Sucheta Dalal :Celebrating a non-event
Sucheta Dalal

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Celebrating a non-event  

Mar 6, 2007

Funny isn’t it, two days of nearly hysterical, over-the-top coverage and suddenly the Budget is widely dubbed a ‘non-event’. The reason: a 540 point fall in the Sensex in the middle of an unprecedented 4-year bull run. The Sensex only reflects public sentiment, and this time, there is simmering anger among tax-payers because the finance minister’s message seems to be — keep working, keep earning and give me more tax. Don’t expect me to reciprocate with better infrastructure, utilities or services because that is the domain of State governments and I am busy dreaming up newer taxes and surcharges.

Over the last decade, the hype about Budget Day and Valentine’s Day seems to be growing in tandem. In both cases, there is big corporate money riding on the events. The CEOs of every company with a large advertising budget gets pride of place in television studios and an opportunity to be among the first to praise the finance minister’s “dream budget” on live camera. They reciprocate by ensuring that the wheels of commerce are duly greased by their advertisement rupee.

The print media is well aware that the budget speech has lost much of its relevance due to television and the Internet, but it is difficult not to get carried away by the hype, when every public relations (PR) agency is bombarding you with ‘reactions’ from their corporate clients. The comments themselves are irrelevant; it is the media presence that reflects one’s standing.

Moreover, as with the Oscars, the secretive budget making process, the leaks and the trial balloons floated in the media whip up expectations about the grand event. Television cameras are such a magnetic force, that the Union Budget and Railway Budget are days when all Members of Parliament (MP) crowd the benches even if the proceedings cause some of them to snore off.

Given this drama, what did corporate India mean when it chorused that the budget was really a “non-event” this time? Well, it is the most neutral thing to say when you have a FM who does not take kindly to criticism and you honestly find it difficult to conceal your disappointment. Every industry that has been ignored or adversely affected has described the budget as a non-event; in that case what explains the 540 point dive of the Sensex even it was partly dictated by global market trends?

Like it or not, the budget remains an event because of the constant tinkering with taxes. The Securities Transaction Tax (STT) introduced a couple of years ago, settled down only after the government scaled back the absurd original rate. Although the collection of this tax is smooth and simple, investors remain at the mercy of tax officials over classification of short term investment versus trading profits. The government has simply ignored investors’ pleas for clarity.

The Fringe Benefit Tax also remains untouched even though it is patently unfair to smaller organisations, which are taxed on expenditure even before they earn any income. The cash withdrawal tax is also begging to be scrapped, but doing so would be to admit a mistake, so the cash withdrawal limit has been hiked to Rs 50000.

Meanwhile, why was the indirect scrapping of the Mutual Fund Identification Number (MIN) included in the secretive budget process? Obviously it was seen as a feel good announcement to make up for another tax surcharge. If the finance ministry and the regulator had paid attention to representations from the Association of Mutual Funds of India (AMFI), then MIN could have been avoided altogether. Instead, AMFI has got a bad name, the fund industry has wasted money on a needless project and investors have been harassed for two months or have wasted money on a MAPIN card (scrapped earlier) as well as a MIN card. And yet, nobody is held accountable.

One investor tells me that if the legal process wasn’t so difficult he would have sued the government for wasting his time and money. Grand social themes were again the focus of P Chidmabaram’s budget 2007-08; but without a report card on those launched in earlier years, such as the Bharat Nirman or the controversial National Rural Employment Guarantee Scheme. Instead we have a new set of pious initiatives with big financial allocation and nothing to suggest greater accountability in their implementation.

Flagging agricultural production has been a big worry for the government. Paradoxically, giant private sector companies see big business opportunity in agri-products and commercial banks see value in financing farmers and rural folk. Banks have been running large pilot projects on agricultural credit for over a year and are waiting to scale them up. Had the government asked them to share their experiences, the budget could have announced some practical and workable schemes.

In fact, the entire commodity sector needs urgent reform. This includes better empowerment of the Forward Markets Commission, automation of regional commodity markets and making Warehousing Receipts negotiable to improve farmers’ access to credit and help them benefit from futures market prices. None of this finds mention in the budget, despite the panic over inflation. If rising food prices are a serious cause for concern, then setting up another committee is hardly likely to yield a quick solution.

Small and Medium Enterprises (SME) is another key area of the economy that has been completely ignored; even the proposal for a separate SME bourse has been forgotten. This is curious, because SMEs are worst hit by rising inflation and higher interest rates and will probably be most affected by the 12.5 per cent service tax on their rented premises.

To those who have been adversely affected, the budget is hardly a non-event, instead the secrecy and lack of public debate about key decisions is an irritant.

-- Sucheta Dalal