The Budget surprises you missed

Of the 15 documents that form what are called the "Budget Documents", the thinnest—the Budget speech—gets a disproportionately high attention in the media. "Budget-at-a-glance", another thin document, is also discussed in some detail.

The remaining documents, each more obscure than the other, escape the attention of most publications and TV channels. For those ready to wade through the hundreds of pages in these documents, there are nuggets of interesting—and often valuable—information to be found. Business Today decided to do exactly this and found the following gems that shed light on aspects of government finances that rarely capture the arclights.

Asset-Rich, Cash-Poor
The government is running a record deficit—that is, it's earning far less cash than it is spending. But the government owns assets too. Perhaps more assets than any other single entity in India. Imagine all the buildings, vehicles, land—even shares in the public sector companies. To know the true worth of the government, we should not only know its income, but also the value of the assets it owns. Page 31 of this year's Receipts Budget— known as the Yellow Book in Budget lingo—gives the "Asset Register" of the Central government.

It is a compilation of the value of physical and financial assets that the government owns at the beginning of a year, plus those it acquires during the year. Asset Registers of the last few Budgets show sharp variations in the value of some assets. For instance, while the government's ownership of roads was valued at Rs 4,332 crore at the end of 2007-08, it inexplicably dropped to Rs 1,240 crore at the beginning of 2008-09.

Interestingly, the value of vehicles (a depreciating asset) that the Central government owns is higher (Rs 1,717 crore) than the value of roads (appreciating asset). In fact, the Centre seems to have more valuable photocopiers and computers (Rs 2,049 crore) than roads. Surprisingly, the Asset Register doesn't list the value of hundreds of schools, colleges and hospitals that the Central government runs all over India.

This skew is perhaps why the 13th Finance Commission has recommended a complete rebalancing of the Centre's asset portfolio by getting rid of some of the assets it holds (example: airlines) and acquiring those that better depict India's development priorities, such as schools.

The Haj High-jack
While much debate has taken place over the spurt in food and fertiliser subsidies in recent years—prompting the government to begin thinking of Plan B for them—another subsidy that has skyrocketed in terms of growth rate (not absolute amount) is the Haj subsidy. In each of the past two years, the actual amount spent on this subsidy has overshot the estimate by over 50 per cent. The government now spends close to Rs 1,000 crore a year on this only subsidy for a religious pilgrimage.

Moreover, India is the only country to provide a Haj subsidy. Pakistan was the other country to have provided this subsidy, but it discontinued it in the late 1990s. Surely, there are better ways of spending the same money on minority welfare without losing out on vote bank politics.

Down With Downsizing
The new thinking in the government is that its size is not the problem, its speed of functioning is. India, say proponents of this belief that include the Chief Economic Adviser Kaushik Basu, has smaller government than China and even the US. So, since efficiency and size have no correlation, how about banishing the thoughts of downsizing the government and actually expanding it? The UPA government has budgeted raising its staff strength by 8.5 per cent in 2010-11.

The ministries and departments planning to enter the job market in a big way are: the Ministry of Home affairs for Police (8,07,899 to 8,80,026), Ministry of Broadcasting (5,128 to 6,373), Ministry of Power (from 1,495 to 1,978) and Ministry of Water Resources (10,322 to 12,769). The only department that plans to downsize is the Department of Science & Technology.

The Least and the Most-Taxed
Once the GST and the new Direct Tax Code gets implemented, most tax exemptions will go away. What sectors will be most affected by the withdrawal of exemptions? A definitive answer requires a detail study, but the table on "Revenue Forgone" (last page of Revenue Budget) gives some idea. While beauty parlours are the highest taxed entities, forest contractors the least. Those paying the least are perhaps the ones claiming most exemptions.

The exemptions are like subsidies granted to the industries that the government thinks need preferential treatment. Some economists feel that the monetary value of such exemptions—revenue foregone—should actually be shown as expenditure in the budget. In the financial year 2008-09 out of the sample of 3,66,233 companies, 1,46,554 (40 per cent) paid no taxes and only 40,714 companies paid tax at an effective rate of more than 33 per cent. Most interestingly, some 56,000 companies that accounted for 42 per cent of total profits paid tax at the rate of 20 per cent or less.