Financial Daily from THE HINDU group of publications
Saturday, Mar 01, 2003
Well-intended despite detail
P. V. Indiresan
UNTIL recently, the Prime Minister and the Planning Commission were making brave noises about 8 per cent growth. At 4.4 per cent, the actual progress last year was almost back to the Hindu Rate of Growth. Hence, it was no surprise that the Finance Minister's Budget speech observed eloquent silence on the topic. No growth rate was projected nor promised. Prudence is the better part of valour.
Though he made no mention of growth rates, he did offer three (admittedly valid) excuses for the downturn in the economy: global uncertainty caused by the Iraq imbroglio, severe drought, and cross-border terrorism.
Of the three, we have to accept terrorism as a chronic disease that is unlikely to go away soon. The drought situation can change this year but as we have had an unprecedented sequence of good years, we should also be prepared for continuing drought. Nobody can forecast what Iraq will bring.
On the whole, these three problems are likely to hurt us in the coming year too. Hence, we need a plan for accelerated growth in spite of these unavoidable hurdles. The success or otherwise of this Budget should be measured on that basis.
The Finance Minister has identified five thrust areas, of which four poverty eradication, infrastructure, fiscal consolidation and agriculture are unexceptional. Encouragement of specific manufacturing sectors was his fifth priority.
Thus, the first four are to be promoted across the board but the last one will be on a case-by-case basis. That was evident from the tiresome list of items, some as insignificant as umbrellas and walking sticks, that were spelt out as worthy of preferential treatment. In this respect, the Finance Minister appears to have lost his broad perspective. It may be that politics was at work. How can a government provide selective patronage so important in an election year when everything is done on broad principles?
Fiscal consolidation might have been the professed aim, and Mr Kelkar might have been offered formal praise, but there was little evidence of either Kelkar's proposals or determined efforts at fiscal consolidation, except a laudable attempt to help State governments. However, we should not complain the Finance Minister had no option but to set politics above economics. The Minister has chosen three approaches for poverty eradication housing, education, and health. Of these, his proposal for health insurance with special subsidy for families below the poverty line is the most interesting. At present, the poor are supposed to get free treatment. In practice, it is neither free nor good.
However, even the poor will now have to pay a fee. Then, they acquire a right to demand good service. Psychologically, that is a good move. It would work even better if the insurance money were allowed to be retained by the hospitals and not absorbed into the Consolidated Fund. When local hospitals get that autonomy, doctors will have an incentive to attract more patients; there will be competition to serve better.
In contrast, the proposals for education lacked focus. Low literacy and dropouts at the primary stage itself are our greatest worry. Tax exemptions given for expenditure on education will help only the rich, not the poor. Even though education is primarily a state subject, the Centre cannot abdicate responsibility for universal literacy. In addition, there was no mention about promoting computer literacy.
The support given for housing is most welcome. At least in this case, Mr Jaswant Singh did well not to heed Dr Kelkar. However, once again, the tax reliefs listed would help the relatively well-off sections and not the very poor. The Minister did mention slum improvement. Without a congestion tax, there is little hope of realising that objective.
These three direct attempts to eradicate poverty will probably not have as much impact as the indirect benefits that will accrue from the substantial proposals for infrastructure development. Directly, roads and railways generate considerable employment for unskilled labour. Indirectly, they boost the economy and generate employment even more indirectly. Economic analysis has shown that technology and R&D are the most powerful engines for economic growth. In this respect, there are modest allocations for non-conventional energy and for biotechnology.
The Budget is well-intended. In most respects, it is a good Budget and, as it has created no hype, may succeed better than the more glamorous presentations of the past. It could have done more to clear the jungle our financial system has become. The Minister appears to be obsessed with minute details. There were so many of them that we are unable to see the wood for the trees.
(The author is former Director, IIT Madras.)
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