The Government propaganda machinery wanted us to believe that the Budget for the ‘fiscal’ 2010-11 would be yet another earth-shaking event and chart the ‘road-map’ for unbelievable prosperity for every single individual in the country. 

The Government propaganda machinery wanted us to believe that the Budget for the ‘fiscal’ 2010-11 would be yet another earth-shaking event and chart the ‘road-map’ for unbelievable prosperity for every single individual in the country.  Now that the brouhaha over the budget has died down, it will be educative to know what the various experts say about it.

The government-inspired ‘experts’ went into raptures on the media, as usual.  ‘The Finance Minister has done a fantastic job’; ‘Very good budget’; ‘See the takeaways’; ‘Fiscal deficit reduced to 5.5%’; ‘Government borrowings reduced to just Rs.3.45 lakh crores’; ‘Infrastructure boosted’; ‘ Bonanza for the middle class; yet an inclusive budget’; ‘I would give 10 on 10 for the Budget’.  Thus went and on, the comments  even though these eulogizers seemed to have nothing in their hands (or on their minds?) other than what the Finance Minister claimed in his speech, and most of these commentators could not have had even a cursory glance at the Budget papers (running to hundreds of pages), which were put on the website almost an hour after the speech concluded, says the Financial Analyst, S. Gurumurthy.  He says that the Finance Minister won the approval thanks to his well-structured speech which was long on words  and hugely short on numbers.  Taking the Finance Minister’s words as gospel truth, the opinion of ‘elite India’ was sealed in favour of the Budget.  Of course, the ‘other India’ (the aam admi) has no opinion to express, already reeling under high inflation, to counter which no measure is spelt out in the Finance Minister’s speech.

Coming to grips with numbers, Gurumurthy points out that the additional provision for ‘rural development’ is just Rs.3,963 crore (from Rs.62,201 crore in 2009-10 to Rs.66,137 crore for the Budget year, 2010-11) – a rise of 6.3% compared to the estimated rise of 12.5% in the GDP.  The rise in the allocation for the MGNREGS is just 2.5% – against the rise of 146% for the year 2009-10 over the allocation for 2008-09.  The tax cut for the middle class amounts to nearly five times the extra provision for rural development.  Still, the Budget is claimed to be an aam admi budget.

Gurumurthy points out that the additional provision for agriculture is Rs.900 crore – a laughable figure by any standard; and the Finance Minister claims that the budget is one for “inclusive growth”!

Provision for infrastructure:

Sector Additional provision
in the Budget for 2010-11
   (Rs. In crore)  

Rise in provision over that in the previous year


Rise in provision over that in the previous year


Road Sector 2374 13% 23%
Railways 950 6% 46.3%
Urban Infrastructure     87%

There is no appreciable improvement in the coming year over the current year; yet, the “experts” eulogise the infrastructure boost in the Budget!  The Finance Minister was confident of the propensity of the “instant commentators” of the T.V channels to rely on ornamental words in the Budget speech – and won the day against the experts and the market.

A brief account of an objective analysis of the budget by a few more of the unbiased experts will help us to see the budget in the proper perspective.

Paranjoy Guha Thakurtar says that the budget will definitely stake the inflation already raging.  Therefore, it is amazing that sections of the same media which had been urging the Finance Minister to contain inflationary expectations have now gone to town heaping fulsome praise on the Budget proposals.  True, income tax payers are exultant; and market fundamentalists are delighted at the Finance Minister’s attempts at “fiscal consolidation”.  Stock markets have reacted favourably.  What about the aam admi?  Who cares for him?  Has not the government been formed after a “thumping victory” in the recent elections – and are not the next elections far away?  The Government that has been shouting itself hoarse about “inclusive development” being its “article of faith”, has presented a Budget that would spur inflation which would negate – if not reverse – much of what is being sought to be provided to the poor in cities and villages.

Thakurtar draws attention to the escalation of the taxes forgone by the Centre, on account of exemptions and concessions, from 4.58 lakh crores in 2008-09 to Rs.5.40 lakh crores in 2009-10.  As a proportion of the aggregate tax collection, hold your breath, dear readers!, it went up from 68.6% to 79.6%.  The magnitude of this (atrocity) can perhaps be comprehended better on a comparison with the government’s estimate of the country’s GDP for the coming fiscal year, which is placed Rs.69.34 lakh crores.  To conclude, the government is not particularly bothered about the aam aadmi.  The Prime Minister is fond of saying that there is no difference between good economics and good policies.  Thakurta says that the Budget represents pedestrian economics and lousy politics!

