The Hindu Business Line : Budget burden

Industry surely has a wish-list; but the vast majority in rural India who find it increasingly difficult to live off the land may be deserving of greater attention.

Tomorrow the Finance Minister, Mr P. Chidambaram, will present his fifth Budget in a row. Since the first UPA Budget in 2004, the economy has grown from strength to strength. All macroeconomic indicators — GDP growth, forex reserves, FDI flows and foreign trade, to name a few — are robust. Thanks to booming industry and service sectors, revenue collections are buoyant. It is easy to get carried away by the euphoric market conditions. The temptation to push for further liberalisation in sectors that are doing well is, perhaps, strong. But the Finance Minister’s degrees of freedom are limited. If the Government’s mantra of ‘inclusive growth’ is genuine, the Budget must address the issues arising out of lop-sided growth. The urban-rural divide is a huge challenge. Obviously, food and housing, health and education for the burgeoning population deserve primacy.

Unless the structural issues that stymie the farm sector are addressed with appropriate policies, investments and assured outcomes, the aim of ‘growth with equity’ will not be achieved. Agriculture is a complex web covering social, political, economic, cultural, climatological and technical factors. There is no one-step solution, but a series of moves in different directions. Waiving farm loans may fetch votes, but not result in lasting empowerment of farmers. In addition to increased budgetary allocation for the social sector, there is the over-riding political compulsion of containing inflation. Strong international crude prices will drive inflation up, with a burdensome multiplier effect. Food inflation too is taking its toll, especially on the poor. There is no escape from quickly augmenting supplies, if need be through larger imports at lower tariffs; and strengthening the public distribution system. This will involve a fine balancing act between advancing consumer welfare and protecting domestic farmers’ interests. Either way, huge subsidies are inevitable. Already, food and fertiliser subsidies are running out of control — cumulatively valued at about Rs 80,000 crore.

The dilemma of growth versus inflation is real. Global market conditions too are turning less favourable. Government expenditure usually rises in an election year, and 2008 will be no different. Notwithstanding higher revenue collections, in the likely scenario of higher social sector expenditure and higher subsidies, the Fiscal Responsibility and Budget Management norms will be difficult to maintain. With visible signs of moderation in the pace of growth, industry surely has a wish-list; but the vast majority in rural India who find it increasingly difficult to live off the land may be deserving of greater attention. Mr Chidambaram will succeed in leaving a mark if his proposals deliver them real benefits.