March 8, 1999
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BUDGET 99 Too Little, Too Late The budget is aimed firmly at rural India, for driving demands and for votes. But with no major initiatives in infrastructure and trade, the economy can stall anytime, anyplace. By Swapan Dasgupta and Rohit Saran
Politics: Free Lunch The transformation has been for the better. Since 1991, budgets have ceased to be directive documents. Despite the jugglery involved in the shifting terms of GDP measurement, the annual exercise operates within a narrow band width. The Congress recognised it under Manmohan Singh, P. Chidambaram set the norms for the United Front and, after an unmemorable initiation, Yashwant Sinha has upheld it for the BJP. Yet, there is a large measure of irrational exuberance involved. When Sinha rose at 11 a.m., ignoring Laloo Prasad Yadav's linguistic buffoonery, he read from a prepared speech whose subtext was that the Government remains the ultimate mai-baap. Hence the plethora of tokenism--a Rs 20 crore national foundation for chanting Jai Vigyan, a Deen Dayal Hathkargha Protsahan Yojana and a Samagra Awas Yojana that ends the life of the Indira Awas Yojana. It's not that these schemes are expected to do substantially more than provide business opportunities for billboard painters but that without them a finance minister could be accused of being insufficiently political. Politics remains the culture of the free lunch. Yet, there is a modest change here too. Earlier the holy cows were the public-sector units (PSU)--Jawaharlal Nehru's 'temples of modern India'--the small-scale industries (SSI) and what were quaintly described as poverty alleviation measures. Today, Sinha can get away talking of a Rs 10,000 crore psu disinvestment programme--he should have been much more ambitious--and a Rs 1,735 crore scheme to guarantee salaries to workers in sick PSU units who should, ideally, be staying at home or looking for fresh employment possibilities. As for the SSI--a backbone of support for the ruling BJP--the Economic Survey can actually afford to be blunt that reservation for this sector has been an impediment to investment. It's a shift and India has definitely moved on. There is no formal consensus, but there is a tacit understanding of what needs to be done. Unfortunately, it remains too tacit.
Radical Needs It should have been like this in India too. Unfortunately, the government arrogated itself 'the commanding heights' of the economy. This meant that everything--from running Ashok Hotel to determining economic priorities--came under its purview. Today, this vision of an all-embracing, over-centralised state is entertained only by the last adherents of the flat earth society. But the legacy remains. A government beset with a problem of cohesiveness and suffering from an identity crisis could have decided to find its feet by being bold and audacious. Where Atal Bihari Vajpayee broke the mould on Pokhran and by bussing it to Pakistan, on the economic front he erred on the side of caution. It won't go down badly. It won't go down well either. The famed Indian consensus has prevailed. Radicalism is, however, what the doctor ordered. The fiscal deficit has touched Rs 1,03,737 crore; it covers 6.5 per cent of the GDP. It has been contributed by successive governments that couldn't make the distinction between private money and public resources. They spent too much, borrowed too much and employed too many. The Fifth Pay Commission which raised salaries for India's bloated babudom imposed an extra burden of Rs 15,000 crore on the Centre's exchequer; including the states, the bill is a staggering Rs 90,000 crore. That's a loot comparable to Nadir Shah's pillage of the Mughal coffers in 1739. Sinha has acknowledged the problem and has even audaciously used the term 'downsizing' in his budget speech. The only concrete measure was reducing four secretaries to the Government! By way of remedy he has used Dettol when the requirement was chemotherapy. Like Manmohan and Chidambaram, he has promised to bring the deficit down to 4.4 per cent of the GDP. We shall see. Getting a Rise The irony is that there is no disagreement over the fact that the economy is in a deep crisis. India is faced with a staggering public debt that is a result of the government using its revenues to pay for its own upkeep. The debt has to be serviced. It is no longer possible for the government to instruct the Reserve Bank of India (RBI) to print currency notes indiscriminately. That's one self-restraint the country has exercised. But public debt has gone up from Rs 2, 06,711crore in 1991 to Rs 8,75,625 crore in 1999. So raising taxes is the only way out. For Sinha, the hike in tax rates were pre-determined since he couldn't cut government spending or its subsidies. Remember the almighty fuss the opposition and the allies--like Jaya-lalitha, Mamata Banerjee and N. Chandrababu Naidu--made when food and fertiliser subsidies were sought to be curtailed? Why, no government has the guts to even raise the price of postcards to more realistic levels. Yet, it has the imagination to confer 50 per cent concession on railway fares to accredited journalists. From PM to DM Fortunately, the Government has coupled the hike in excise duties with some rationalisation of the indirect tax structure. If the babus allow it, this will mean that companies may have to fill fewer forms in triplicate. Likewise, the individual taxpayer will end up paying a modest 3 per cent or so more because of the surcharge. The hike would undoubtedly have been much more if the Government hadn't proceeded on widening the tax base and forcing more and more people to have their own pan numbers. There wouldn't have been any extra burden of direct taxes if Sinha had done the incredible and ended the exemption on agricultural income. But then, he wouldn't have remained finance minister and Vajpayee would have been calling in the packers. Social equity in India means that a clerk earning Rs 6,000 each month in Mumbai must pay income tax but a strawberry farmer in Punjab's Gurdaspur netting Rs 1.5 lakh each month should enjoy tax-free status. If there isn't enough justice to go around it is because it has all been eaten up by agriculture. For a party that got to the top on the strength of the urban middle class vote, Sinha's second budget was the second occasion to find another constituency. Vajpayee is reported to have said the budget will be judged in the fields of India not in the drawing