The Polit Bureau of the Communist Party of India (Marxist) has issued the following statement:
On Union Budget 2005-2006
The budget presented by Finance Minister for 2005-06 represents a welcome shift towards emphasizing employment generation, development of infrastructure especially in rural areas and investment in social sectors, which is in accordance with what was suggested by the Left parties in their memorandum. The actual expenditures visualized, however, fall far short of our expectations. Furthermore, the tax revenue estimates of the budget appear to be significant over-estimates, in which case, if expenditures are cut later, in the event of tax shortfalls, the actual provisions for these sectors could well suffer. This apprehension is not without basis, since the tax estimates which had been made last year have turned out in retrospect to have been significant over-estimates. (Gross tax revenue was Rs. 306021 crore (RE) as against the target of Rs. 317733 crore (BE) i.e. a shortfall of nearly Rs. 11,000 crores.)
The Finance Minister’s concern for the agricultural sector is belied both by the limited allocations for this sector, and by the inadequate tariff protection offered to it. His emphasis on crop diversification, moreover, goes against the basic national objective of ensuring self-sufficiency in foodgrains. The problem in the country has not been that we produce too much foodgrains for our requirements but that there is insufficient purchasing power with the working people.
As regards the tax measures themselves, the range of reductions provided in customs duties on capital goods imports, while their impacts on overall private investment decisions remains questionable, could well pose a threat to the domestic capital goods industry. The reduction in overall corporate income tax rates on domestic companies is uncalled for since the question of parity between personal and corporate income taxes is not pertinent. Likewise, the substantial exemptions given in the realm of service taxation goes against the whole objective of mobilizing larger resources for enlarging public investments and transfers to the poor.
The reduction in import and excise duties on kerosene and LPG is welcome. But the imposition of a 50 paise cess on petrol and diesel will certainly have adverse consequences for the people, coming as it does on top of a hike that was imposed earlier this year. Higher transport costs on account of the diesel price hike could have across the board inflationary consequences.
While the Finance Minister has done well not to rely on disinvestments proceeds for budgetary purposes, some of the changes he suggests in the Banking Regulation Act cause concern. For instance, the removal of all bounds on the Statutory Liquidity Ratio and the Cash Reserve Ratio together with the provision of flexibility to RBI to prescribe prudential norms is likely to push both the Reserve Bank of India and the banking sector generally on a path of autonomy with little accountability to parliament. At a time when the Finance Minister himself has recognized the importance of directing the banking sector to increase its allocations to the rural sector and to small borrowers, the envisioned autonomy for the banking sector runs counter to this objective.
The proposal to induct direct foreign investment especially to the mining and pension funds sectors has serious consequences. While there can be no objection to induction of FDI in areas where it adds to the country’s level of activity and productive base, mining and pension funds do not fall into this category. The national control over mineral resources is absolutely essential; likewise, the pension funds of the people must under no circumstances be entrusted to the discretion of foreign operators. The claim that the pensioners would be legally protected is untenable when, as the Bhopal Gas Tragedy case illustrates, common people are in no position to take these large companies to court.
The suggestion that trade in derivatives is not to be treated as speculative carries little conviction. The budget indeed is remarkably silent on the whole question of taxing the operations of foreign institutional investors. While the concerns for curbing black money is welcome, though the 0.1 per cent tax on cash withdrawals may not be the most appropriate way of doing so, the absence of any similar concern in curbing financial speculation, especially by FIIs, is one of the major lacunae of the budget.
The Finance Minister’s retreat from the 0.15 per cent tax on stock market transactions proposed last year was unfortunate. Even though there is an increase in the current budget from 0.015 per cent to 0.02 per cent this year, the entire tax is too miniscule to make any difference either in terms of revenue or in terms of curbing speculative trading.
The Polit Bureau of the CPI(M) hopes that these concerns will be addressed by the UPA government during the course of the discussion on the budget in the Parliament and in the public domain.