The Union Budget, for the year 2010-11, presented by the Finance Minister before the Parliament today continues the onslaught of the UPA against the Aam Admi.  It fails to address the basic problems, which currently ail the Indian economy. The Budget is devoid of any big picture and it fails to lay down a road map for economic recovery of the nation or provide relief to the common man who is now under great financial stress. The Budget is an exercise of accountancy in as much as it changes and alters the outlay for existing departments and schemes of the government without laying down a road map to meet the challenges that confront the Indian economy.  

Food Shortage

    The Indian economy has entered an era of food insecurity and food inflation. Food shortages are no longer limited to pulses and edible oil. They have now affected sugar, wheat, rice and even milk. We expected large-scale incentives in the policy statement and enunciation of measures announced to incentivize the expansion of cultivation of the shortage crops. Except for making marginal allocations for expansion of food cultivation, the present budget does not go further. The supply side problem in relation to food has not been adequately addressed. The direct impact of food shortage is the high cost of food. The Government appears to be convincing the nation to learn to live with high food cost. There is no vision that the government has on attempting to overcome the said crisis.  

Non Food inflation

    A double-digit inflation seems inevitable due to the budget.  The Budget restores the basic duty of 5% on Crude petroleum, of 7.5% on petrol & diesel, 10 % on other refined products. It also enhances the central excise duty on petroleum and diesel by one rupee per litre.  This along with the increase of central excise by 2% is likely to have multiple and cascading effect on the price situation in the economy. These proposals far outweigh the marginal direct tax relief, which may be benefit a section of tax payers.  Both central excise and service tax enhancements make this a high tax budget. This is in keeping with the UPA’s policy of gradually increasing the tax burden on the Aam Admi.  These proposals will eventually end up making products costlier and impact the entire economy.   

    The oil price impact in this budget is only partial as of today. This increase goes to the Revenue. The Kirit Parikh committee report recommendations have been sent to the Petroleum Ministry for consideration and implementation as stated by the Finance Minister in the budget speech. The impact will be significantly more once the Petroleum Ministry decides to hike the prices, which now appears inevitable. This would additionally push up the inflation.  

Fiscal Deficit  

    The fiscal deficit in the current year 2009-10 is anticipated to be 6.9%; for the next year 2010-11, it is projected to be 5.5% and for the next two years, the road map has been stated as 4.8 % and 4.1 % respectively. This is a significant burden on the economy. Such large fiscal deficit puts the economy in an absolute debt and cripples its capacity for various economic activities, which are necessary for growth.

Direct Taxes  

    At a stage when the government enters the second year of its rule one expected the government to take some bold decisions.  However, the UPA government has taken the conventional path, which is not capable of providing any significant direction to the economy.  The direct tax proposals of the government appear to be a marginal step in the implementation of the Direct Tax Code. There is a deception in-built in this implementation and in the DTC. Once the Code is implemented, income between Rs.1.6 lakh to Rs.10 lakhs will be subjected to a 10% tax minus the exemption. The net impact of this will be that the outgo on every assessee will actually be higher. The direct tax relief promised in the budget is thus an optical illusion. Even this year, the impact of the transfer of Fringe Benefit Tax to be paid by the employee will neutralize any benefit to the employee/assessee.