Millennium Post

The vision and the Budget

If government intentions were truly translated into action, today India, not China, would have been the world’s second largest economy. India’s current ranking is 10th. In 1950, India produced more steel, coal, iron ore, bricks and cement than China did. It generated more electricity than China. Its presence in the global export market was more prominent than China’s. It had surpluses on both trade and current accounts. In fact, India maintained a continuous current account surplus till 1956-1957. China’s foreign trade was hardly noticeable till mid-1950s. India’s military combatants, who fought valiantly alongside the British and helped the Allied forces earn massive victory in the World War II, were among the most skilful. India’s economy and external clout came crushing down since 1962. The year also witnessed a humiliating defeat of India at the hands of the Chinese People’s Army.

Few will disagree that democratic India’s national wealth managers – from its first Prime Minister Jawaharlal Nehru to Manmohan Singh and from first finance minister R K Shanmukham Chetty to P Chidambaram – failed to match their fiscal performance with promises. In fact, Chidambaram has the distinction of being a fourth time finance minister – twice as a Tamil Maanila Congress representative in the United Front government under prime ministers H D Deve Gowda and Inder Kumar Gujral. Since 1947, India had as many as 26 finance ministers and 13 prime ministers. Several Indian prime ministers, including Jawaharlal Nehru (1958), also held finance portfolio – independently or also as an ad hoc measure. The prime ministers to hold the finance portfolio, include Indira Gandhi, Morarji Desai, Charan Singh, Rajiv Gandhi, V P Singh, I K Gujral and Manmohan Singh, signifying the importance attached to the job. Most of their promises suffered from stereotypes.

Indian prime ministers and finance ministers always worked in tandem barring a few occasions when prime minister raised the stick to admonish or fire a difficult or unwieldy finance minister. Nehru got rid of his finance minister T T Krishnamachari in 1958 over the opposition’s budget leak outcry. Nehru took charge of the portfolio himself before entrusting Morarji Desai with the job. Nehru’s daughter, prime minister Indira Gandhi sacked Morarji Desai in 1969 to serve a strong message to the ‘old guards’ in Congress, splitting the party. Her prime minister son Rajiv Gandhi performed a similar act firing his finance minister V P Singh, an anti-corruption crusader, in 1987. Later, in time, both Morarji Desai and V P Singh became India’s prime minister.

Paradoxically, poverty alleviation; rural and urban unemployment; education and healthcare; improvement of social and industrial infrastructure; farmers; public distribution system; welfare of women, children, scheduled castes/tribes, other backward classes, the minority and the physically challenged; foreign trade; inflation control; defence preparedness; national and internal security; fiscal discipline; and poor tax compliance remained a matter of perpetual concern of India’s successive prime ministers and finance ministers, including Manmohan Singh and Chidambaram, who, between them, have managed the finance portfolio for 14 years. Nothing has changed. The key concerns remain. The government’s administrative expenditure and debt servicing cost have zoomed over the years and so are its traditional budget concerns, wastage of taxpayers’ money and corruption while unproductive politically-inspired doles continue to put the government finances in doldrums.

As a result, the GDP growth has remained far below the government’s annual expenditure growth rate and worse performer still if compared to the so-called plan expenditure growth. For instance, the estimated 2013-14 budget expenditure of Rs. 16,65,297 crore represents roughly a 13 per cent increase over the revised expenditure estimate for the current financial year. According to the finance minister, the plan expenditure of Rs. 5,55,322 crore in 1913-14 will be 29.4 per cent higher than the revised estimate of the current fiscal. Then, why is the government targeting the GDP growth rate for 2013-14 at only 6.5 per cent? How productive are the budget and its plan expenditures? Which are the sectors the government expenditure supposed to benefit? Will they accelerate the economic growth? What are the finance minister’s priority areas of expenditure?

Going by the finance minister’s 2013-2014 budget speech, the government’s priority expenditure areas are: (1) SC, ST, women and children claiming 31 per cent higher allocation; (2) minorities claiming 60 per cent higher fund provision compared to the revised budget estimate for this fiscal; (3) disabled persons; (4) health and education accounting for 24.3 per cent higher allocation; (5) a separate integrated child development scheme getting 11.7 per cent higher funding; (6) drinking water and sanitation given a similar increase in allocation; (7) rural development marking a 46 per cent higher expenditure; (8) agriculture getting 22 per cent allocation rise; (9) over 16 percent hike in farm credit; (9) Rs 1,500 crore allocation towards extension of green revolution; (10) farmer producer organisations and a credit guarantee fund combining a provision of Rs 150 crore; (11) national livestock mission getting Rs 307 crore and (12) an additional food subsidy of Rs 10,000 crore.

The doles make a doleful story. It merely shifts money from one pocket to another without adding value. They encourage corruption and nepotism. The velocity of financial doles raises short-term demand for food and wage goods. Inflation rises. The value of money erodes. In the process, the whole economy suffers. That’s what is happening. There is no government investment in large infrastructure projects since no money is left after providing for doles, defence, debt servicing and burgeoning administrative costs. The budget merely acts as a catalyst for infrastructure investments by the corporate sector through the market and public borrowings. Investors in infrastructure companies have already burnt their fingers. All existing infrastructure mutual funds – SBI, UTI and Franklin Templeton, to name a few – have lost their value by 30 to 40 per cent.

What is the logic behind the projection of a 30 per cent jump in the GDP growth rate next fiscal over the current year’s estimate of five per cent to make it 6.5 per cent? The finance minister is banking too much on FDI inflow and borrowing for the GDP push without addressing the key issues such as the need for large government funding of infrastructure, land and environment clearance for held-up projects, cutting current account and fiscal deficits through some bold measures such as drastic reduction in luxury imports and the administrative cost. These steps would have projected the budget as an agenda of actions rather than an expression of good intention. (IPA)
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