The Hindu Business Line : Budget 2005 and economic equity

The Budget has to juxtapose the complex functions of pursuing the `profit' idiom to create wealth for the nation and of taking a range of socio-economic benefits to the people.

BUDGET 2005 will hopefully be low on rhetoric and strong on delivery. The Finance Minister, Mr P. Chidambaram, and his team, guided by the Prime Minister, Dr Manmohan Singh, have set the tone for a new socio-economic-political paradigm: Quick delivery of economic benefits to the rural populace and the economically weaker sections. But does the Finance Minister have enough resources to design and put in place a work-plan that will support the next generation reforms and fulfil the commitments made in the National Common Minimum Programme?

Many have suggested that the country be run like a large, profitable and growth-oriented corporation in the private sector. This is easier said than done in a democratic nation because objectives of the two are poles apart.

A good company, irrespective of its size, operates within a narrow framework and has fewer operating parameters. Its basic objective is to make more profits. There is little accountability for the social cause, which is, however, a critical area for a democratically elected government. Even small community efforts of the corporate sector are often focussed more on brand promotion and image-building rather than on intrinsic values. The genuine `human face' is usually missing.

The government, unlike corporations, has to plan far ahead as its canvas is large, involving the welfare of over a billion people. New Delhi, therefore, has to juxtapose the complex functions of pursuing the `profit' idiom to create wealth for the nation and of delivering a range of socio-economic benefits to the people.

Can Mr Chidambaram meet these requirements in his Budget proposals? He and his team certainly possess the skills and the capability to manoeuvre and manage political and economic compulsions and the associated conflicts while drawing up the Budget agenda. Transparent and strong statesmanship holds the key. Trade-offs may open short-term escape routes but will only lead to long-term disasters. Good politics requires deft management, side- tracking unwanted issues and negotiating a win-win situation for all.

The Budget has a difficult job to do to satisfy diametrically opposite ideologies within the UPA and its supporters, especially on the next stage of reforms. Broadly, these relate to financial, administrative and labour reorganisation. The challenge for the Government is to invest substantially in the social sector and mobilise revenues by widening the tax base. .

One is likely to see rationalisation of tax and tariff structures for wider coverage and easier compliance, larger allocations for public health and education, employment generation schemes, and investments in agriculture and the rural sector.

The Finance Minister should also narrow his focus to sectors that can leverage the country's inherent strengths and compete globally. These include farm and agro-products, tourism, textiles, auto components, electronics, pharmaceuticals, apart from the traditional segment of gems and jewellery, services and exports. The new Budget proposals will have to generate huge resources, and this is where its implementation becomes questionable.

Attracting FDI and targeting radically higher revenue collections and improved productivity, cutting down on government spending, and ensuring easier loans for the agriculture sector and the self-employed will be crucial. The successful implementation and management of VAT will generate resources for the States. Good governance will reduce waste, build confidence and improve the balance of payments scorecard.

Defaulters and non-performers should have no place in the system and ought to be dealt with severely. Most important, the Budget has to deliver on its promise. The tax philosophy ought to relate with earnings, regardless of a sector-wise bias. Tax the rich and relieve the poor, should be the watchword. Job creation and sustained employment will come from manufacturing, tourism, creation of physical infrastructure and in encouraging entrepreneurs and self-employed.

It is debatable whether the radical measures being contemplated in the Budget will find acceptance by all supporting the UPA. The Finance Minister recently announced that non-government PFs could invest in stocks. Such a step will inject nearly Rs 2000 crore annually into the system and boost the financial market.

Equity investment options and higher returns will infuse higher liquidity in the system and bring maturity and greater accountability in the banking industry. However, the benefits may be lost unless the reformists cut down on the red tape, and rejig the bureaucratic and overcautious operating style of most public sector banks.

The current thinking of retaining 51 per cent ownership in PSUs and offering limited lots of shares in the market is a good measure, provided there is no loss of jobs. A `reforms' Budget must have the necessary regulatory framework, which can operate without political interference. Thus, there is a need to have regulators in place for each of the sectors, including power, oil and gas, telecom, insurance, banking, civil aviation, agriculture, retailing, real estate and others, before the doors are opened further.

Liberalisation brings its own set of evils, and strong regulation will facilitate orderly long-term growth. There is also a need to build empowered consumer forums, which do not function like traditional courts and can take quick decisions. An open economy cannot grow without people's confidence and trust in the governance process.

India cannot grow merely on the strength of industrial and urban development. The policy-makers must address the development of the rural economy in a holistic manner. Since India opened up its markets, the cause of the poor has been confined to little other than loud rhetoric. Sustained economic and structural reforms can succeed fully only if the rural population and the poor are the early recipients of their benefits.

The Public Distribution System in India is weak. Subsidies and grants have not found their way to the designated audiences despite substantial allocations. All this must change.

Whether Mr Chidambaram's Budget 2005 can deliver on all these aspects remains to be seen.

(The author, an industry analyst, is Chairman, All-India Resort Development Association. Feedback can be sent to anil_rathor@vsnl.net)

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