The Hindu : Travesty of the budget

Online edition of India's National Newspaper
Friday, Apr 19, 2002

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Travesty of the budget

WITH THE NATIONAL Executive of the Bharatiya Janata Party issuing a diktat to the Union Finance Minister, Yashwant Sinha, the budget for 2002-03 is more or less in shreds. Fiscal consolidation was the avowed objective of the budget, but it is the very proposals on taxes and administered prices that were meant to consolidate the Government's finances which have earned the wrath of the BJP. Mr. Sinha, who will do his party's bidding to a greater rather than lesser degree, is set to earn once more the embarrassing sobriquet of a "rollback" Finance Minister.

It is not that the budget proposals are supposed to be sacrosanct. Indeed, in this particular budget there was much that was wrong and which called for a modification. However, it is the proposals that have been chosen for a rollback, the recipes that are being offered and the motivation for the entire exercise which have made a travesty of the budgetary process. The first proposal that the BJP has singled out for attack is the proposed graded dilution of tax exemption to savings. Blanket tax exemption (within a ceiling) to savings at all income levels is poor fiscal planning especially when the savings schemes are not linked to any particular activity like housing or a retirement fund. So while there was a definite problem with the old regime of tax exemptions for savings, the solution required was not what Mr. Sinha proposed. A high-level committee had suggested making a distinction between short and long-term savings, providing tax exemptions only to long-term savings and linking them to housing. This would have encouraged savings of the kind that both the economy and the individual needed, facilitated acquisition of certain kinds of assets, and at the same time removed the irrationalities in the existing system. But instead of dealing with the issue in a systematic fashion and as part of a package, the budget put all tax exemptions under the axe, naturally provoking loud protests from the urban salaried and its spokesperson, the BJP. It is symptomatic of the nature of contemporary political debate that Mr. Sinha is not being asked to go back to the drawing board and come up with a more appropriate rationalisation of the regime of tax exemptions but has been asked to simply restore, in large measure, the original system. This is ad-hocism of the worst kind, which pretends for the sake of political opportunism that there is no problem whatsoever. The same ad-hoc approach underlies the BJP's understanding of the other budget proposals under siege — the reduction in interest rates on contractual savings, the rollback of fertilizer, LPG and kerosene price hikes and even the abolition of the tax exemption to dividends.

The BJP may feel that a restoration, in part or in entirety, of the status quo in certain tax proposals is necessary in electoral politics, but this is hardly good governance. It is an increasingly frayed memory now that the BJP's biggest claim to power in the late 1990s was that it would provide a good government. A rollback on many fronts is being demanded on the ground that Mr. Sinha's budget has alienated the party's traditional base of the urban salaried. Such an argument, right or wrong, panders to sectional interests and does not befit a Government in office at the Centre. The National Democratic Alliance Government has never tired of talking about the need for tough decisions and about calling for sacrifice in the cause of a larger national good. The flip-flop behaviour that we have been witnessing on the budget shows, however, that the NDA Government is more consistent about indulging in political opportunism.

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