The Hindu Business Line : What will the Budget hold?

IN THE run up to Budget 2005-06, the penultimate year of the Tenth Plan (2002-07), the air is thick with irrational exuberance over what it might contain for the various constituents of the economy. While much is anticipated from the formidable triumvirate — Dr Manmohan Singh, Mr P. Chidambaram and Dr Montek Singh Ahluwalia — which played a pivotal role in ushering in economic and trade policy reforms in the early 1990s, the situation is vastly different now in the era of multi-party coalition governance.

The expectations and the aspirations of regional leaders as also the parties supporting from outside, such as the Left, could put paid to expectations of any big bang reforms or a "Dream Budget" of the 1997-98 kind presented by Mr Chidambaram when he was in the United Front Government. For a too pro-reform Budget seen as deviating from the National Common Minimum Programme could lead to a showdown that can unmake the alliance.

Considering these realities, there is little scope for the Finance Minister to bring in dramatic reforms, unless he convinces the reform-opponents with his charm, some sops and liberal spending on social infrastructure by raising resources through additional taxation or selling a small stake in profit-making public sector undertakings.

But the one advantage that Mr Chidambaram has is an economy growing at a healthy pace. According to the latest "quick estimates" of national income, consumption expenditure, saving and capital formation for 2003-04, released by the Central Statistical Organisation (CSO), gross domestic product (GDP) at constant (1993-94) prices in 2003-04 was estimated at Rs 14,30,548 crore as against Rs 13,18,362 crore in 2002-03 registering a growth of 8.5 per cent during the year against the 4 per cent the previous year.

Gross domestic savings at current prices in 2003-04 was Rs 7,76,420 crore (Rs 6,42,298), constituting 28.1 per cent (26.1 per cent) of GDP at market prices.

While both households and the sector contributed handsomely to the rise in gross domestic savings, even the public sector dissavings showed a distinct improvement from (-) Rs 26,652 crore in 2002-03 to (-) Rs 9429 crore in 2003-04. Last year, the per capita income at current prices was Rs 20,989 against Rs 19,040 for 2002-03. This 10.2 per cent growth does throw a favourable light on the "India Shine" campaign that was pushed to the shadows.

Can the new dispensation at the Centre, under the Congress(I) with a cast of parties supporting from within and without, do better? Will it be able to tailor reforms around the vast grey areas, especially those created by politics rather than economics? The task is indeed difficult. For instance, even as the Fiscal Responsibility and Budget Management (FRBM) Act enjoins the Government to reduce in phases by 2009 the fiscal deficit to 3 per cent of GDP and the revenue deficit to zero, the current trends put these targets beguilingly beyond reach.

According to the latest data from the Controller General of Accounts, the fiscal deficit target was far from being achieved in the remaining three months of the fiscal. Worryingly, the primary deficit, which is fiscal deficit net of interest payments, has already breached the Budget Estimate of Rs 7,907 crore for the whole fiscal and stood at Rs 10354 crore for the April-December 2004 period.

On the income front, while the net tax revenues were Rs 141,246 crore in April-December 2004, against Rs 118,795 crore in the corresponding previous period, the non-tax revenues dipped from Rs 51,748 crore in April-December 2003 to Rs 47,247 crore in April-December 2004.

There was an analogous decline in non-debt capital receipts at Rs 48,059 crore against Rs 53,325 crore, presumably due to lower loan recoveries. But this was partially offset by higher disinvestment realisations at Rs 2906 crore so far, against Rs 1540 crore in April-Deccember 2003.

But it needs to be mentioned that for the whole of the current fiscal, disinvestment is expected to fetch only Rs 4,000 crore, whereas the erstwhile government managed to exceed the Budget Estimates of Rs 13,200 crore by realising Rs 14,500 crore from the successful divestment in ONGC, GAIL, Dredging Corporation of India and a few others.

With supporting parties constantly harping on the ill-effects of asset-stripping PSUs that would also deprive a set of workers their very sustenance, ambitious disinvestment targets cannot be set for the next fiscal, despite the recent Government announcement to use the sell-off proceeds for establishing a renewal fund to help workers and the ailing PSUs.

The Cabinet decision to enhance the FDI (foreign direct investment) sectoral cap in the telecom sector from 49 per cent to 74 per cent subject to a spate of ifs and buts, including security considerations and the categorical assurance by the Finance Minister at a press briefing that anybody violating the regime would be thrown out of business, did not assuage the Left parties which have threatened "direct action" against what they call policies guided by Washington Consensus.

With barely three weeks to go for the Budget, and in its anxiety to ensure credibility about the promise made in the first Budget to raise the FDI sectoral cap in civil aviation, telecom and insurance, the Government has narrowed its options for further experimentation in liberalisation and tariff reduction or carry forward second generation of reforms at this crucial juncture.

The result may be a compromise Budget and not a credible one if the contradictions of coalition and the deviations from the CMP are not resolved and reversed for ensuring stability for the ruling dispensation.

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