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The limits on Finance Minister Yashwant Sinha's budget this year are political. He has the prescription to put the economy on a high growth track, but hampered by vested interests, vote-bank politics and stubborn opposition parties, he is unlikely to deliver.

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VIEWPOINT: POLITICALLY CORRECT

Carry On Reforms

Sinha has the prime minister's backing. He must present a growth-stimulating budget.

By P. Chidambaram

It is Budget time. Thanks to the media the making of the budget has turned into an annual spectacle. Virtually everybody who is anybody feels he has a relevant input. I welcome this trend. There is no longer the fear of another paradigm shift or of reversing gears. Nor is there apprehension of swadeshi regression or creeping socialism. Budget-making has settled into an established mode of incremental reform. In a few years, I hope, budget-making will be stripped of the remaining veils of secrecy and become a participative exercise.

The most important person in budget-making is the prime minister. In a coalition government especially, it is the prime minister who can ensure the finance minister's "autonomy" and provide vital support for a good budget.

Vajpayee has lately spoken of hard measures. He has repeatedly declared that his government's goal is 9 per cent GDP growth. He has supported disinvestment in public-sector enterprises, welcomed foreign direct investment in new areas and authorised downsizing in banks and other institutions through reducing the age of superannuation and voluntary retirement schemes. He has cautioned Indian industry against the clamour for undue protection, he has assured farmers a fair deal, and has promised the small scale sector a helping hand in the wake of the removal of quantitative restrictions. If his words are to be believed, the prime minister is determined to remain firmly on the reform path.

However, it should be noted that Vajpayee heads a coalition government. Moreover, the National Democratic Alliance faces elections in four states and one Union territory, and this will be its first test since it assumed office in October 1999. Lastly, there are signs that the alliance may unravel at the slightest provocation: witness the sudden exit of the Pattali Makkal Katchi.

	Jayanto

Vajpayee has also introduced a novel political element into the budget exercise. In January 2001, he set up an informal group of ministers to interact with the finance minister. This is unprecedented. Its composition is eclectic: it includes free-enterpriser Murasoli Maran as well as the socialist-turned-pragmatist George Fernandes. Whether the group will reinforce the resolve to usher in broader reforms or act as a restraint is anybody's guess.

The Gujarat earthquake is also a factor that may be allowed to impact the budget. In my view, it should not. There is ample international aid. Besides, Gujarat's needs can be isolated and the necessary funds raised through one-time measures. It will be adding insult to injury if the suffering of the people of Gujarat is cited as reason for tampering with the budget's structure and integrity.

From his actions and words, I read the prime minister's directive to the finance minister as follows: Be firm in your commitment to reforms, but take calibrated measures. The question is what will this message translate into when Yashwant Sinha rises to present his fourth budget?

If you had read my last piece ("Fiscal Follies", February 5), you will remember that I had expressed my concerns in four areas: inflation, agriculture, investment and the fiscal deficit. What is encouraging though is the remarkable convergence of opinion, among economists and administrators, about what needs to be done. Everybody's wishlist seems to contain the following:

• Reduce subsidies (at least on fertilisers and transport)
• Reduce interest rates
• Remove surcharges on income tax, corporate tax and customs duties
• Restore the distributed dividend tax to 10 per cent
• Eliminate reservations for the small-scale sector
• Accelerate power-sector reforms
• Liberalise the rules for foreign direct investment (better still, abolish the sectoral caps and differences)
• Quicken disinvestment (better still, privatise)
• Enhance outlays for agriculture, particularly for the Accelerated Irrigation Benefit Programme and for watershed management, water- harvesting and ground-water development
• Downsize government

I think that Yashwant Sinha would like to do all this and more. He should be concerned about the huge waste in the delivery of goods and services, making a mockery of the enormous amounts provided year after year for poverty alleviation and development. He should carry out his intention to attach World Bank-type conditionalities to the devolution of funds to the states. He should insist that every state replicate the "best practices" that have been proven elsewhere, like the Education Guarantee Programme (Madhya Pradesh); the Water Users Associations (Andhra Pradesh); the Employment Guarantee Programme (Maharashtra); and management of the Public Distribution System (Kerala).

Yashwant Sinha should assert his "autonomy" and present a focused budget that will stimulate growth. He holds the loneliest position in the Government. If he misses the opportunity-as he did in 2000-there will be few who will rise to his defence. He has our best wishes.

(The author is a former Indian finance minister and a TMC leader.)

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