One of the biggest challenges of Democracy is a balance between populism and pragmatism.The burning example of the same is the Railway budget.Mr trivedi came up with a rational budget which would liberate the cash starved railways but the whole Mamta fiasco is what we can call a bane of Democracy.Same was the case with the FDI.So Pranab da had a huge burden,less by the mounting fiscal deficit and more by the reactions of the allies and the common man.Overall the budget can be classified as being neither populist nor reformist.
Before we start our discussion on the budget we need to take a holistic view of our situation.2011-2012 was not a dream year for most of the economies and India was no exception.China which has scripted a wonderful growth story faltered and the GDP prediction for them has touched a low of 7.5%.The Sovereign debt crisis in the Eurozone intensified,political turmoil in Middle East injected widespread uncertainty,crude oil prices rose,an earhtquake struck Japan and the overall gloom refused to lift.
The three most concerning issues for Indian economy is the high fiscal deficit,rising inflation and the poor performance of the manufacturing sector.According to Jan 9 2012 CIA World factbook the GDP composition by sector stands at Agriculture-19%,Industry-26.3% and Services at 54.7%.The mounting subsidy especially because of oil and fertilizers can take a toll if the Middle east crisis deepens.Inflation is largely structural, driven predominantly by agriculture supply constraints and global cost push.
India’s GDP is estimated to grow by 6.9% in 2011-12,after having grown at the rate of 8.4% in each of the two preceding years.The headline inflation remained high for most part of the year.It was only in Dec. 2011 that it moderated to 8.3% followed by 6.6% in January 2012.For most of the year we had to battle double digit inflation which resulted in the monetary and fiscal policy directed towards taming inflation.The repo rate and the reverse repo rate stand at 8.5% and 7.5%.The budget last year projected explicit subsidies at 1.6% of GDP,but the revised estimate is 2.4%.Exports grew by 23% to reach $243 billion,while imports at $391 billion saw a growth of 29%.
Key points of the budget :
- GDP growth in 12-13 is projected to be 7.6% and an inflation rate of 6.4% is assumed.
- The budget pledged to cut fiscal deficit from 5.9% this year to 5.1% next year,but lacked any road map to show when and how in the coming years the subsidies on oli,fertilizer and food would be checked.
- Increased the service and excise tax by 2% increasing the pressure on consumers.You will pay 2% higher service tax on your mobile bill,hotel stay, under construction house and many more and 12% service tax on AC train travel.
- Taxpayers can save upto rs.2000 a month on income tax if the tax bracket is 20% or 30%.
- The budget plans to cut the subsidy by 12%.
- Education budget hiked 21.6% to 25,555 crore.
- Agriculture will continue to be a priority for the government.The total plan outlay for the department of agriculture and cooperation is being increased by 18%.
- Blow for automobile industry due to higher taxes on the sector.
- Withdrawal of customs duty of 5% on LPG and coal to reduce energy costs.Boost for infra,powe gains the most with cuts in cost of fuel,equipment and capital.