In his penetrating and incisive analysis, P. Sainath says that, while the media spouts that every budget in the decade has been a “pro-farmer” budget, and editorials have always found a “new thrust” to agriculture which spelt “good news” for the farmer, they have rarely if ever, mentioned about the massive subsidies  for the Corporate Sector.  This year, the budget gifts over Rs.5 lakh crores (staggering, but true!) in write-offs, direct and indirect, to the “Big Boys” (Tables 5 and 12 of the “Statement of Revenue Foregone” section of the budget), says Sainath: “This is a budget crafted for, and perhaps by the Corporate farmer and agri business”.  (But, why blame them?  They are just grabbing what the government is stealing from the tax payers’ money)  The budget hands out new bonanza for Corporate Kleptocrats.  More and more of “agricultural” credit will go  not to farmers but Corporations.  Several of the loans disbursed as “agricultural credit” are in excess of Rs.10 crore and even Rs.25 crore. Agricultural loans of Rs.25,000 fell by more than half during the same period (2000 to 2006).  Of the many claims which the media have dished out for weeks now, none is more absurd than the fiction that farmers have gained massively from soaring prices, that rural India is doing so well, it is saving for the rest of us  as a projected growth of minus 0.2%!  Farm gate prices are way below those of even the wholesale markets; over 70% of Indian farmers are net purchasers of foodgrain, and huge rises in food prices crush them.  Government have allowed Big Retail sell agricultural produce on the specious plea of giving farmers and consumers a better deal.  In reality, prices of fresh produce are costlier at big retail outlets, we still get a better deal from the vendor in the street.  The “middleman” the government is crushing is, in fact, the poor woman street vendor  the last and weakest link in the chain of intermediaries between the farmer and the public.  The new middlemen, dear readers,  wear suits!

The ‘higher prices benefit farmers’ (reiterated recently by the Planning Commission! mob seems clueless about what has happened to cultivation costs.  For instance, the cost of cultivation has gone up from Rs.2,500 per acre in Vidarbha, in the year 1991, to Rs.18,000 to Rs.20,000 today.  The ‘gains’ from the higher costs are, as expected, cornered by the corporate world in sectors like seed, fertilizer and pesticide.  Soaring input costs have been crucial to farm bankruptcies, debt and suicides.  Cuts in fertilizer subsidies are staring them in the face now.  On the other hand, Sainath points to the loot-and-grab sortie which has been going on for two decades.  In this year’s budget, revenue forgone will be: Excise duty: Rs.1.70 lakh crores; customs duty: Rs.2.49 lakh crores; direct taxes write-offs: 0.80 lakh crores, totaling nearly Rs.5.00 lakh crores!  But, many of the experts who “analyse” these budget proposals and commend them are persons having direct ties to large corporations and peddle their interests with zest.  The result is that the budget enables the grasping corporate world to grab more public wealth  and the entrenchment of perhaps, the most parasitic elite in the planet!  (And, the government is the main culprit of this loot and plunder scenario).

Prof. Amiya Kumar Bagchi observes that, with the accession of Rajiv Gandhi to power, a “vision” began to germinate – a vision of an India that would be vibrant with the entrepreneurial energy of the few, the rest of the population serving those few with their labour.  The argument was that, despite more than 40 years of independence, with slogans of a ‘socialistic pattern of society’, Indians remained desperately poor; most of them remained illiterate or barely literate.  The free market advocates backing Rajiv Gandhi thought that the energy of the business community could enrich the rich, and, through the tickle-down effects, better the condition of ordinary people.  The Central budget for 2010-11 is a further step towards the implementation of that “vision”.

