Tanvir Ashraf Kaira, the Punjab Finance Minister, presented the provincial budget for fiscal year 2008-09 that can be seen as a sequel to the promises made by Chief Minister Shahbaz Sharif that the budget would be 'people friendly' and 'pro-poor'.
The achievement of these targets have become synonymous with subsidies that are considered to be the only way relief can be provided to a citizenry living under the yoke of frequent power outages, high wheat prices in spite of federal subsidies as well as inflationary pressures fuelled by the rising international oil price.
What has concerned economists are the serious resource constraints currently facing the country that militate against increasing subsidies as their impact on the deficit may be more inflationary than would the relief from the subsidies themselves.
That even with scarce resources and a rising clamour for subsidisation a balance can be achieved in the budget is clearly reflected in the Punjab budget for fiscal year 2008-09.
In terms of subsidies the Punjab government did not disappoint the people and has proposed the following: loans of widows to the public sector banks to be written off, a targeted decision and not across the board; air conditioned bus services to be provided to poor and intelligent students, with an in-built incentive mechanism to the performers; small farmers with 12.5 acres of land to be provided tractors through a computerised lucky draw and 100,000 rupees to be given to the winning farmer for the purchase of a tractor with a total expenditure of one billion rupees under this item with no less than 10,000 tractors to be given during the year; 13 billion rupees subsidy on supply of food items and facilities of free medical aid to the poor, while 17 billion rupees have been allocated for the poverty alleviation programme.
In addition, 60,000 acres of government land is to be leased to the cultivators - an innovative idea and certainly more supportable than the previous five marla scheme which envisaged giving away state land. However the Finance Minister needs to provide further details on this scheme, for example, regarding what would be the tenure of the lease.
Price control boards, and reduction in the price of flour were other measures that would help the low income people deal with the rising inflationary spiral. Kaira also envisaged cash injections to the poor but did not make it clear whether these handouts would be part of the Benazir Card or distinct from it.
The Punjab Finance Minister, in line with the federal budget, also announced a 20 percent increase in basic salary of provincial government employees and reduction in the price of flour. Many would argue that this is not enough but then it must be understood that the state of the economy today and the resource base in particular militates against higher subsidies.
For those who may express reservations about the rise in subsidies increasing indebtedness, the Punjab Finance Minister revealed that dependence on international loans will be minimised to 23 billion rupees and Punjab would try to finance development expenditure from its own resources - again a worthy goal rooted in sound macroeconomic theory.
The revenue base for the Punjab is also expected to increase through some innovative measures that include: (i) abolishing the relief given in taxes to the rich, (ii) luxury tax on big imported cars, (iii) entertainment duty on horse races, (iv) like the federal budget an enhancement of sales tax from 15 to 16 percent, (v) withdrawal of capital value tax on purchase/sale of properties (which would take care of a possible duplication of tax as this has been levied in the federal budget), while the non-transferable purchase/sale through development organisations/co-operatives has been brought into the net of stamp duty.
The Annual Development Programme is focused on education and health with the former receiving 19 percent of the allocation while the latter will receive around 6 percent. Higher literacy rates as well as higher outlay on health are considered to be the best possible way to deal with extremism and fundamentalism and in this respect the Punjab government's efforts must be lauded. Infrastructure is targeted to receive 17.5 billion for the construction of roads and 11.30 billion rupees for the irrigation system, 8 billion rupees for water supply and sanitation.
The lower outlay on infrastructure maybe ascribed to past investments in these sectors. To support federal efforts to meet the severe energy shortage the Punjab government has announced that it will set up projects to generate 350 MW of electricity.
There is little doubt that the Punjab budget does reflect a well thought out medium term strategy (one year) that seeks to deal with all the major issues confronting the government as well as the people of this country. One can only hope that the government would rigidly adhere to the budgetary provisions and, ceterus paribas or other things remaining equal, by next year the situation is likely to improve.