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Monday, Feb 25, 2002

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Will the Government act?

Ranabir Ray Choudhury

LEFT to itself — as suggested strongly by experience — there is little doubt that the Budget for 2002-03 will be yet another document at the end of a long list which will promise to do many things but which, at the end of the next financial year, will be left struggling with many intentions remaining unfulfilled.

The authorities will, of course, rush to their own defence by pointing out that this is not quite an accurate picture of past Budget promises and their implementation, perhaps citing as instances the recent efforts at hastening the pace of disinvestment and labour reforms. They will be technically correct in doing so for, after all, they have been able to take steps towards fulfilling Budget promises before the end of the financial year. But if one takes the Budget year as a whole, it becomes clear that neither the spurt in disinvestment this month nor the Cabinet move on facilitating an easier exit policy for industry will have made much of a practical impact in terms of economic operation which, in fact, should be the objective of every time-barred Budget action programme.

Indeed, the timing of the Cabinet decision on the latest tranche of labour reforms shows up the inherent hollowness of all that the Union Finance Minister has to say in his annual Budget document. Consider a scenario in which tax proposals in the Budget are given effect to at the fag end of the year, the clear implication of such action being that the Budget year has been totally wasted as far as fiscal changes are concerned. If this is the result of Budget tax programmes being effected at the end of the Budget-period, it can surely be argued that the year has been wasted as regards labour reforms because of the late timing of the reforms-approval.

It will, of course, be argued that there is the formality of the Finance Bill, incorporating the finance measures suggested in the Budget, being passed in the House Budget session itself, which automatically results in the tax changes being implemented at the very beginning of the Budget year. Quite so, but if this is the case with the tax proposals for a particular year, why cannot similar statutory arrangements be made for non-tax proposals to be implemented within the Budget session itself which would, among other things, bestow an equal importance to the parts of the Budget which do not deal with tax issues, generally speaking?

In fact, one can be pretty sure that the Finance Minister will stand up in the House on February 28 and tell the nation with a sense of accomplishment that "his Government" has been able to fulfil a large number of the promises made in the 2001-02 Budget, which would include (most certainly) the changes in the ID Act approved by the Cabinet. What he will not tell the people is that the labour changes envisaged in the 2001-02 Budget are still on paper and that, consequently, the national economy has not had the benefit of the change affecting actual economic operations on the ground which, one would imagine, is what implementing a Budget is all about.

The purpose of labouring this point is, once again, to impress on the Government (that the NDA is in the seat of power at the moment is just incidental to the basic thrust of the argument) that it must not be seen only to draw up a reasonable plan of action for the year ahead but should also strain its every sinew to implement the plan at the very beginning of the period so that, at the end of the period concerned, the results can be properly evaluated and course-corrections made, if required, in the next Budget.

Coming to the actual content of the 2002-03 Budget, the only point that one can make at this stage is that one would be happy to see a reasonable mix of incentives and revenue-raising measures included in the document, the fundamental premise being that, first, investors need some profit-incentive to improve on their existing scale of operations and, second, that without such an improvement there is simply no scope for the exchequer to be able to raise the resources planned in the Budget. What becomes clear here is that every Budget exercise must have a rigid and well-considered scale of priorities, the entire structure being pegged on the Government's (hopefully well-documented and researched) assumptions on how the economy as whole will respond to the raft of measures it intends taking in the Budget-year.

At this specific juncture, the Government is perhaps in a slightly advantageous position compared to, say, six months ago, in view of the fact that there are firm signs that the economy is at last picking up (among other things, the latest excise collection figures are a firm pointer to such a recovery). What this means is that domestic economic activity is already on the upswing, the inference being that the 2002-03 Budget need only impart a firmer push to the ongoing process, which would lead to greater investment activity in most sectors and larger revenue flows. Better investment incentives, generally, are of course absolutely indispensable for such a `push' to be effective.

But, taken by itself, this would not constitute a sufficient condition for the `push' to be productive in the way intended. The Government will also have to aid the process of recovery by `injecting' demand into the economic system, which necessarily means that `public works' (including housing) will have to promoted and implemented on a truly impressive scale.

The Budget exercise is, of course, a far more complex exercise than what the thumbnail prognosis above may suggest but, surely, those who are running the Government (particularly those entrusted with the job of drawing up the Budget) cannot take refuge behind this forbidding facade of complexity to churn out a document bereft of character and pointed personality. Incidentally, no one is ignoring the fiscal deficit or the debilitating restrictive impact it has on economic activity, generally speaking. The need of the hour is to tackle it head-on, which is not exactly what the NDA Government has done if one considers the performance on the disinvestment front, to cite only sector in which precious resources can be raised.

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