The Hindu Business Line : A public relations exercise

EVEN as the presentation of the Interim Budget for 2004-05 was preceded by procedural wrangles over the correctness of going ahead with the `first session' in a new year without the conventional Presidential address, it took almost an hour for calm to return to the House with the members of the Opposition and the Treasury Benches.

Thrashing out the finer legal points. As the Finance Minister, Mr Jaswant Singh, read out his second Budget speech, the seventh in a series for the National Democratic Alliance (NDA) under the leadership of Mr Atal Bihari Vajpayee, it became amply clear that the Government was preparing to test its electoral fortunes. The 50-paragraph speech running to a dozen pages was peppered with adulation for the Government's initiatives and macroeconomic management in the past few years.

Though the impropriety of persisting with sops had been widely commented upon, it did not detract the Finance Minister from coming out with popular schemes, though devoid of real merit, for the poor, for whom much of these socio-economic schemes are essentially addressed. The extension the Antyodaya Anna Yojana scheme, currently covering 1.5 crore families below the poverty line (BPL), is proposed to be extended to two-crore families effective from April 1,with emphasis on additional benefits to tribal belts.

The practical problem of identifying BPL families among the teeming millions of poor has not been fully addressed even in the backward States, leave alone the tribal districts/belts where the reach and access remain a major bottleneck.

Again, schemes such as asking banks not to insist on additional collateral through mortgage of entire landholdings, extension of farm income insurance scheme from the existing 20 districts to 100, revival package for the tea industry for special term loans, restructuring of bank loans taken by sugar factories, and revitalisation of cooperative banks, entailing an outlay of about Rs 15,000 crore to be shared between the Central and State governments, have the potential to strain the banking system.

As it is, the track record of banks in risk perception is proverbial. And with the volume of non-performing assets in most nationalised banks creeping up, directing them to lend at concessional rates of interest would only worsen their profitability without actually addressing the problem of credit delivery to ensure wider and more equitable distribution. Again, the enhancement of the credit limit for the small-scale industrial units with proven record from Rs 2 lakh to Rs 10 lakh would expose the banking system to risks.

Considering the slew of schemes Mr Jaswant Singh announced a few days back — such as the Agricultural Infrastructure and Credit Fund, the Small and Medium Enterprise Fund and the Industrial Infrastructure Fund, together entailing an outlay of a whopping Rs 1,10, 000 crore over a few years — in which banks have been asked to lend at concessional rates of interest (two percentage points below their prime lending rate), the banking system is in for some tough time if they do not stick to prudential norms and price their advances properly.

It is easy for the Government of the day to unveil one package after another for different segments of industry, but the consequences of these on macroeconomic fundamentals and the institutions involved can be calamitous in the long haul if precautionary measures are not put in place by the agents themselves or their supervisory body.

For a Finance Minister who is considered a propounder of innovative financing — such as public-private partnership to leverage public funds of Rs 2,000 crore for undertaking the massive Rs 60,000-crore worth of investments to set up world class convention centres and upgrading airports, which he announced in his maiden Budget in 2003 — the contention that there is no alternative to development finance and, hence, the steps for reviving and restructuring the IDBI and the IFCI, would only be another exercise in throwing good money after bad and, thereby, further straining the budgetary resources.

A firm believer in economic reforms and banking sector prudence cannot afford to play ducks and drakes with taxpayers' money if the private sector in India is still looking for resources from traditional conduits such as term-lending institutions, which have over the years lost not only their relevance but also burnt their fingers because of the duress to undertake directed lending at the behest of political leaders.

The Finance Minister has claimed credit for a net decrease in expenditure of Rs 11,143 crore compared to the Budget estimate for the current fiscal. He said the reduction in expenditure has been achieved despite additional expenditure on rural development, the Sarva Shiksha Abhiyan, the Delhi Metro Rail Project and additional budgetary support for the Railways.

A cursory glance at the expenditure budget reveals that the knife fell unkindly on Plan investment in public enterprises encompassing crucial infrastructure sectors such as coal, mines, communications and information technology, power, road transport and steel, with difference between the budgeted and revised figures for the current fiscal being considerably larger in these key industries. For instance, against the budgeted Plan investment in public sector power enterprises of Rs 13,987.55 crore, the revised figures for this fiscal is only Rs 11,671 crore; and in the case of communications and information technology, the figures are Rs 14,878.45 crore and Rs 12,811.45 crore respectively.

In fine, the Interim Budget has been a public-relations exercise, over-playing the initiatives of the NDA Government with scant regard for scarce capital resources. Prudence dictates that fiscal consolidation, so grandly proclaimed by Mr Jaswant Singh, should at least have been initiated through recourse to a realistic book-keeping exercise for the overall weal of the economy in the years to come.