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VIEWPOINT
Fiscal
Follies
The economy
is in choppy waters but the finance minister has put it on autopilot
By
P. Chidambaram
 A
new millennium, a new century and a new year is a time for celebration.
Unfortunately, even while celebrating the unprecedented achievements of
humankind in the 20th century, I have started the new year with one big
worry. That not enough people in the Government seem worried about the
future direction of the Indian economy.
Just after
the dawn of the new year, Finance Minister Yashwant Sinha gave a reassuring
interview to some invited journalists. The theme of the interview was:
"God is in His heaven and all's well with the world." I suppose
he intended to send a signal that during pre-budget consultations, his
consultants-industry, trade unions, economists, non-government organisations
(NGOs) and so on-should not pitch their demands too high. It is, however,
possible that he sent out an entirely wrong signal to other key players
such as the Reserve Bank of India (RBI), state finance ministers, various
government departments, employees of public-sector undertakings and so
on. It is possible that the finance minister may have also signalled a
go-slow on reform.
Let me list
some of my concerns.
 Firstly,
inflation. After four years of low inflation, the Wholesale Price Index
(WPI) touched 8.16 per cent on January 16, 2001 and has remained at that
level since. The RBI governor has attempted to calm nerves by discovering-and
quantifying-the rate of "core inflation" at about 3.6 per cent.
Whatever "core inflation" may be, the country's apex bank is
unwilling to reduce interest rates because it knows that the demon it
has to slay is at 8.16 per cent. The finance minister and Prime Minister
Atal Bihari Vajpayee would do well to remember the "onion" elections
of 1998. People are complaining about rising prices. Spending is down.
If prices rise further, it can only mean more bad news for the economy.
Secondly,
the country's agriculture. In the last four quarters-from October 1999
to September 2000-for which figures are available, gross domestic product
(GDP) growth rates of the agriculture sector were -0.3, -1.3, 1.3 and
1 per cent respectively. That is the reason why there is seething anger
among Indian farmers.
Agricultural
prices have fallen steeply. Millions of farmers who grow tobacco, cotton,
rubber, coffee, tea or coconut have been impoverished. Real wages of farm
labour are declining or, at best, remain static. Non-farm work is hard
to come by because the construction industry is in doldrums. These trends
can, to some extent, be offset through massive investments in the agriculture
sector coupled with an imaginative use of the food stockpiles but is there
anyone who cares? Certainly not Nitish Kumar.
Thirdly,
investment. Today, there is neither a flow of foreign investment into
the country nor a rise in domestic investment. The fiscal year will end
with perhaps the lowest actual foreign direct investment (FDI) in five
years. There are also no major investments by Indian entrepreneurs, except
in information technology and telecommunications. I do not know of any
industrial house-barring Reliance-which is planning a large investment
in a greenfield project in the country. Many investors have simply withdrawn,
especially in the power sector. As a result, the capital goods industry
is languishing. Yet there is no sense of alarm in any quarter in the Government.
Fourthly,
the fiscal deficit. Let me assume that the finance minister will contain
the deficit at 5.1 per cent of GDP this year. What about the next? I sense
a flagging of resolve to reduce the fiscal deficit every year. On the
one hand the finance minister introduces the Fiscal Responsibility and
Budget Management Bill and, on the other, his ministry is trying to gauge
reaction to a possible 5.6 per cent deficit in 2001-02. Silent encouragement
is given to those who clamour for larger public expenditure. While public
investment in the infrastructure and social sectors is good and desirable,
I suspect that the demanders are asking for more money to be allocated
to dubious anti-poverty programmes or for more capital expenditure in
public-sector enterprises. Let the finance minister save a rupee from
some department's wasteful budget and spend the rupee more usefully. But
should he simply enlarge the deficit (that is, borrowing), I am afraid
we will be back to the bad old days of the 1980s.
Nonchalance
is an admirable quality, but not in a finance minister. Unless he worries
about issues which are drifting-and shows that he is worried-we will have
another zero sum year like 2000-no losses, no gains and settled into a
fatalistic routine of feckless governance.
(The author is a former Indian finance minister and
a TMC leadr.)
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METRO TODAY
If
planned well, the quake could be the Keynesian opportunity for Yashwant
Sinha to trigger growth, 