Prof. Bagchi observes that the Finance Ministers of the neoliberal Central government had instituted the Fiscal Responsibility Management Act; which provided them with the excuse to cut down drastically public investment and expenditure in the social sector.  As soon as the global financial crisis hit India, and the interests of the Indian rich demanded a “fiscal stimulus”, the government threw overboard fiscal prudence, and budget deficits soared.  The (pompous) mandarins of the North Block claim (with puffed up chests) that the “stimulus” worked and the “growth rates” did not crash.  But, the problem is with the content of that growth.  He points out that, with the Indian Constitution being only quasi-federal, the neoliberal ‘policy makers’, using and abusing the power of centralization vested in it, have concentrated more and more financial powers in their hands, leaving the state governments with scantier resources to carry out their constitutional responsibilities of providing health care, education and rural livelihoods.

The comments of another expert, Dr. Subramaniam Swamy, on the budget are revealing.  He says that the global financial crisis is not a valid excuse for the budget failing to be a dynamic one, in spite of the Finance Minister’s heroic effort in that direction.  The Indian economy, he says, had a setback not because of any financial contagion-spreading from the U.S., or because of the interdependent global system, but because of the perfidious financial derivative called the Participatory Notes (PNs).  Olga Tellis had written, under the caption, “The dubious case of participatory notes”, the ghost of Participatory Notes (PNs) is not going away because, according to market participants, it is more a political issue than a market related one.  The logic behind the PNs is mystifyingand defines understandingspecially in these days of growing high tech terrorist attacks on India.  The PNs player does not have to come through Sebi: he can come through the FII (the idol of our government), who is supposed to verify that the ‘know your customers’ norms are satisfied.  The Participatory Note player places the money with the FII and tells it what scrips to buy.  He is given a Participatory Note which says he is entitled to the specified shares and would get all market related returns like dividends, capital gains, etc.  He need not disclose his identity to Sebi, even if asked for, by the time Sebi comes to know of it, the damage would have been done.  Participatory Note players were the biggest players in the circular trading scam of Ketan Parekh.  Even today they can come and go into the market as they please.  The Participatory Notes are usually used by hedge funds and such other high risk entities, who don’t want to go through Sebi, as, according to them, it is time consuming.  Sebi has since made the procedure less cumbersome, but the Participatory Notes persist. The Tarapore Committee had recommended the scrapping of Participatory Notes as the beneficiaries are not known, and they are freely transferable.  There could be trading in Participatory Notes, and it would be very difficult to know who they are at a given point of time.  One does not know whether a detailed study of this has been made.  But, how does one do a study where faceless people are involved, asks Olga Tellis.

Subramaniam Swamy says that the effects of the Participatory Notes have been compounded by an anti-national agreement with Mauritius, to permit companies with even a paid up capital of $1, incorporated in that country, to invest in Indian stock markets and be free of capital gains tax.  A liquidity crunch developed in the U.S., following the financial crisis, and later in Europe, and funds were greatly in demand.  The Participatory Notes, which were “hot money” were shipped out of India without any hindrance  to the tune of $60 billion  in October 2008 – June 2009, causing a stock market crash in India.  It is this which caused the financial crisis in India.  These two “gifts” from the previous Finance Ministers, made India vulnerable.  Hence, the budget (for 2010-11) should have incorporated measures to nullify the exemptions available and scrapped the Mauritius agreement, to insulate the Indian economy.  But, the Participatory Note perfidy continues without accountability, billions of dollars of “hot” money enter into the Bombay Stock Exchange every year; these are used to buy and sell shares with Participatory Notes, which are better than cash transactions, as cash purchases of over Rs.10,000 have to be reported with details to the Income Tax Department.  As Participatory Notes come via Mauritius, the speculators do not have to pay capital gains tax.  By September 2008, Participatory Notes accounted for 60% of the foreign institutional investor funds in the stock market, from near-zero level in the year 2003.  Moreover, by a special order, the Finance Ministry (under Mr. Chidambaram) had exempted Participatory Note, from the purview of SEBI, the RBI, the Enforcement Directorate and the CBI.  Can you imagine a better heaven haven than this on earth?  SEBI headed by M. Damodaran protested and repeatedly wrote to the Ministry to permit it to require reporting of the buyer and the seller, as also the source of funds, as with any other stock market transactions.  RBI Governor, Y.V. Reddy kept warning of the damages from Participatory Notes.  All these were ignored.  National Security Adviser, M.K. Narayanan made bold to warn the country that terrorists too were earning in the Indian stock market (obviously via anonymous Participatory Notes) to finance terrorist attacks; but, he was silenced.

