The Hindu Business Line : Spend and deliver

Listening to the Finance Minister, Mr Pranab Mukherjee, one could be forgiven for thinking how familiar the Union Budget’s objectives sounded; last week, Ms Mamata Banerjee’s Railway Budget speech too had been peppered with references to inclusive growth and increased allocations. It would be a welcome departure from past practice if the various arms of Government were to evolve policy guided by a common and pragmatic (as opposed to a rhetorical) vision. That v ision appears in both policy documents: an inclusive growth with increased public spending to push the economy towards its expansionary potential. Ms Banerjee committed higher allocations and concessions even though Railway revenues had fallen and yesterday, Mr Mukherjee presented budgetary estimates for the year that are 36 per cent higher than last year’s for both non-Plan and Plan expenditure. Also, States will be allowed to borrow 0.5 per cent of their GDP to raise a further Rs 21,000 crore over the Interim Budget estimates. Mr Mukherjee reckons the fiscal deficit will increase to 6.8 per cent of GDP, a good percentage point above the projected deficit of the Interim Budget in February.

On paper at least the Union Budget for 2009-10 has the makings of an effective Budget for two reasons: one, infrastructure is the centrepiece of its goal for an inclusive growth — the rural sector is to get massive investments for employment and credit-enhancing capabilities; and two, both have the potential to drive private consumption demand. Core sector financing gets a boost with banks getting 60 per cent refinance from India Infrastructure Finance Company Ltd. (IIFCL) for public-private projects. For the first time, policy has fixed a target for the bank-IIFCL alliance to generate investments of Rs 1 lakh crore. Allocations for other core sector projects have been stepped up — 87 per cent in the case of the Jawaharlal Nehru National Urban Renewal Mission — all of which hold great promise as drivers of both investment and consumption demand resulting in heightened industrial activity.

The stock market was quick to discount the measures for the rural sector; but the 144 per cent ramp up of allocation under National Rural Employment Guarantee Act (NREGA), extension of debt waiver and interest subventions, entitlements under the National Food Security Act, and a ramp up of Rs 38,000 crore in bank credit, if properly implemented could expand purchasing power as never before. Like the Railway Minister did with fares Mr Mukherjee has kept the downturn in mind with taxes. Thus corporate tax rate has been retained as before but the Finance Minister has bowed to popular opinion by abolishing Fringe Benefit Tax; exemption limits for personal income tax have been raised while surcharge has been phased out. All these may leave some more spending power in the hands of consumers, so that they too may join the Government in stimulating demand.

What is intriguing though is why the Budget should be terribly out of sync with the Economic Survey on divestment and a host of reforms. Divestment is referred to elliptically as an issue for ‘people’s participation’; yet the plans for this year are disappointingly inconsequential. Decontrol of the sugar, fertiliser and petroleum sectors continues to see more talk and no action. Accountability and transparency in public spending cannot be achieved through the Right to Information Act alone. They need institutional mechanisms with a system of incentives and punitive action for delays and wastage. Given the volume of public money being committed and the importance of the projects for an economic revival, the Budget is notable for the absence of details on ‘building accountable institutions’. That is regrettable.