Pranab Mukherjee presents Union Budget 2011 : Govt inflicts, and common man endures

Today, the Finance Minister will place before Parliament the Union Budget for 2011- 12. There will be reams of pages in the media on instant analysis of the budget. Much of these pronouncements will be from the standpoint of a very small segment of the population. It is to be expected that the Common Person would be a little indifferent, a trifle confused and somewhat apprehensive.

Of course, we will be assured that inflation would be brought down without affecting growth and that the fiscal deficit would be reduced without putting a burden on any segment of society. Experts claim that high growth is essential to the overall well- being of the population and that the masses have no option but to grin and bear the adverse effects of inflation.

There are also socially conscious analysts who argue that reducing the fiscal deficit always hurts the poor more than the rich and, therefore, reducing the fiscal deficit should be an anathema. Again, there are advocates who argue that higher employment and higher inflation are preferable to lower employment and lower inflation.

While growth does, eventually, trickle down to the poor, this takes inordinately long; in the interim, the pain of inflation is instantaneously inflicted on the poor. It is argued that increased inequality is inevitable and what matters is the raising of the standard of living of the lowest income group and that we should not be concerned about the rich becoming richer. But this is where social tensions arise as the lower income groups naturally aspire to reach the standard of living of the rich.

The Finance Minister would, today, make a sincere attempt to reconcile these conflicts and contradictions.

His task is an impossible one, akin to making an omelet without breaking an egg! About two- thirds of the expenditure budget of the bottom 40 per cent of the population is on food and it is argued that the government should release large quantities of food grains to bring down inflation.

While this is an appropriate anti- inflationary measure, the government has to contend with the rich and very powerful agricultural lobby. As such, the Common Person cannot expect much relief by way of lower prices. What is of relevance to the poor is the level of prices and not the rate of increase.

It is pertinent to recall how the Indian authorities responded almost 40 years ago. In 1973- 74, international crude petroleum prices exploded and simultaneously there was a serious crop failure necessitating large food imports. The Union government took decisive action to control the annual inflation rate which had risen to 30 per cent. The response of the government was to undertake harsh monetary- fiscal policy action to expeditiously douse the inflationary pressures. In the event, the inflationary pressures abated.

In recent years there has been endless discussion about the international contagion effect of the financial crisis. Today we need to give serious attention to the contagion of social unrest spreading from one country to another. It is, therefore, hoped that the issue of inflation control will be faced head- on in today's budget.

There is good reason to pull back the fiscal stimulus that was provided in the context of the international financial crisis. But it is of concern to the Common Person as to how this would be done. It is well known that indirect taxes ( essentially customs and excise duties) hit the poor disproportionately.

Thus, one fervently hopes that the Finance Minister would use due caution while raising indirect taxes.

The Direct Tax Code (DTC) is expected to be rolled out from April 1, 2012. Given the cruel burden of inflation, there is merit in undertaking some of the DTC measures in the Budget of February 2011. The lower strata among income tax payers would benefit greatly if the general exemption limits are raised.

Senior citizens are becoming an increasing proportion of the population and political economy considerations would warrant that the Finance Minister cushion these senior citizens from the ravages of inflation. While economic pundits often argue against indexation, the fact is that indexation is all pervasive in the government, in the public sector and the private sector. et, when the plea is made that the senior citizens should be provided an element of indexation, the bogey of the fiscal deficit going out of hand is raised to turn down the requests of senior citizens. If the government is serious about controlling inflation it should announce that a Senior Citizens Inflation Indexed Bond would be issued in 2011- 12.

This is the one measure senior citizens would look forward to. The absence of such a measure in today's budget would greatly attenuate the credibility of the government's resolve to bring down inflation.

A legitimate question is whether measures to cushion the adverse effects of inflation would mean a loss of revenue or increase in expenditure. One would hope that the Finance Minister would not fall for such a ploy. A very mild tightening of the tax regime for capital gains, wealth tax, gift tax and inheritance tax would enable the government to take care of the vulnerable segments of society. Given the clime, however, it is highly unlikely that the Finance Minister would tighten the tax regime relating to these taxes.

I recall some years ago an old woman, bent with age, sweeping in a high rise building in Mumbai. She looked up and said, " What does the government give us -- " Mehangai aur Mehangai" ( higher and higher prices).

One prays that the Finance Minister would, today, address the anguish of this woman.