The Hindu Business Line : Budget 2004: Not the last word

"BALANCED but hardly inspiring," said the London Economist about India's Budget. Interpreting the electoral mandate as a vote for change, the Finance Minister, Mr P. Chidambaram, quoted the Prime Minister, Dr Manmohan Singh, that every effort is being made to bring about a change in the manner in which the country is run, a change in national priorities and "a change in the processes and focus of governance".

The seven objectives that the Finance Minister has set before himself are hardly exceptionable. The Government has to shift gears; he said. The speech however, to quote the Swadeshi Jagran Manch, is long in words and short on figures.

The allocation for agriculture, education and water resources do not indicate any radical changes compared to the allocations in the Budget for 2003. Despite the tall talk on agriculture, the fact remains that the core problems remain unaddressed. The average agricultural growth in the past five years has been a meagre 2.6 per cent.

To raise it to 8 per cent, as visualised, it is not merely monetary investment that matters but radical agricultural reforms.

Forty per cent of the rural credit is in the hands of the informal sector where the rate of interest charged is double or triple the bank rate. The problem with rural India is that the tillers of the soil, the artisans and the craftsman have no title to the land. Land is dead capital for them.

More than a decade back, the Latin American economist, Dr Hernando de Soto, pointed out with reference to Peru how the rural folk suffer for want of legal protection. "They have houses, but not titles; crops but not deeds; businesses but not statutes of incorporation".

In his latest book Mystery of Capital — why Capitalism Triumphs in the West and Fails Everywhere Else, Dr De soto explains that the main difference between developed and developing countries lies in the fact that in countries such as India and Peru the poor are deprived of the only form of capital they have — land. They have no clear land rights and titles and there are no land markets. There is no incentive to invest in land.

Says De soto: "By our calculations, the total value of the real estate held, but not legally owned, by the poor of the Third World and former communist nations is at least $9.3 trillion. This number is worth pondering.

This $9.3 trillion is about as much as the total circulating US money supply. It is very nearly as much as the total value of all the companies listed on the main stock exchanges of the world's 20 most developed countries, 46 times as much as all the World Bank loans of the past three decades and 93 times as much as all development assistance from all advanced countries to the Third World in the same period".

As long as the tiller of the soil does not have proper title and documentation for the land, he will always be at the mercy of the rural money lender. India's rural scene provides a classic example of Shakespeare's famous lines:

"Third Fisherman: Master, I marvel how the fishes live in the sea.

First Fisherman: Why, as men do a-land-the great ones eat up the little ones".

Strangely it has not occurred to successive governments at Delhi and the State capitals that this situation calls for radical remedy by way of land reforms.

Employment generation

The Finance Minister has been eloquent about providing guaranteed employment every year for 100 days for every family.

Most rural people have such employment for half the year. Agriculture as a component of GDP has declined; so has industry and manufacturing. Services have grown but they owe nothing to government. The position in India has to be contrasted with the situation prevailing in China.

The importance of the manufacturing sector lies in the fact that the export and import trade is likely to expand faster if a large proportion of the output originates in industry. The scope for employment generation is larger than in the agricultural sector which is dependant on the monsoon.

China's total trade to GDP ratio rose from 18.9 per cent in 1980 to 34 per cent in 1990 and 49.3 per cent in 2000.

The Finance Minister is right in trying to upgrade some 100 ITIs annually promote skilled manpower of world class. But why have successive government forgotten Rajiv Gandhi's Navodaya Schools, meant to impart quality education at the primary level? Private schools offerthe best education but at a huge price.

Right under the nose of the Centre, schools in Delhi are charging Rs19,000 per semester for a class four. These private schools of excellence get their land almost free or at a concession from the government, yet no poor student can enter their portals. So much for the concern about poverty and education.

Fiscal correction

The one good thing in the Budget is the laying down of the statements concerning strategy for macro-economic developments and fiscal correction.

But here again, he could have emulated his predecessor whose modern techniques in budgetary management were commended by the Indian Liberal Group in its presentation entitled The Liberal Budget: Building an Equitable Society.

The ILG observed: "The initiative of the Finance Minister in the last Budget to introduce cash management, on a pilot basis, in some major spending ministries is a step in the right direction.

"Under this, based on the actual requirement, monthly or quarterly cash limits for various ministries will be prescribed.

"This is expected to avoid the mismatches between receipts and expenditure, and also avoid a rush of expenditure and the associated possible waste of resources in the last quarter of the fiscal year. Surely, this effort must be pursued vigorously and made applicable to all the Ministries".

The Finance Minister is mum on the above approach just as he is mum about the Golden Quadrilateral, the North-South, East-West corridor and the river linking projects envisaged by the previous Government.

Overdue reforms

The Finance Minister proposes to set up a task force to examine reforms in the co-operative banking system. He will set up an investment commission to attract foreign investors and a National Manufacturing Competitiveness Council. There will also be a Board for Reconstruction or Public Sector Enterprises.

He will create a Backward States Grant Commission. The Budget speech is absolutely silent on issues concerning SICA and the BIFR, the National Company Law Tribunal and the National Tax Tribunal. These are vital institutions necessary for the financial sector reforms and for the recovery of arrears of taxes.

The former Prime Minister, Mr Chandra Shekar, is right when he wrote in The Hindu that "Instead of a path-breaking journey into the future, we seem condemned to another dreary year of hoping that the monsoon does not fail us. We have had a dozen years of so-called reforms. The same people who started it are back at the helm. Unfortunately, the reforms they have in mind are very different from what India needs".

(The author is a former Chief Commissioner of Income-Tax.)