The Hindu Business Line : Budget 2004 could well be CMP, Act 1

THE business agenda of the UPA Government has been laid down in the Common Minimum Programme (CMP). As the financial commitments for the CMP are likely to be high, the focus of Budget 2004 will be on harnessing the required funds; and this separates the coming Budget from the earlier ones. The Finance Minister, Mr P. Chidambaram, will have to resort to more than merely a tax-and-spend exercise to fulfil the CMP agenda.

With the economic and political ideologies of the UPA coalition being diverse, a delicate balancing of the interests of the reformers and the protagonists of rural reforms and subsidies are required. To achieve this, Mr Chidambaram will need the artistry of an M. F. Hussain and the wizardry of a P. C. Sorcar.

Very few have attempted to take up the cause of the poor as seriously as this Government. Economic policymakers have ignored the fundamental premise that a strong India can only emerge on the strength of its rural sector. Any other approach will result in fragmented growth and a further widening of the rich-poor divide. In many ways, the CMP is not very different from the policy document of the NDA. In the Interim Budget, the former Finance Minister, Mr Jaswant Singh, attempted to create a `human face' in an election year. But four years of indifference cost the BJP and its allies dear. The poll results in Andhra Pradesh and Karnataka show that the common man did not share the hi-tech vision. Rather, the basics of life — shelter, employment, food and water — were his major concerns.

The Prime Minister, Dr Manmohan Singh, has stated that his Government's first priority will be agriculture and employment. Thus, the Finance Minister's task is well defined. He will attempt another dream Budget, but only this time around the target audience will be Rural India and India Inc. Mr Chidambaram would have to ensure that his Budget reflects the human face of reforms.

The Finance Minister has inherited a strong economy, with bulging forex reserves, buoyant tax collections, surging exports and a healthy capital market. In terms of economic growth rate, India is now next only to China. Mr Chidambaram's challenge will be to maintain 7-8 per cent growth over the next few years and consolidate the gains. He has to come out with an economic package that leads to sustainable growth, creating wealth and jobs for the poor and unemployed and paving the way for better industrial performance.

Mr Chidambaram may steer clear of radical policy changes in the Budget as the CMP already talks of them. Ingenuity in raising resources to finance rural development and other pro-poor welfare schemes would be the focus. Overall, Mr Chidambaram may not hesitate in adopting a `Rob-Peter-to-pay-Paul' approach.

The CMP has prioritised the policy thrust of the UPA Government on governance, Defence, external affairs, economy, agriculture, power, the capital market, the banking sector, employment and social infrastructure, health, welfare, and so on.

The Finance Minister would do well to spell out the five-year economic roadmap of his Government, with milestones and action plans. Budget 2004 will largely dwell on the first year trek on this roadmap. In his earlier stint, Mr Chidambaram revamped the tax and duty structure even beyond what the World Trade Organisation had stipulated. Today, these policy measures are yielding rich dividends. For instance, a limping component and ancillary sector has become a global player.

For industry, only peripheral support may come from the Budget, and this would be more in terms of course corrections, such as setting right the inverted duty structure, decisions on bilateral and multilateral trade agreements, and so forth. Similarly, the services sector, which is on a growth path, may not receive any major benefits. At the policy level, Mr Chidambaram will do well to maintain status quo for these sectors; the irritants should no doubt be removed. It is time industry matured as an institution and provided support to the economically weaker sections of society. Greater wealth creation not only leads to higher revenues to the exchequer but also jobs for the unemployed. In this context, government-industry partnerships can help. The Finance Minister may be forced to impose a budgetary demand on industry in the form of revenue-based taxation.

Agriculture, agro-based industries, rural development, infrastructure, housing, roads, small and medium sectors, tourism, and so on, are high on the Government's agenda, as these can create jobs in the semi-urban and rural areas. Mr Chidambaram should look at the growing domestic leisure tourism market as well. India has bountiful of such diverse leisure options, such as heritage, wildlife and culture tourism, hill and beach resorts, and so on. Incremental investments for improving the hilly regions will help create wealth and jobs there.

In all, productivity and wealth creation should be the mantra of the new Government.

Mr Jaswant Singh's `continuous management of the economy' came in handy when tinkering with taxes and duties outside the Budget. Mr Chidambaram would do well to follow suit. In a developing nation with conflicting political thinking, course corrections are necessary to keep the economy on track.

Mr Jaswant Singh had deftly included many populist measures in his Interim Budget keeping the election year in mind. He has, thus, unwittingly done some groundwork for his successor. With most of the CMP ingredients provided in the Interim Budget, Mr Chidambaram will have to merely fill in the gaps.

Resource crunching may not be as difficult as it is made out. Mobilisation of funds will certainly not come from heavy imposts. Even the CPI(M) will not subscribe to such reversal of policy. Withdrawal of tax exemptions, incentives to investments in the farm, agro and social-welfare sectors, unearthing of black money through voluntary disclosure schemes, better tax compliance and widening the tax base are some of the ways to raise revenues.

The two largest expenditure heads of the government are interest payments and administration costs. The latter has to be tackled with a no-nonsense approach. Ministries and offices with little and no productivity should be disbanded, and controls replaced by regulatory frameworks. Competence and performance of all elected representatives should be the yardstick for their deployment and promotion. Much can be generated through savings. No government has really had either the political will or commitment to reducing wasteful expenditure. One hopes that this Government would make an attempt.

Interest payments must be reduced progressively through planned repayments and innovative restructuring of debt. And subsidies have to be cut drastically. The days of higher taxes to finance expenditure are over. Mr Chidambaram cannot have in place a Budget that he is unable to finance within the realms of reason and logic.

The Government seems committed to abiding by the Fiscal Responsibility Act. But this would require progressive reduction of the revenue and fiscal deficits over the next four years. The success of the Budget would lie on how the measures to administer fiscal discipline are implemented.

In sum, Budget 2004 will have a `mixed economy' approach, moving closer to China's open market philosophy within a socialistic pattern of society. The key will again be timely implementation, which has always been the weakest link in the chain.

(The author is industry advisor and analyst, and can be contacted at anil_rathor@vsnl.net)