All the developments detailed above, are sinister to the highest degree.  Clearly, considering the importance of the issues involved, and the highest echelons of government who are patronizing and perpetuating such grave irregularities, it will not be absurd to wish that the Supreme Court of India appoints a Special Investigation Team to probe thoroughly what is going on, who are all the parties who are helping the (Participatory Note) players, who those players are and what are the mala fide objects on which they are working.

Are we coming out of the economic crisis of the last two years, asks Swamy, and says that we are doing so, but not owing to the much-touted ‘stimulus’. In fact, it is the stimulus that is responsible for the galloping inflation : the money pumped in by loosening bank credit norms, and printing currency notes, has gone into the hands of people who are now manipulating food prices through forward trading and hoarding.

Subramaniam Swamy says that another financial crisis is looming ahead; it is due to internally induced factors: the developing Union budgetary bankruptcy and exploding public debt.  Despite the chorus of praise from business houses, from the usual government compliant academics and courtier intellectuals, the budget has failed to reduce the fiscal deficit in real terms.  More than 98% of the current and capital account revenue represent revenue expenditures – and practically nothing is left for asset – building or investment for development projects.  The revenue budget is in a huge deficit which is covered by taking more loans from public sector banks.  The government faces a developing debt trap; the country is heading for a situation where loan repayments will exceed the new loans the government will take.  Public debt is now 90% of the GDP and is on an exploding trajectory.

We have to turn to the “Gross Domestic Product” and the “growth rate” therein, which are the idle fixe of the government and the policy makers.  After presenting the budget, the Finance Minister ‘exuded confidence’ that the economy would soon return to 9-10% growth, the implication being that there will be no greater bonanza for the nation than that.  Of course, the “growth rate” of the industrial sector is projected as the growth rate of the country as a whole.  The Finance Minister said that the tax revenue declined to 10.4% of the GDP estimated for this ‘fiscal’ from 12% during 2007-08, because of (according to him) the global economic meltdown and the stimulus packages provided to industry.  The increase in tax revenue declined from 12% in 2007-08 to 10.9% in 2008-09 and to 10.4% as per Budget Estimates for 2009-10.

The Finance Minister said that the recovery process continued to be driven by the stimulus package.  But, there is no evidence to show that there was any correlation between the “economic recovery” and the stimulus packages running to lakhs of crores of revenue forgone.  The ‘growth’ is fluctuating like the waves in the sea!  According to Labour Bureau Survey for the quarter ended June 2008 the country witnessed a 1.31 lakh job losses.  Sample surveys by the Labour Bureau indicated 50 lakh job losses in the December 2008 quarter and another 1,31,000 in the June 2009 quarter.  The Finance Minister, however, said that the “recovery process” (of the different sectors of the industry) was far from being “completely broad-based”.  The “stimulus measures” will not be withdrawn “fully” until the fruits of the economic growth spread to all sectors of the economy and reached all sections of the society.  There is no transparency in regard to the details of organizations which have gobbled up a major portion of these colossal tax rebates and sops. 

According to the pre-budget Economic Survey, the manufacturing sector has been showing a buoyancy in recent months rarely been before.  There is a substantial pick-up in corporate earnings and profit margins.  However, the recovery was not broad-based, as some sectors like food products, cotton textiles and meals failed to see any revival in the current year (2009-10).  Capital addition in some of the key infrastructure sectors like power and roads is lagging.

In the above scenario, what is the need for extending the “fiscal stimulus” packages to the sectors which are back to their huge earnings and profit margins instead of confining them to the sectors which are lagging behind, and reducing those doles which are crippling the rest of the economy.

We shall examine the legality and constitutionality of relinquishing (tax) revenues (of the order of Rs.5.00 lakh crores) under the pretext of increasing the growth of the industrial sector and the GDP.  It may be mentioned in passing that the industrial growth for 2009-10 is stated to be 8.6% and the GDP growth is stated to be 7.2%.  But, considering that the (projected) growth rate of the agricultural sector is minus 0.2% and 70% of the population is dependent on this sector, we should give a weightage of 0.70 for the growth rate of this sector and a weightage of 0.30 to the rest of the economy; in which case the GDP growth rate will be (7.2 x 0.3) + () 0.2 x 0.7 = 2.16 – 0.14 or 2%, instead of the misleading 7.2%.

