Budget 2012: Politics is the art of the possible

March 19, 2012

(The views expressed in this column are the author’s own and do not represent those of Reuters)

The stream of criticism directed at the 2012-13 budget misses the point that this is the best the coalition government could offer under the circumstances.

Talking about “lost opportunities” assumes that there were some opportunities to start with. Surely the rapid reversal of important decisions such as FDI in retail distribution, the exports of cotton and the hike in rail fares should have signalled very clearly the limits imposed. The resignation of the minister involved is rather sad as the cabinet should have backed him given that the hike was a collective and not an individual decision.

Outsiders may point out that India can grow at 12 pct and 13 pct and not just at 6 pct – 7 pct, but the Indian democracy, that is the will of the Indian people, wishes otherwise.

Economic policies are like a restaurant menu. You can have a coffee and a sandwich or the caviar and champagne. The former costs little and is tasteless, the latter delicious but expensive. If the Indian people go for the sandwich, who is to say that they are wrong? But we divert, so back to the budget.

The policy measures taken are likewise of little substance — a lot of twiddling with details of income tax and extension or contraction of existing taxes. The case of privatisation is addressed in an anodyne manner, “amount to be raised”, but no list of assets. The retroactive parts of the corporate-capital gains tax are regrettable because they are retroactive and not specifically because they are aimed at a certain target. Retroactive legislation goes against all principles of natural justice by making illegal or non- permissible things which were legal and permissible at the time they were committed.

The macro economic impact of the budget is mild and if the planned reduction of the fiscal deficit from 5.9 pct to 5.1 pct of GDP is achieved, then the budget will be mildly contractional.

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