Shri. Pranab Mukherjee, the stand-in Prime Minister and Finance Minister presented the interim budget-09 today in the parliament. Tenure of current Lok Sabha will end once election commission notifies the general election. FM in his presentation highlighted the important achievements of the UPA government. Today we rank as the second fastest growing economy in the world; this is historically an unprecedented achievement. Apart from consistent growth (9%+ for three consecutive years), the government also achieved important milestones in social development. Implementing NREGA (National Rural Employment Guarantee Act) scheme has created job opportunities in backward districts. SSA (Sarva Shikshan Abhiyaan), a scheme to provide quality basic education across the country. Elementary education outlay was Rs.13, 100 crores. In the eleventh five year, plan the outlay for higher education is up by 900%. Two new IIMs and four new IITs are to be set up to spread higher education infrastructure across the country. Easy access to education loans has helped achieve equity in education.
The FM has proposed a sharp increase in defence expenditure which is to increase to over Rs. 1,41,703 crores an increase of 34%. This is necessary due to the current security environment. The revised revenue expenditure of the government for 08-09 was 9, 00,953 crores and is expected to reach Rs. 9, 53,231, almost a 6% increase. The fiscal has increased to 6% from a budget estimate of 2.5%. Similarly, the revenue deficit has increased to 4.4% as compared to budget estimate of 1%.
The government vote on account gives us a cause for concerns since, the hard work done earlier of keeping deficits low has been breached. The current slow-down requires a quick and decisive solution. The government is following a two-pronged strategy of increasing expenditure and reducing interest through an expansionary monetary policy. The government hopes that this will lead to an early recovery from the current slowdown.
However, high fiscal deficits push up the interest rates. The sharp increase in government borrowing programme has caused interest rates on government bonds to rise. The increased interest rate makes lending more expensive and postpones recovery. The fiscal and monetary policies therefore are not in sympathy with each other.
Exports have decreased substantially in the past three months, creating unemployment and slack in export dependent sectors like textiles, gems and jewellery and leather goods. There is no strategy to help export sector, which has suffered due to slow down in developed countries. Industrial growth has been negative for January 09 together with a slowdown in investments and lack of buying support in the housing market is putting our industrial enterprises towards bankruptcy. The government should have suggested bold expenditure measures to undo this.
The FM has suggested government cannot suggest a more radical programme for economic recovery due to the limited mandate it has now, however an interim was an opportunity for the government to set up an agenda for future. The stock market received the budget announcements with a fall of over 400 points. This interim budget stands out for having made no substantive and new measure to overcome the current economic hardship despite FM’s admission that 2009 will worsen economic woes.
