Columns: Kautilya

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India Today, March 15, 1999
March 15, 1999

KAUTILYA
Act and Quickly

With the budget the BJP's pseudo-swadeshi is dead.

By Jairam Ramesh

The dust is slowly settling on the last budget of this century. The budget belied the worst fears and the darkest worries. Hence the initial reaction of the markets was more than enthusiastic. Undoubtedly, there has been some manipulation. Yashwant Sinha has transferred a fiscal burden of around 1.25 per cent of GDP in 1999-2000 to the states by shifting 75 per cent of the liability of small savings to them. But this makes no difference to the overall fiscal deficit of the Centre and the states.

Sinha's interim budget of February 1991 had proposed a new Bharat Bachat Bank to take over the small savings portfolio and to that extent reduce the Government's fiscal deficit. Those were the days when the IMF was breathing down our necks. This time too he tried to peddle this idea but mercifully the committee he appointed to rework the treatment of small savings in the Union budget shot it down.

Sinha has also benefited from statistical changes introduced in the estimation of the nation's income by the Central Statistical Organisation, which has jacked up the GDP figures by 10-15 per cent. His mundane allocations do not match his lofty intentions. The budget allocations for rural employment and anti-poverty programmes and for the mid-day meal scheme for primary schools is actually down in 1999-2000 even in nominal terms.

But to be fair, steps like the overhaul of the excise-duty structure, the attempt to make productive use of private gold wealth, the incentives to equity-oriented mutual funds, the write-offs to facilitate corporate mergers and de-mergers and the slew of measures to promote housing should be unreservedly welcomed. Sinha should also be congratulated for not succumbing to protectionist lobbies as he had done in 1998. The 34.5 per cent increase in the plan allocation for agriculture and allied activities must be commended even though this increase gets magnified because in the previous year actual expenditure was around 72 per cent of the budget estimate.

Like in his previous budget, the finance minister has also rightly stressed "strategic sales" -- a euphemism for privatisation, something that should come naturally to the BJP. But the track record so far has been disappointing.

For Kautilya, the most significant feature of the budget is that it commits the BJP irrevocably to the reforms and liberalisation programme launched in 1991 by the Congress and expanded by the United Front in 1996-97. By talking of phasing down of customs duties to Asian levels, albeit by 2004, instead of the earlier target of 2000, Sinha is continuing the globalising process, whatever be the RSS rhetoric.

Like P. Chidambaram before him, Sinha has proposed an expenditure reforms commission. This is of paramount importance. Reorientation of public expenditure of both the Centre and the states is the very essence of economic reforms. The combined fiscal deficit in 1998-99 is probably around 7 per cent of GDP (using the new GDP numbers). This has to be reduced to 3-4 per cent of GDP. The combined revenue deficit in 1998-99 will be about 4 per cent of GDP. This must, as the finance minister says, be phased out over the next four years.

But it cannot be done without a major political initiative. Chidambaram tried to persuade Jaswant Singh to head the commission. Jaswant was supportive but expressed his inability to take on a public stance. Sinha could either set up a committee of chief ministers drawn from different political parties under the chairmanship of that patriarch, Jyoti Basu, or get together a group under the stewardship of a veteran like Bhairon Singh Shekhawat or N.D. Tiwari.

Sinha has also promised a discussion paper on the second generation of reforms. This is a good idea but he must not forget that most of the second generation reforms are critically dependent on legislative action. This is where the Government is demonstrating monumental lethargy, incompetence and cussedness.

For example, Chidambaram got a team of economists, lawyers, chartered accountants, administrators and industry managers to draft a new Companies Bill to replace the 1956 Act. This bill is floundering since the minister concerned is from the AIADMK. The Insurance Bill is with the Standing Committee where only its chairman, Murli Deora of the Congress, is showing any interest. The bill to replace FERA has got through the Standing Committee only because of two former finance ministers.

If any meaningful reforms of the banking sector have to take place, government equity in the banks has to come down to below 50 per cent. For this, parliamentary approval is needed. If the Industrial Disputes Act and the Sick Industries Companies Act have to be amended, if a statutory ceiling has to be introduced on the growth of public debt, if the coal industry is to benefit from private investment, then again new legislation has to be passed by Parliament.

Sadly very few MPs appreciate the urgency of new economic legislation. Worse, neither Atal Bihari Vajpayee nor Sinha has shown any enthusiasm in crafting a legislative consensus. Kautilya finds great merit in Jayalalitha's suggestion of a special session of Parliament devoted exclusively to passing important economic bills. Kautilya hastens to add that this support to the puratchi thalaivi has no political overtones nor is it a case of Iyengar blood being thicker than water. A good idea must transcend politics.

The author is secretary of the AICC's Economic Affairs Department.
The views expressed here are his own.

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