Economic Highlights

New Delhi, 21 February 2009

Union Budget Blues

NEW GOVERNMENT’S HEADACHE 

By Shivaji Sarkar

The Union Budget has dampened the spirit of all. It neither gives any impetus to the slackening economy nor does it create any jobs. The politico-economic document makes only poll-oriented noises, sheer rhetoric. A closer look at the huge fiscal deficit reveals that the budget is not a prescription for proper expenditure.

While an interim budget has certain ethical restrictions, the government could very well have announced programmes to create jobs, raise the purchasing power and boost the economy. However, it didn’t even announce a policy to contain food item inflation by universalizing the existing public distribution system. With the consumer price index- based inflation hovering around 11 per cent, the PDS needs to be effectively utilized as a market interventionist instrument to ensure that commodity prices remain affordable.

The government should have been quick to realize that the domestic slowdown began with the rising prices and the WPI-based inflation touching 13 per cent. Its growth projection of 7.1 per cent, stated by the Reserve Bank earlier too is a suspect. It will be now for the new government to bring it down.

A similar situation, if not worse, was faced by the outgoing US president George Bush. He, however, announced $ 1 trillion package.in consultation with President-elect Barack Obama. The package in budgetary terms was a deficit, but was aimed at bringing the US economy back on track. Thus, having a deficit per se is not bad if it were for productive purposes.

Sadly, in the Indian context, it is a Big If. Measuring deficit in percentage terms as in an increase of 6 per cent in 2008-09 or 5.5 per cent in 2010 is not stating the reality. In actuality, the deficit has increased by almost 2.5 times from 2008-09 budget estimates of Rs 133287 crore to Rs 326515 crore. In 2009-10, it is estimated to rise by at least Rs 6320 crore to Rs 332835 crore.

The above figures clearly expose the myth that the Indian economy is in a better shape. The finances, the budget reveals, had started tottering long before the global meltdown, which officially is post-August 2008 – post Lehman Brother scam – phenomenon. This is all the more intriguing as revenue accruals at Rs 241273 crore this year are almost four times the 2008-09 budget estimates of Rs 55184 crore.

In such a scenario, the impact of meltdown should not have reflected in the current budget. If at all, it should have been reflected in the new financial year. So far, major part of the deficit, Rs 261972 crore comprises market loans – i.e. borrowings at a high cost. In the next year, this will rise to Rs 308647 crore and is a cause for concern. This year the interest payments constitute 34.3 per cent of revenue receipts and are estimated to rise to 37 per cent in the next fiscal year.

No wonder then that Finance Minister Pranab Mukherjee stresses on relaxing fiscal responsibility and budget management (FRBM) norms, which actually means that the government is set to throw its ethical curbs to the wind. For this reason, the total deficit is likely to surpass the 10 per cent mark touched in 1989, when India pawned its gold to the Bank of England. In January, the Prime Minister’s Economic Advisory Council had estimated that the fiscal deficit would be at least 8 per cent of the GDP. If the projected 3.3 per cent deficit of various State governments is added, then the total deficit would surpass 11.3 per cent.

The above apart, with the rupee set to fall against international currencies and foreign investment (FDI), no one can say that the economy is in the pink of health. In fact, it threatens to pose a difficult situation for the new government which takes over following the General elections. Regrettably, the finance ministry did not draw any road map for strengthening the rupee, which was well within its powers and as a result it has crossed the unprecedented Rs 50 level.

In fact, the high savings rate rise of 37 per cent should have bolstered the rupee. But this did not happen as the savings are being used to finance the deficit too. It should be known that such high savings rate does not add to the credit of the government either. It only reflects the circumspection of the people, who instead of purchasing or moving to the market are saving for worse days. This unfortunately is considered a negative phenomenon.

Then again, the government’s profligacy is difficult to understand as its programmes have neither created jobs, nor helped the corporate sector, the farmers or for that matter anybody else. Rather, there have been job losses all through the year. The government could state that programmes such as Bharat Nirman had been allocated Rs 40,000 crore and all this may not have happened had it not resorted to taking loans.

In reality, Bharat Nirman is not a new concept. The schemes for rural roads, water, power, telecom, irrigation and housing were evolved under different governments under different heads. The UPA government put them under one umbrella and gave the euphemistic name. Some of the official surveys have found that the targeted beneficiaries are not even aware of the existence of the programme. The question to ask is: for whom is the expenditure being made?

The UPA government’s flagship National Rural Employment Guarantee Scheme has been allocated Rs 30,100 crore. The programme is well intended but has faltered. As per the CAG’s report, only 14 per cent of those opting for it have been given promised days of employment. And, its implementation varies from State to State, and a lot depending upon on panchayat-level leaders’ sincerity.

On the agricultural front, the higher yield after a period of fall in production looks impressive. It does not, however, meet the needs of the farmers. They suffer from debt burden and lack of avenues for marketing their products despite higher prices being promised by the government.

Surely, the government expenditure in these critical times should have been planned more prudently. It was not done during 2008-09 and there is little chance of it being done in the next year. Worse, social sector spending instead has been brought down by Rs 6227 crore, whereas it should have risen in these critical times.

A pity that the Government fails to realize that its spending alone could give a boost to the economy. A clear signal comes by the way the public sector enterprises have turned over. The loss-making units have come down to 55 from 73 and the profit-making units have risen to 158 from 143. Clearly, the government sector can lead the country to prosperity, if it wants.

It is surprising, however, that at such a time the government is talking of PPP – public private partnership – knowing very well that the private sector couldn’t even take the benefit of the two packages announced December-January. In fact, the PPP in airports and National Highway projects has only ushered in a higher cost to the users, which in turn leads to higher commodity prices and low spending capacity of the people.

The Finance minister has predicted tougher times ahead. This is a mild way of saying that many allocations might just remain on the budget paper. Whatever it may be, the fact is that he has saddled the new government with the most difficult task: to bring the country out of morass and take it on real growth path. ---INFA

 (Copyright, India News and Feature Alliance)