BUDGETS- MYTHS
Annual Budgets are only statements of intent by Governments but create so much hype around the allocations fulfillment of many wish lists of various pressure groups. In fact no Finance Minister in recent memory has managed the finances well that he has not breached the figures he has set for expenditure on revenue account and projected revenue and budgetary deficit. Always supplementary grants are presented and often passed with out a murmur or even a token debate. A perfect example of the monumental failures of union budget could be the fact despite services taxes being the second largest revenue earner after direct taxes, the budgets are run on deficits. Mind you services were taxed only recently as per Raja Chellaiah Committee report . This huge bonanza has not created any surplus on the revenue account which continues to inflate year after year even after adjusting for inflation. Now the budgets are not that transparent. Earlier the Finance Ministers used to share the budgeted and revised revenue on various accounts- both tax and non tax, revised and budgeted figures of expenditure on both capital and revenue account, and usually there will be a revenue deficit bridged by capital account surplus. Deficits are now expressed as a percentage of GDP, and last time it was capped to be brought down to 3% of GDP by 2016. Nothing sacrosanct about this capping deficit is a deficit and all this is due to current account deficits. Actual CD is more because by cutting short plan expenditure, capital account surplus is created to bridge revenue deficit. Of late, FMs assume some inflow through Divestment in select PSU which are sold for a song. Assuming for a while that this helps to reduce the deficits some day in future you would have off loaded all your holdings in PSU and if expenditure continues unabated what will be the fresh source of revenue? Vijay Kelkar committee recommended to do away with multiple exemptions in both and indirect taxes. No one has seriously considered it. In a closed economy, it was right to exempt export income from tax but with open economy and Forex reserves booming why not begin taxing export income at least moderately. None of our IT companies pay any corporate tax. Chidhambaram at least initiated certain measures to contain expenditure. Contributory pension scheme is one such. He also abolished all export subsidies like CCS, REP, Freight equalization, at one stroke of pen. He also made direct taxes more contributory to the kitty than indirect taxes. He taxed capital market transactions albeit nominally. Securities transaction tax could be upped marginally to minimize speculative transactions. The uncovered fiscal deficit forces the government to go for massive borrowings which again increases non plan expenditure on account of interest . People only talk of reducing subsidies to the poor and not on interest costs, debt service costs and corporate give away. Massive borrowings by the Government squeezes liquidity in the banking system already curtailed by CRR and SLR. Manufacturing does not get credit in time to scale up. This reduces targeted tax receipts both direct and indirect. Instead we can think of one time monetization of deficit at one go. That would increase money flow in the economy with attendant problems of inflation. But as an one time measure, that will solve recurring deficits being continually financed through borrowings increasing debt servicing burden year after year which will spin out of control.
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