Staring down a precipice?

The Model Code of Conduct will kick in as soon as the Election Commission announces dates for general elections which must be completed by May of this year. To circumvent that rule the government presented a full budget announcing a rash of handouts, thus binding the new government to spending promises and preventing it from financing its own policies.This is a "mockery of the constitution", according to a former Finance Minister Yashwant Sinha. People earning up to Rs 500,000 per year will be exempt from paying any tax but those earning above that will pay taxes at old rates. So far, an annual income of up to Rs 250,000 was exempt from tax and income from Rs 250 to 500,000 was taxed at 5%. This is designed to please government employees who earn more than those in the private sector. The starting pay of a government employee at the lowest scale is Rs 18,000 per month after the gift of the 7th Pay Commission. Add Dearness Allowance at 13% of basic salary and the levels rise to above Rs 21,000 per month, taking it to Rs 252,000 per year and into income tax range. Rs 7.5 billion is allocated to rearing local breeds of cows and building "cattle centres" to house these cows. About 120 million poor farmers are to be given handouts of Rs 6,000 per year, at a cost of Rs 750 billion and 100 million workers in the unorganized sector will receive a pension of Rs 3,000 per year at reaching 60 years of age. Despite all the handouts the Finance Minister calculated that the fiscal deficit will be a tad higher at 3.4%, instead of 3.1% promised in last year's budget. How did he perform this magic? By predicting that nominal GDP will grow by 11.5% but personal income tax will rise by 17.2%,  boosting total tax revenue by 14.9%. A fiscal deficit of 3.4% maybe acceptable but "unreasonable assumption of tax buoyancy and ambitious disinvestment targets make the numbers look dodgy", wrote AR Misra. "Gene Fang, associate managing director, Sovereign Risk Group, Moody's Investors Services, wrote in a note that the fiscal slippage is credit negative for the sovereign rating." Out of total government expenditure of Rs 27.8 trillion, a pathetic Rs 1.25 trillion will be available for physical investment, making the budget "an instrument to protect the political downside", wrote H Drabu. Not to be outdone, Congress President Rahul Gandhi has promised a Minimum Income Guarantee (MIG) which will top up income of anyone earning less than a level set by the government. This will tempt poor people to declare a much lower income than they are earning and, if the level of MIG is set at a high enough level, it will encourage people to stop working. Why break your back carrying bricks when you can earn more just sitting at home. Forget China, at this rate Bangladesh will overtake us.