Strange things happen on budget day. A shiny new briefcase becomes the cynosure of national newspapers and television cameras. Newspapers grow four times their normal size, while news anchors on TV turn into fortune-tellers and economics experts into parrots.
Somewhere in all this, the budget goes from being a policy event to a media one.
In fact, I suspect that on budget day, media companies mobilize more resources than the finance ministry.
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But even stranger things happened this time. As I listened to Pranab Mukherjee read out the budget speech in his endearing trademark accent, his face seemed to morph into that of another finance minister of yore—the late Yashwantrao Chavan.
There was a glaring disconnect between that face and the voice, but what I heard the minister speak convinced me that it had to be Chavan. With utmost seriousness and conviction, he proposed major relief measures such as “reduction in basic customs duty on raw pistachio from 30% to 10%; reduction in basic customs duty on bamboo for agarbatti (joss stick) from 30% to 10%; reduction in basic customs duty on lactose for the manufacture of homeopathic medicines from 25% to 10%; and reduction in central excise duty on sanitary napkins, baby and adult diapers from 10% to 1%”.
It felt nostalgically good to be in the 1980s—those high days of the budget when you couldn’t see the finance minister live but read about such life-changing proposals the next day in the newspaper.
As if to give me a few more minutes in the comfort of the insulated 1980s economy, Mukherjee (or rather Chavan) went on to propose “full exemption from basic customs duty on de-oiled rice bran and imposition of 10% export duty to discourage its export” and “reduction of basic customs duty on raw silk (not thrown) from 30% to 5%”. To enable our countrymen in far-flung villages to partake of developments in green technology, he reduced the “basic customs duty on solar lanterns from 10% to 5%”. Import duties on specified raw material for the manufacture of syringes and needles were slashed to 5% basic and 4% countervailing duty. Game-changing announcements, no doubt.
On a more serious note, do these initiatives merit a mention in the budget speech? The point is not that these changes should not be made, but that these belong to the fine print of the finance Bill. How many people/enterprises/sectors will these initiatives affect, and by how much? What will be their impact on a gross domestic product (GDP) of close to Rs70 trillion; or, for that matter, its distribution?
Such announcements were fine in the 1980s, when capacities and commodities were under government control, and the administered price regime was operative. Under that regime, such reductions and exemptions would have been major events, and hence newsworthy.
Also, back then, the budget speech wasn’t telecast live. So the length of the speech and its excruciating details were concerns only for the members of Parliament, half of whom were disinterested and the other half unable to comprehend.
In fact, some of these proposals are so ambiguous that they can’t make sense to anyone, including, I suspect, the finance minister. Here’s a gem: The minister said he had proposed to ”reduce basic customs duty on certain specified inputs for manufacture of certain technical fibre and yarn from 7.5% to 5%”. What possible sense could this have made to anyone, including the most clued-in textile analyst in the country?
If the markets in Mumbai changed their mind about the budget in the course of the day, it had to do with one particular expenditure allocation: Rs10 crore each for the Delhi School of Economics and the Madras School of Economics, but nothing for the Bombay School of Economics (which doesn’t stand in brick and mortar). The last is languishing, its breed of quality economists who can din some sense into irrational market actors fast drying up. The finance minister should not forget the contribution of the prolific but overlooked Bombay School economist, P.R. Bramhananda. His classic book, Growthless Inflation by Means of Stockless Money, should be mandatory reading for the finance minister.
Also, everybody has missed the logic of creating a new category for “Very-Senior Citizens”, of 80 years and above, who will be eligible for a higher exemption limit of Rs5 lakh. The economists and sociologists dissecting the budget all thought it went against every principle of demographic dividend. But no one seems to have realized that the answer lies in Budget 2011 itself: the 80th, including interim and special situation budgetary proposals, that Parliament has hosted since 1947.
Haseeb A. Drabu is an economist, and writes on monetary and macroeconomic matters from the perspective of policy and practice. Comment at email@example.com