Feel good budget…. but who will pay?

Finance Minister (FM) P C Chidambaram is only the second FM in the history of our country to present all 5 budgets of the government (after Dr Manmohan Singh, who was the first when he was FM in Mr P V Narasimha Rao’s cabinet).

Clearly, one eye was on the upcoming Lok Sabha elections, for he has presented a fairly populist budget for 2008-09. Over the last three days, experts have devoted hundreds of column inches in newspapers/magazines and hundreds of programming hours on TV, to discuss  the budget- fine print and all.

I do not have any specific opinion on specific proposals. However, the one big concern I have as a citizen of India is this: where will the government get Rs20,000 crores each year for the next 3 years to pay the PSU Banks to make good their loan write-offs to farmers? I am not questioning the decision per se- small, marginal farmers have been badly affected over the past several years and relief is welcome. But given the likely slowdown in the US economy and election year rhetoric against outsourcing, the IT services and ITES sectors are likely to slow down. This may well have a downstream effect on other sectors like banking, retail, automotive and so on (agreed there are others that consume these goods & services as well, but employees from the IT/ITES sectors have been quite conspicuous in their consumption and spending patterns). In turn, corporate and personal income taxes may not remain as buoyant as they have been in the last 2 years or so. And with inflation fears likely to force cuts in excise duty/levies on petroleum products and non-petroleum indirect tax collection not meeting targeted levels, I am very very worried about meeting the huge burden imposed by the write-offs.

I hope the thinking was not on the lines of “let me look good now. If we win the elections, we will raise taxes next year to meet the deficit and if we lose, let the next FM worry about financing the write-offs”.