The Hindu Business Line : Not a big bang Budget!

The Budget has not lived up to the great expectations that it would bolster the efforts of economic players to hold their own against ill-winds blowing from elsewhere. Especially because the Finance Minister, Mr Pranab Mukherjee, had many things going for him.

B. S. Raghavan

Given all the favourable factors, one would have thought that the Finance Minister, Mr Pranab Mukherjee, would take a big, bold leap forward with some eye-catching masterstrokes that would together form vital components of a dynamic strategy for helping the economy recapture the momentum that it had achieved before being overtaken by the financial crisis.

Instead, he has chosen to play safe by sticking to the beaten track, by increasing some allocations here, marginally tinkering with the tax slabs there, extending expiry dates of some schemes somewhere else, but all the time without disturbing the contents and the format — the same ongoing yojanas, the same NREG, the same Bharat Nirman, the same recitation of percentages of this and that.

Considering that this was his very first Budget following the taking over of the reins by the second Manmohan Singh Government, he need not have been so very particular not to rock the economic boat. Especially because he had many things going for him. The supremacy of his party, the Congress, as the prime mover of the UPA is unchallenged.

The Government is free from the constant pin-pricks to which it was subjected to in its previous incarnation. Politically, the Government is in a strong and stable position to carry out whatever it considers to be in the country’s best interest, taking advantage of the Opposition, as a whole, being in a responsive, if not subdued, mood conducive to easy passage of proposed policies.

In the overall, there is a ‘can-do’ spirit pervading both the Government and business and industry; savings and investment rates have consistently ruled well above the comfort level; the economy is diversified enough to make up in the swings what it may lose in the roundabouts.

The time was ripe for Mr Mukherjee to hit out in a manner that would have fired the imagination of the country. May be, he found it hard to depart from the Prime Minister’s interpretation of the Government’s mandate (which he quoted) as one of continuity and stability.

Not a whisper

In the end, the drabness of the marathon speech of 100 minutes was relieved only when he revealed that the Centre’s expenditure which stood at Rs 100 crore at the time of Independence had crossed Rs 10,00,000 crore and the funding of political parties would be entitled to 100 per cent tax exemption.

Let us look at the opportunities missed. No clear picture emerges about the strategy the Government has in mind for going forward with economic reforms.

At what pace, to what extent, in what sectors, in what order? It is all a blur, except for the Finance Minister’s statement that there will be public participation in listed public sector enterprises up to 49 per cent and there will be no giving up the Government’s hold over the public sector and banking and financial services.

There is not a whisper about the idea contained in the Economic Survey of mobilising Rs 25,000 crore or more from disinvestment, nor is there a blueprint for reinforcing the sectors of the economy showing signs of revival and propping up those that are sagging.

The Budget has not lived up to the great expectations that it would bolster the efforts of economic players to hold their own against ill-winds blowing from elsewhere.

There is no knowing whether the various allocations will inject enough liquidity into the system so as to create, sustain and push up the effective demand for goods and services and result in the stepping up of investment as an integral part of a virtuous circle, generating the four v’s of growth — volume, velocity, variety and versatility of economic activities.

Prime pre-requisite

Mere mention of the higher flow of credit or extension of the period of repayment of farmers’ loans does not make for a roadmap for agricultural development. The imperative need now is for a Second Green Revolution, the word ‘green’ standing for both productivity and environmental protection.

The mishandling by various States of the people’s legitimate apprehensions about land acquisitions leading to their being uprooted from their familiar habitations and deprived of their livelihoods has made industrialisation seem like an enemy of agricultural development. Unless this artificial conflict is resolved, all talk of promoting investments in either sector to the required levels will remain just that: Talk.

The prime pre-requisite to harmonise the interests of both agriculture and industry is to evolve a comprehensive nation-wide land use framework into which the Special Economic Zones can be fitted.

Also, the food processing enterprises and the agri-busines consortium already set up by the Government can play a vital role in accelerating recovery and creating millions of jobs. There is not a word in the Budget about any of these dimensions of economic growth.

Another most important driver of such growth is infrastructure. Here again, there is a whole corpus of reports of studies undertaken over the years by a whole host of organisations including the World Bank, IMF, government agencies and academic institutions and nothing is wanting as regards databases on the needed investments and the modalities of raising resources and executing the projects.

The subject deserved a detailed and convincing statement of the Government’s short, medium and long-term action plan, whereas the Budget fails to meet this requirement, cryptically confining itself to a mention of a figure of Rs 100,000 crore in relation to power, ports, airports, roads telecom and so on without a clue as to the specific quantitative indication and the difference it would make to the present situation.

Expenditure management

The combined effect of three doses of fiscal stimulus and the outgos on account of generous salary increases following the Sixth Pay Commission’s recommendations, subsidies and interest is the steep rise in the fiscal deficit to 6.8 per cent as against 2.5 per cent last year.

It has made the Fiscal Responsibility and Budget Management Act (FRBM) as good (or bad) as a dead letter. The Finance Minister has grandly promised return to the FRBM but has wisely refrained from laying down a timeline.

Any exercise to reduce the fiscal deficit consists of two parts. The first is to ensure that projects on which money is spent add to the nation’s wealth, they are completed without cost and time overruns and the productive assets thus created begin yielding returns paying back the amount spent within a specified time-frame.

The second is for the Finance Ministry to devise an effective mechanism to spot and curb infructuous and wasteful expenditure. In short, prudent expenditure management is the key to keep fiscal deficit under control.

The nation will be interested to have the assurance of the Finance Minister in the course of his reply to the Budget debate that he has put in place a high-powered watchdog body for both these purposes.