Economic Highlights

New Delhi, 9 July 2009

                                                     Aam Budget Review

TOO MANY TARGETS, NO SOLUTION

By Shivaji Sarkar

It is a record Rs 10-lakh crore expenditure budget, Finance Minister (FM) Pranab Mukherjee has told the nation. If at all, it is a record for borrowing and debt servicing. The FM borrows Rs 400996 crore and pays back Rs 568402 crore as repayment of debt. Sadly, it signifies a severe malaise – the country is in a debt trap.

The actual budget is virtually reduced to Rs 452436 crore, about 55 per cent less than projected. No wonder the UN has warned that India is unlikely to achieve the all-inclusive Millennium Development Goals (MDG) by the target date of 2015. The International Labour Organisation has expressed concern over the growing unemployment worldwide and India is no exception. The MDG points at an increase in vulnerable employment. The budget does not provide for either job protection or job generation.

The country needs to feel concerned at this ‘aam aadmi’ budget. Indeed, it has too many targets but lacks a focus. It reads more like a manifesto than a road map for development. The only positive aspect is that it goes slow on public sector disinvestments. The FM’s euphoria that the first budget, 60 years ago was a mere Rs 193 crore is also misplaced. During these six decades prices have increased around 100 times and the population has almost quadrupled. Thus, there has been only a minor increase in the budget size in real terms and per capita allocation has reduced.

That is statistics. The budget, as the FM says, is beyond statistics and is also not the lone tool for spurring development. It is also a fact that this FM has the most difficult task. He draws flak for what he has done and what he hasn’t. He is not responsible for the high debt but inherited it from his predecessor. But the burden has to be borne by the nation.

The total revenue collected is Rs 614497 crore. Thus after debt servicing only Rs 46095 is left for the expenses. The rest, over Rs 4-lakh crore – shown as fiscal deficit, comes from the borrowings. So the government does what Charvak, not Chanakya, had advised long back: “borrow to feed yourself,” – a prescription the Americans followed at the behest of their merchant bankers. Today, the US economy is struggling to find a way out for recovery. Last week’s figure only indicated further job losses and deepening of the crisis in the US. The European Union is not far behind with 9 per cent more job losses.

The budget’s projected dependence for the export-oriented industries for a revival of the western market is not in sync with reality. It also does not try to create a demand generating economy. There are many flagship programmes. But these are long-term solutions. In a crises-ridden situation there should have been direct incentives, perhaps through reduction of taxes, to add to the growth process. The nation hopes that the professed nine per cent growth, as advisers to the finance minister say is achieved. The Reserve Bank, however, is not hopeful of more than 5.7 per cent growth.

Basically there are two fallouts of the high borrowings by the government. The total deficit along with that of the States is likely to be around 11 per cent. As governments at all levels borrow it would contract supply of money to the private sector – corporate and individuals, and consequently raise the cost. In reality it means that the low-interest finance would remain just a dream.

Industry associations – the CII, FICCI and ASSOCHAM– have rightly expressed concern. The CII’s President Venu Srinivasan has suggested partial monetization for tiding over the crisis, but one only hopes that the FM does not listen to such suggestions. If adhered to, it would result in an uncontrollable inflationary situation.

Moreover, the budget also does not provide a solution for food inflation, which is almost at 10 per cent, as per the consumer price index. While there are provisions for the food security Act and promise of 25 kg rice at Rs 3 a kg to those below poverty line (BPL), some States are giving the rice it at Re 1 or Rs 2. Thus, the new food law looks appealing but does not have a solution for all. In fact, the government should have widened the food security network through the PDS route and every needy person should have been allowed access. This could also work as a market interventionist tool, which could have checked prices and put inflation under control. It only required a little imagination and administrative effort. Mere legislations don’t solve such critical problems.

It is worth noting that the UN has remarked that a decrease in international food prices fails to translate into more affordable food at local markets. The MDG Report 2009 says consumer access to food in India, Brazil, Nigeria and China did not improve as expected. While it calls for addressing effects of higher food prices, the FM’s sectarian approach doesn’t invite the much-needed solution.

Mukherjee’s speech sets Rs 325,000 crore for agricultural credit up from Rs 287,000 crore last year. (This is not government funding). But the Rs 71,000-crore loan waiver announced last year is certain to add to the woes of the farmers, who take advantage of this waiver. They are not considered creditworthy by either banks or lending agencies, thus falling again into the trap of private money lenders. The FM too has made a note that farmers of Vidarbha and some other regions of Maharashtra who had taken loans from money lenders are still in distress. The loan waiver may create distress for others too. What was considered a solution has virtually saddled the Government with a huge debt with little benefit to anyone.

The Government could have used that money as direct investment in agriculture. It could have boosted production and also created jobs irrespective of the NREGS. The allocation for agriculture has been increased by only Rs 500 crore to Rs 10,060 crore. The FM’s budget speech and reality does not match. The agricultural growth would remain stymied.

The hope of a western recovery is distant. Even if it does it would be more protectionist. The FM has still time to revise his budget to give it the unique India-specific growth programmes, particularly for its dejected youth. Mere growth has not ensured the well-being of all. The Budget should be reshaped to give it a sharp focus. It should also modify the globalised and multi-target approach. ---INFA

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