh Yasir has something to say about what the Finance Minister (FM) did not address in the 2008-2009 budget

(Mr. Shiekh Yasir, 22, was born in Kawari, Handwara, and grew up in Sopore. He is currently doing MBA at the prestigious Indian Institute of Planning and Management (IIPM) in New Delhi. He enjoys college life and loves to discuss economics and government policy.)


No doubt, year after year the Union Budget ritual is a big let down. But then, this year's Budget has surpassed all such milestones created by previous Budgets in letting down the masses of this country. It was amazing to watch how casually and callously our honourable Finance Minister (FM) kept on doling out favours after favours, with the least respect for a citizen's money. It was also amazing to note how our sitting MPs, dead drunk in 'populism', kept on vehemently applauding each and every illogical and irrational announcement made by the FM. The final icing came towards the end of his speech, when mainstream media, industrial associations and industrial big wigs shamelessly sang in unison in appreciation for the FM, without getting into the details of the actual impending effects of some of the reckless decisions taken by him, in his Budget speech.

Let's start with our Honourable FM's biggest kill in this year's Budget - Waiving of a staggering Rs 60,000 crores worth of loans of farmers. This waiver has actually catapulted him to a 'messiah of farmers,' who seems to be desperately trying to sensitise and uplift the downtrodden farmers from misery!! But then the truth is far from reality! What I fail to understand is that for a FM who is reading his seventh Budget, isn't he aware that this waiver in reality would not serve any of its purpose? Isn't he aware of the fact that more than 50% of the farmer families are in debt trap, and of these, around 50% are those farmer families who are victims of vicious debt traps laid down by the private money lenders? Is he completely ignorant of the fact that it is these farmer families who are most prone to suicides and that such a waiver would not be of any help as these private lenders do not fall under the purview of RBI? For any FM not to know all this is definitely not possible. And if it is so, then the question is, why such a waiver when it does not help the needy? And who does this waiver actually help? Well, answers to both these questions are actually the same. The waiver invariably helps only those farmers (relatively more well-to-do) who, first of all, have the means of getting a loan from a bank. More importantly, it is also a fact that (much unlike the way our FM feels) not every other farmer in India is in distress, as the rich farmers of Punjab, Haryana and Western UP are also some of the largest buyers of the luxury cars in India. By giving a blanket waiver, all that the FM has done is to pamper the relatively well-off farmers and encouraged the borrowers to waste money on conspicuous consumption and leaving the state of the distressed lot as it is.

The truth is that the problem of the farm sector simply cannot be done away with just a one time loan waiver. And this is something which our honourable FM also knows, but then looking at the way he has still gone ahead with the waiver, leaves no doubt that it was a populist step intended to fetch votes for the incumbent government in the ensuing Union elections! Had the FM any intention of actually helping the distressed, then instead of waiving this loan, he should have deferred it, and should have mobilised the same for further capital investments and employment generation schemes in rural India, especially in the distress prone areas. Or for that matter, even if the FM would have decided to distribute this sum through a monthly scheme to all the distressed rural families, it would have been still better than the waiver, as then it would have fetched even better results towards humanising the budget exercise.

His next big kill was the unwarranted tax exemptions for the working class. 'Unwarranted', I say, because these exemptions (except for the one granted for senior citizens) again do not help those who need them the most. As such, there are almost 70% (including the 40% below the poverty line) of the Indian population who do not fall under the tax bracket, and even for those who fall under it, only 2% of them actually pay taxes, so the effective benefit accrues to only 2% of the population, which is the typical Indian middle class. Any which way, this middle class has always been self centered and has been pampered by the government for long through various subsidies and other forms of benefits, so instead of giving them any further, the FM should have mobilised the same money for the benefits of the underprivileged, for it would then have actually universalised the benefits of the Budget exercise.

In fact, the downside of the entire Budget had been so severe that it has completely offset the only upside of it. And that is his initiative of including all the 600 districts under the NREGA. No doubt, this is the right step towards productively engaging the underprivileged, provided it succeeds in corruption-free implementation, which in itself remains a daunting challenge. Also, other than this, the FM has increased the budget allocations for health and education by 15% to 20% respectively, but then it still does not come anywhere close to what the government should actually spend. In fact, if the revenues have grown on the income side, the least that was expected was a proportional increase in allocation in the priority social sector spending, which again did not happen.

All in all, with disproportionate and undue privileges to the already privileged, and that too, with the sole objective of gaining political mileage, the Union Budget 2008/09 would go down in the pages of history as the most de-humanising budget ever delivered!!