The Polit Bureau of
the Communist Party of India (Marxist) has issued the following statement:
The
Finance Minister’s speech indicated his concern for agricultural development,
employment generation, health, education and the overall conditions of the rural
poor. The 2 per cent cess on taxes earmarked for expenditure on the education
sector is welcome. Other positive measures include the revival of the Rural
Infrastructure Development Fund, the proposals for repair of water bodies and a
nationwide water harvesting strategy. The intention to double the flow of
agricultural credit in three years, while not a budgetary measure, is also a
step in the right direction.
It is to be hoped
that the constitution of the Board for Reconstruction of Public Sector
Enterprises will lead to the revival of ailing public sector units. The proposed
equity support of Rs. 14194 crores to central PSEs also suggests a commitment to
the health of the public sector. However, the decision to divest NTPC shares in
this context is a source of disquiet.
Further, the actual
budgetary allocations for crucial programmes such as rural employment schemes,
Antyodaya Anna Yojana etc., are no higher than had already been provided for in
the Interim Budget of the previous government. Much larger allocations under
these heads, as well as for the rural sector generally, were expected given the
stated priorities of the Common Minimum Programme. The increase in
budgetary support for the central plan of Rs. 10,000 crores, although welcome,
is far from adequate and further increases in such expenditure would be
necessary.
The middle classes
have been provided some relief by the exemption from the tax net of those with
annual incomes of less than Rs. 1,00,000 lakh. The maintenance of 8 per cent
interest rate on PPF, GPF and Special Deposit Scheme and the application of EET
will adversely affect the interests of employees and pensioners.
The extension of
services taxes to a larger range of activities and the slight increase in the
rate are positive measures. The introduction for the first time of a tax on
stock market transactions is also to be welcomed, although the proposed rate is
too low. However, the removal of the tax on long-term capital gains was not
called for; rather, its implementation could have been made more effective.
The assumption that
a tidy sum can be easily recovered from tax arrears underlies this budgetary
exercise. If this does not translate into reality, then the proposed
expenditures necessary for improving people’s welfare would be threatened. It
is imperative that the Finance Minister protect such expenditure, and enlarge it
as promised, in all such eventualities.
The reduction in the
interest rate charged by the Centre on loans to the States from 10.5 per cent to
9 per cent is a necessary step, but this reduction should have been larger. In
addition, measures to deal with the overhang of old debt of the state
governments are insufficient. Not only is there no write-off of non-small
savings debt as suggested by the Planning Commission, but the coverage of the
proposed debt swap is still extremely limited. Since state governments will be
required to play an important role in fulfilling the objectives of the CMP, the
strengthening of their finances is crucial.
Part of the
constraint upon the Centre’s undertaking of necessary expenditures comes from
the Finance Minister’s conformity to the Fiscal Responsibility and Budget
Management Act 2003 which sets arbitrary limits on revenue and fiscal deficits
on questionable theoretical premises.
Certain
measures announced in the Budget speech are unjustified and are cause for
concern. The decision to raise the cap on FDI investment in three critical
sectors of telecom, insurance and civil aviation will give rise to reduced national control over these strategic
areas and cause unnecessary outflow of foreign exchange through repatriation of
profits. The government has no case for allowing foreign companies with 74 per
cent share to operate in telecom which is a sensitive sector with security
implications. In the insurance
sector, the FDI cap of 49 per cent goes much beyond what was decided by the
previous government. Measures to
increase the caps on FII investment in domestic debt instruments and in
securities in certain sectors, as well as allowing banks greater exposure in the
capital market can give rise to volatility without providing any evident
benefits to the economy. Since it is already evident that FIIs are simply
“using India as a parking place for dollars” and have not contributed to
increased investment rates, encouraging them further is uncalled for.
The
first budget of the UPA government will have to be seen in the context of the
mandate given by the people in the
Lok Sabha elections. The CPI(M)
will take up with the government such proposals in the budget which are not in
conformity with the people’s interests. The
Party will go to the people to mobilise their support on these issues.