Seasoned politician Pranab Mukherjee has opted for fiscal consolidation instead of indulging in any pyrotechnics. His budget for 2010-11 may appear matter-of-fact and even pedestrian. It may remind one of the tendency on the part of finance ministers of an earlier era to – micro-manage spending energies on taxation of toy balloons or power packs for cycle rickshaws. Yet his efforts in moving towards a single tax on goods and services, the direct tax code and taking a greater recourse to information technology for better tax administration are matters for comfort. His very considerable political skills would also be needed to take the states, administered by different political parties, to move towards a rational single tax regime of goods and services. This would mark a drastic departure and would help bring the large services sector more effectively under the tax net. Mukherjee in his budget speech referred to this sector accounting for close to 60 per cent of GDP but only for one per cent of tax revenue.

Hopefully the move towards introducing the unique identification number under IT wizard Nandan Nilekani would have made considerable progress through the coming year. This will help target the large subsidies extended to the weaker sections more sharply and ensure the benefits reaching the sections deserving them most.

Thus the finance minister deserves appreciation for his efforts at simplification, rationalisation and consolidation. Viewed in this light, his partial roll back of the stimulus package can be appreciated. The increase in excise duties on non-petroleum products by 2 per cent (to 10 per cent for most products) and retaining the service tax at 10 per cent, will help evolve into a uniform GST, of perhaps 10 per cent. The finance minister's proposals relating to service tax are estimated to result in a net revenue gain of a small Rs. 3000 crore for the year.

Needed focus on IT…

Appointing Nandan Nilekani as the chairman of the Technology Advisory Group for Unique Projects (TAGUP) in the hope of creating IT projects which are reliable, secure and efficient for effective tax administration and financial governance appears a welcome move. IE has been pointing to the predominant share of work done by leading IT companies of the country like TCS, Infosys and Wipro, going for exports, for finding solutions to governments and large corporates in developed countries and to less than 10 per cent of their revenues gathered from projects in India. Obviously the latter are in crying need for such expertise, especially, the vast machinery of government dealing with the social needs of the teeming millions.

The administration reforms suggested by Mukherjee that will ensure targeted and effective delivery will be facilitated by such a technology backup.

The pick up in the growth rates of the services and manufacturing sectors points to a buoyancy in revenues which, in turn, will help fund the handsome outlays proposed for the infrastructure, social and agriculture sectors. Importantly, the pick up in growth rate to 7.2 per cent estimated for the current year and reaching 8.5 per cent plus growth from the next year will impact on the much desired fiscal correction. The finance minister has endeavoured to keep the fiscal deficit to 5.5 per cent next year and move towards 4.8 per cent and 4.1 per cent respectively for the subsequent two years. This return to fiscal prudence is welcome.

Petro duty increase - needed correction

Three different committees set up for looking at the pricing of petroleum products have reinforced the need to raising product prices in line with crude prices. The scrapping of the administered pricing regime will restore the health of the oil marketing companies, The APM has been seriously harming improvements in the services of the oil marketing companies, especially, the new entrants - Reliance, Essar and Shell - which have brought about welcome improvements in service, particularly in the quality and quantity of fuel delivered. With no immediate state elections scheduled around the corner, the finance minister should have made bold in leaving it to the P&NG ministry to raise the prices that would vastly reduce the need for the oil subsidy burden on the government. The next best thing had been done by Mukherjee in restoring the excise duties on petrol and diesel and other petro products plus a modest duty of Re. 1 per litre on petrol and diesel. These changes have resulted in the increase price of diesel by around 2.8 per litre and of petrol by around Rs. 3.01 per litre. Opposition parties obviously did not have much else to protest in the budget proposals and staged a walkout over this single proposal. This is indeed sad; petrol is consumed by the middle and richer classes which can and should contribute to the tax effect. The modest increase in diesel is again affordable by the transport users. Past finance ministers like Yashwant Sinha protesting against this increase in indeed puerile. The argument meted out by him was that the Congress then opposed his plans to raise petroleum product prices and that it was just a tit for tat!

Private public participation…

Quite expectedly infrastructure, agriculture, rural development and the social sectors have been given special attention. Of course these are circumscribed by constraints in government finances. The finance minister has been candid in stressing the role of the government as an enabler inviting the participation of the private sector for delivering development. The NDA government did this and even the United Front governments of the mid-1990s were not averse to this. Also look at the Leftist government in West Bengal exerting to invite investments through FDI and from large private corporates. Except for ostriches like the Sainaths and hardcore Marxists, the considerable progress made by the country through the opening up of the economy for the private sector should be evident. Of course for the Sainaths it's a congenital conditioning and they have to cry hoarse over any participative move towards development.

The humungous burden of public debt

IE has been expressing deep concern over the increasing burden of public debt: for over a decade from 1994 to 2007, debt servicing costs had been in excess of total revenue receipts forcing the government to resort to borrowings in increasing quantum to take care of essential development expenditure. Happily, this situation reversed in the last three years, thanks to the 9 per cent growth rate with attendant huge buoyancy in revenues. But remember the government was forced to borrow close to Rs. 400,000 crore for 2009-10 which marked a four 'fold jump from the average borrowings of around Rs. 100,000 crore per annum in the previous years? The budget proposes raising market loans of close to Rs. 350,000 crore in the coming year. For 2009-10, the budget estimated debt servicing amounting to Rs. 568,402 crore against a estimated revenue receipt of Rs. 614,497 crore. The mandarins at the North Block seem to have formulated a new method to show much lower figures of repayment of debt from the revised estimates for 2008-09. The actual figures for 2008-09 showed a figure of Rs. 82,691 crore; in the budget estimates for 2009-10 a figure of Rs. 342,891 crore was shown, but the revised estimates show only Rs. 95,181 crore!

Public debt has ballooned from a level of around Rs. 62,000 crore in the early 1980s, to around Rs.3,637,894 crore, estimated at the end of March 2010. This does not take into account public debt incurred by the states and UTs. So the new formula has been designed to provide the comfort of showing revenue receipts much in excess of debt servicing!

The finance minister seems to be aware of this ingenuous accounting: he has proposed an explicit reduction in the domestic public debt - GDP ratio. He proposes to bring out within 6 months a status paper and a road map for curtailing the over all public debt. This is specially welcome.

The weakest segment of the economy continues to be agriculture. Despite claims of a massive step up of outlays for agriculture, the more than four 'fold increase in agricultural credit over the last five years to a massive Rs. 375,000 crore proposed for 2010-11, despite the huge loan waivers and interest concessions, production has been stagnant: average annual food production through the last 10 years has been stagnating around 210 mn tonnes. Even in the better organised sugar sector, there have been wild fluctuations in production bringing about serious distortions in pricing. The finance minister has proposed a four-pronged strategy – to focus on agriculture production, reduction in wastage of produce, credit support and food processing. These are obvious and known remedies. The missing elements are the inability of the research and development mechanism at the Krishi Bhavan and the extension efforts on the part of agriculture departments at the Centre and the states. In fact the green revolution was triggered precisely by a good combination of an imaginative political leadership, backed by a strong administration, an involved scientific community and a passionate extension workforce. With the current abysmal levels of productivity which are a tenth of averages in developed countries, a dynamic political leadership can and should attend to this with speed. India has the potential to emerge the food bowl of the world. Government should find a Sam Pitroda or a Nandan Nilekani type of leader to impart the needed dynamism.

One watches with a good deal of expectation to the success of the finance minister in improving government's delivery mechanism. In this liesthe effectiveness of the consolidation measures proposed by him.