The “fiscal stimulus” running to lakhs of crores given to the industrial, I.T., import-export sectors, for the last few years has led to a state which is the very anti thesis of what is envisaged by the Directive Principles of State Policy embodied in Articles 38 and 39 of the Constitution of India.  Readers may object, saying that nothing can be done as the provisions of those Articles cannot be enforced in a court of law.  True.  Nevertheless, as enjoined by Article 37, the principles laid down in the Directive Principles of State Policy, are fundamental in the governance of the country, and it shall be the duty of the State to apply these principles in making laws.  The tax sops, rebates, etc., extended by the government to the industrialists, import-export traders, etc., have further reduced the country to one with glaring and shameful contradictions, where abject poverty and backwardness exist cheek by jowl with high levels of affluence and technological advancement.  It is this violation of the provisions, which can be and should be challenged.

The proposal in this year’s budget, to forego revenue to the extent of about Rs.5 lakh crores (Breakdown: Excise Duty – Rs.1.70 lakh crores; Customs Duty – Rs.2.49 lakh crores; Direct taxes write off – Rs.0.80 lakh crores) is violative of the provisions of Artciles 266(1) and 266(3) of the Constitution.

Article 266(1) lays down that, subject to the provisions of Article 267 (dealing with the ‘Contingency Fund’) and to the provisions of Chapter I – Finance of Part XII (Finance, Property, etc.) with respect to the assignment of the whole or part of the net proceeds of certain taxes and duties to states, all revenues received by the Government of India, all loans raised, etc., shall form part of the consolidated fund to be entitled “the Consolidated Fund of India”.  Article 266(3) lays down that no money out of the Consolidated Fund of India shall be appropriated except in accordance with law and for the purposes and in the manner provided in the Constitution.  Hence, the action of the government in foregoing revenue  without bringing the tax dues to the Government Account and taking approval of Parliament for payment of those amounts to the industrialists (including I.T. magnates) who are supposed to be increasing the GDP and its growth rate, is nothing short of misappropriation of government money of gargantuan proportions.

The divisible pool of taxes (prescribed in Articles 268, 270, 272 etc.) has been increased from 30.5% to 32% by the 13th Finance Commission.  Because  revenue to the extent of about Rs.5 lakh crores is “forgone” by the Centre towards the “fiscal stimulus” for mindlessly favoured sectors, the States are deprived of their share to the extent of 32% of Rs.5 lakh crores, i.e., Rs.1,60,000 crores, of which the share of Andhra Pradesh, for example, will come to 6.937% of Rs.5,00,000 crore, or Rs.35,000 crore (approx.).  The share of some other States will be higher.  The action of the Central Government in arbitrarily reducing the (divisible) tax pool is unconstitutional.  The Central Government should pay Rs.1.60 lakh crores to the States – and find the resources for the same or increase the wonderful “fiscal deficit” to that extent.  This should apply to the divisible pool of the earlier years also.  One hopes that the Public Accounts Committee of the Lok Sabha and / or the C & A G  of India makes a thorough investigation into this reckless relinquishment of revenue by the Central government and institutes remedial measures.

Finally, the question arises: ‘Where is the aam admi in all this hocus pocus, and what does the budget hold for him’?  After a painstaking search, we find a totally famished couple sitting on the pavement, with the Parliament House being visible in the far distance.  The gentleman (aam admi) is holding a letter. The lady asks: “Pranab Da’s letter?”  The gent replies: ‘No, it is the Prime Minister’s reply’, which reads:

“My dear aam admi,
I was a bit surprised reading your open letter.  I know you from the moment I joined politics!  Don’t expect me to reduce food and oil prices… or of anything else for that matter!  Hope you can survive on an empty stomach…. A small price you can pay for your 10% growth!  You want to meet me?  Sure – How about meeting just before the next elections? No emotional blackmailing please!
Yours truly,

This cartoon in a national daily epitomizes the entire scenario in the country.  And yet, three core committees are formed in response to the agitations against the price rises, in order to suggest measures to bring down the prices! Is there no limit to the attempts to fool the citizens?        

by C. A. Balasubramanian,
Addtl. Controller General of Accounts, GOI (retd.)

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