Interim Budget 2009-10: More an Election Manifesto, Less A Budget
Arun Kumar
The Tribune, February 18, 2009
A Budget is more about the year ahead, and not about the
years past. The interim budget for 2009-10 lauds the performance of the UPA
government in the last four years. It ignores the negatives in this period.
Further, it glosses over the considerable negative news in 2008 which called
for action. It looks as if the budgetary allocations are sharply up but the big
increases were last year and they are merely being maintained.
The positives are the high rate of economic growth, a low
rate of inflation, high growth in exports, rapid flow of foreign capital, build
up of foreign exchange reserves, good growth in agriculture, implementation of
NREGS and many social sector schemes. Given the high growth rate, revenues
increased sharply so that there was scope of spending more on critical schemes.
However, critics have argued that not enough was done given the potential and
the crisis in the lives of the poor. Be that as it may, the list is impressive.
What are the omitted negatives? Given the nature of growth,
dependent on services sector, privatization, displacement of the unorganized
sector production by the organized sector, rapidly growing pollution and high
amounts of displacement, it was over estimated by the official statistics. For
similar reasons, inflation was underestimated. No wonder, while the government
claimed low rates of inflation, the citizen complained of high inflation - perceptions
differed sharply. However, disconcertingly, growth led to growing disparity in
the economy. While the corporate sector backed by massive concessions did
phenomenally well with profits more than tripling, the status of the Aam Admi,
the supposed focus of the Congress (I), stagnated or declined.
Disparities of every description increased - between the
rural and urban areas, backward and forward states, agriculture and
non-agriculture, capital and labour and organized and unorganized sections.
This is what fuelled the rapid increase in the savings rate in the economy by
an unprecedented 15%. The rising profits also fuelled a rapid increase in the
investment rate by a similar amount. However, it also made the growth path
unstable because it became dependent on a narrow segment of society. It is this
feature that has led to a sharp decline in India ’s growth rate in the last six
months. As soon as the incomes of the elite sections and the profits of the
corporate sector were hit by the global crisis, both consumption demand and
investment rate declined triggering the down turn.
Currently, exports are declining rapidly because of global
recession, industrial growth has turned negative and large segments of the
services sector are declining or slowing down. The result is that the current
rate of growth of the economy (not the average) is close to zero if not
negative.
The budget supports this contention when it projects a 2%
nominal growth in customs and excise duties (at unchanged rates). Adjusted for
a 4% rate of inflation, this would suggest a 2% contraction for this segment. A
6% nominal growth is expected in Service Tax so the real growth would be 2%.
Finally, the growth in income tax and corporation tax is projected at 10%. Like
last year’s figures which were based on optimistic projections and have now fallen
substantially short this year’s figures are also likely to be overstated. If
even the optimistic projections are as low as they are then India ’s growth is likely to be
negative.
Amongst the other negatives, one may count the rapid
increase in the revenue and the fiscal deficits for the current year (2008-09)
from the budgeted figures of 1% and 2.5% to 4% and 6% respectively. These
unprecedented increases were anticipated by the experts because of the over
estimation of revenues and under estimation of the expenditures on pay
revision, farmer’s loans, petro-goods subsidies and so on. Thus, FRBM Act has
been given a quiet burial. It is not surprising that at the first hint of a crisis
for the elites, this apparently stringent act has been relegated to the dust
bin while till last year when funds were needed for the Aam Admi, this act was
cited as an impediment.
The Congress (I) has also suddenly discovered the farmers as
the heroes. The last many years when they were committing suicide at record
rates, they were hardly the focus of attention. Now that demand has to be
raised quickly to counter the downturn, they are seen as the saviours. Because
of their poverty, they will spend much more and create a market. Clearly, they
do not matter in their own rights but as an adjunct to the non-agriculture
sector – the real concerns of the rulers of the country. It is a pity that the
FM says that 60% of our population lives in the villages when that figure is
closer to 70%. It is surprising that the figures given in the budget speech are
sometimes in numerals and at other times in mixed numerals and words. It
perhaps indicates a hurried job.
This brings us to the final point as to why the budget did
not announce a package to deal with the rapid slow down in the Indian economy.
Almost the entire world is admitting that their economies are in recession or
in rapid decline. Every country is announcing big bail out packages. The USA has announced till now (in various forms)
trillions of dollars of bail out (several years of India ’s
national income) and China
has announced a package of Rs.29 lakh crores over two years.
We
continue to announce that we will have 7.1 per cent growth this year and that
next year 9 per cent is achievable while everyone else is expecting a worse
year. Given our current trends, the government is in a state of denial and that
is why it is content to announce packages of Rs.40,000 crores and Rs.20,000
crores. The RBI’s release of liquidity just about compensates for the decline
due to fall in foreign exchange reserves. Where is the urgency?
The government claims that it is a vote on account and no new
policy measures could be announced with a new government due to take over soon.
But the government has been announcing measures outside the budget all the time
and given the unprecedented crisis, the like of which we have not seen in our
lifetime, expenditures in critical areas could have been boosted and governance
tightened up. In 1991, when the Narsimha Rao government took over in the midst
of a crisis, it acted undemocratically and in haste, with little time to
reflect and the poor had to suffer. A repeat of this is likely.
The
non action and denial mode maybe explained by the party’s desire to win the
coming elections by projecting a positive image of its performance. Admitting
that the situation is grim and acting strongly to prevent it from deteriorating
may have been seen as a self goal by the ruling party. Clearly, between the
party’s interest and the national interest, the former won hands down. There is
another twist in the tale or tail. If the New Economic Policy strategy is admitted
to fail, the blame for that would also go to its initiator, the party and the present
PM. This may trigger demands for accountability so brazening it out for a few
more months is a safer strategy.
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