rooms of the cities. He could be right. Having noted that agricultural growth is what kept the overall GDP growth rate at a respectable level, Sinha decided to drive home the advantage. If there is money in circulation in the rural areas, it will mean more consumption there. That's good news for industry, particularly the capital goods sector which has grown handsomely despite the overall slowdown in demand. Sinha has been imaginative on two other counts as well. He has stolen a leaf from Rajiv Gandhi's panchayati raj dream and defined the route of rural grants as being from PM to DM. There is likely to be a lot of money for the elected panchayats and gram sabhas to spend on 'empowering'--that's the word the NGOs have bequeathed to the political class--themselves. They can set up primary health centres, schools and improve irrigation channels. There is however a valuable caveat. The bodies must be elected--an incentive for state governments to actually initiate local democracy--and, more important, the Government will provide matching grants. It means that for every rupee raised locally, the Government will provide another rupee. In short, the scheme ensures both accountability and local involvement. Communities may end up viewing official largesse a little less casually. If we're lucky, the leakages could even be less. Convert Options Likewise, the gold bond scheme could actually allow the great Indian greed for the ultimate surety to be put to productive use. After all, Indians imported gold worth 614 tonnes in 1998-99. If imaginatively marketed, it could tap rural resources far more effectively than small savings and can complement the mutual funds industry. However, that's where imagination takes leave. That's where courage also departs. In a recessionary climate, the budget is the inspiration people are looking for since the economy works on a combination of sentiment and objective realities. Sinha's budget lacks the Vision Thing. It's a working paper that doesn't forcefully tell the country that the overall situation is not all that hunky-dory. This was the occasion for the Government to keep the nation's nerve on the one hand and tell the world that India means business, that it is worth considering as an investment destination. Contrary to initial expectations, Sinha didn't even touch on the question of capital-account convertibility. He repeated tired old formulae about foreign-investment proposals being cleared speedily. He even established another official board to monitor the dollar inflow. It's not a question of the volumes involved, it's the importance of the demonstration effect on international confidence. The world is not short of investment opportunities. Foreign investors will consider India if it is appealing. At present it's not. It could become so if Vajpayee keeps his promise and builds some decent highways. In a sense Sinha has confirmed that it is best not to expect too much from the Government. The elected representatives remain plodders, mired in a mindset that refuses to go above mediocrity. They weren't expected to kickstart the economy, they aren't expected to find markets for Indian products abroad and they can't bring themselves to tell people that in a few years the agenda will be set by the World Trade Organisation. India is a signatory to this great global endeavour to enlarge the frontiers of free trade. The agenda has been set, the quibble is over details. It means that unless the Indian economy is sufficiently competitive and productive, it will end up being dominated by efficient global players. Inefficient State There could be one important exception. This Government has responded better to the technology of the future than any other, including Rajiv Gandhi's, which made computers a shibboleth. The all-round encouragement given to information technology and software development is the great hope of the future. That's also an area in which the Government has interfered minimally, probably because its understanding of the subject is nominal. But at least it hasn't either got caught in some meaningless swadeshi-videshi debate or embraced slogans about appropriate technology. It has left Indians to fend for themselves. In an ideal world, that's not such a bad deal. The problem is that an inefficient state with warped priorities seriously believes it is the engine to rescue the country from poverty and into righteous prosperity. 'These achievements,' said Sinha with a concluding flourish, 'will transform India into a genuine economic superpower by the year 2020. The 21st century belongs to us.' As historian A.J.P. Taylor once said, 'Men could have done better while shaving.' |
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There was a time, not that long ago, when Budget Day was
the occasion for collective mortification. It was the day the humble cigarette vendor made
a tidy packet by attaching a speculative premium on popular brands, the day car owners
queued before petrol pumps to fill their tanks and the day the captains of industry
assembled their excise consultants to perform quick estimates of the potential damage to
their fortunes. It was the time when refrigerators were dubbed 'luxury goods', talcum
powder attracted a 105 per cent excise duty and rates of personal income tax touched 97
per cent. All that changed well before Yashwant Sinha decided that 11 a.m. Indian Standard
Time is more meaningful and auspicious for presenting the budget than 12 noon Greenwich
Mean Time. In the post-socialist age, the budget has become an occasion for calculating
sops. Punitive taxation is out and the Laffer Curve in; reckless printing of currency
notes is out and 'prudent financing' is the buzzword; populism, inflation and growth
remain standard terms but are routinely replaced by optimism, pragmatism and realism. For
an India preparing to dole out tax 
concessions to Y2K solutions, the budget culture has
changed. 
Frankly, the Government's role in this
is narrow and well-defined. In modern economies, the role of the state is limited to
nurturing a wholesome environment for people to get on with their lives. In concrete
terms, this means maintaining law and order, sustaining an efficient judicial system,
facilitating rapid and cost-efficient communications and, finally, nurturing a stable
currency. Taxes are meant to pay for these and for socially necessary measures like
education and health care. In the circumstances, the budget becomes a
state-of-the-economic-environment document. 
