K G Saraf - Practicing Company Secretary, Saraf & Associates
for Daijiworld Media Network - Mumbai

Mumbai, Mar 19: According to the Dr Montek Singh Ahluwalia, chairman of finance commission the budget proposals presented by the finance minister meets with the various growth-oriented programmes  enunciated by the government. 

Given the global recession, the revenue buoyancy in India for the last 3 years has been so phenomenal that even speaking conservatively, India will be able to achieve a GDP (Gross Domestic Production) growth of  9% p a. Though a mass public opinion prevails that the GDP should be a double digit figure, so as to confront the present galloping inflation, a 9% growth is regarded to be a fair and balanced one. It is under this premise and confidence that the finance minister has put forward the following major financial measures:

1. Waiver of Farmers loans to the extent of Rs 60,000 crore
2. Threshold Tax exemption limit of Rs 1,50,000/- (Rs 1,80,000 for women and Rs 2,25,000/- to senior citizens)
3. Rationalization of excise duty on cars, two-wheelers, scrap steel etc
4. No change in corporate tax
5. Transaction tax waived with effect from April 1, 2009
6. Sixth pay commission role emphasized
7. Capital gains on stock market transactions (short term raised to 15%)
 
While those from 2 to 7 in the above list have stemmed out of expected lines, the first measure is of far more importance. Although many experts and professionals after minute study of economic surveys, budget estimates and allocations (both planned and non-planned expenditure) and direct tax propositions feel that the budget is inflationary, everyone ponders with the question as to how a huge farmers debt remission would be met. There is no mention at all in either the finance minister's speech in the parliament nor is there any mention in the fine print of the Finance Bill 2008-09. 

Politicians and economist naming this as a election strategy invariably compare with one time settlement of corporate loan introduced earlier by RBI under the direction of central government under NPA (Non Performing Assets) Regulations. Whereas the logistics of loans may be fairly known to people the budget is silent on exact sourcing of funding or refund of loan to the banks.

The finance minister has neither made any allocation of  Rs 60,000 crore nor raised fresh taxes to compensate banking sector towards the farmers loan waiver. This is certainly an amazing aspect of the Union Budget 2008-09 and has therefore raised eyebrows. It is a paradox that raised speculation in the minds of public as to how the finance minister will meet these obligation despite there being no raise in rate structure. Perhaps, as indicated by experts, bonds against the remission of agree-debts will be issued with the stipulated period by the government to the banks to the tune of Rs 60,000 crores and interest on these bonds would be paid out of the revenues on the government after amortizing the said debts.

It is indeed a bold step proposed to be taken by the government and the legacy of discharging the obligation of such huge debts would fall on the government that comes in to power after 2009 general elections – according the Yashwant Sinha, former finance minister.

But considering the buoyancy expected in the economic growth rate and prevailing robust economy it would not be a Herculean task for the government to achieve a moderate GDP growth rate, given the tax regime and legitimate inflationary trends. It is necessary to contain the fiscal deficit at less than 6.5% GDP, for being a fair economic decision.  Additionally, the sixth pay commission is likely to address this issue in detail.  

However, initially examining, the government has to introspect as to the spate of farmers' fresh loans consequent upon debt waiver. It should not tantamount to be detrimental to the progress of farmers, as a greater ‘sheltered economy’ to farmers amounts to pampering them and therefore not warranted.