Financial Daily from THE HINDU group of publications
Friday, Jul 09, 2004
Three cheers to Chidambaram Budget has all right things in right place
B. S. Raghavan
On the whole, at the end of his two-hour long speech (perhaps the longest in recent memory), he managed to leave the listeners with a measure of appreciation for blending without tears the politics and economics of Budget-making this year. The Budget certainly makes the grade as a New Deal for rural India and as a charter for growth, stability and equity, undistorted by ideological hang-ups or preconceptions.
Of course, he must have known all eyes, both in India and abroad, were on him. For one thing, this being the first Budget of the new Government, there was the natural curiosity about the extent to which the Common Minimum Programme (CMP) (to which the prefix of "national" has now been added) and the breathing of the Left contingent down his neck would constrict his manoueverability in respect of economic reforms.
At the same time, there was a general feeling in the country that, given the overall state of the economy and the fact that three months of the year have already elapsed, there was very little that he could pull out of his hat that could be radical or revolutionary.
Impressive balancing feat
The expectation was that it would be a Budget which would be cast within the variant of the old `Garibi Hatao' framework, with the reforms process either downplayed or decelerated. With the result, there was no palpable air of excitement, leave alone euphoria.
If the Sensex is to be taken as the barometer of the market sentiment, it was listlessly limping below 5000 while the Budget speech was being read, crossed the feel-good threshold briefly at Mr Chidambaram's reference to foreign direct investment and again fell back to lower than where it was as he finished placing all his cards on the table.
Judged against this listless public mood, Mr Chidambaram can only be said to have performed an impressive balancing feat. What is all the more remarkable is that he has done it without needlessly denigrating the predecessor NDA Government for what it had done or failed to do and without disturbing some of the ongoing schemes except by way of introducing some necessary variations in the changed context.
He has been able to provide in the Budget the right kind of economic stimuli that would carry the nation forward along the right direction of essential reforms, with the right mix of policies and fiscal measures, and still ensure that, as he put it, the people, especially the poor, will be the first charge on whatever Government is seeking to do.
The priorities too are just right. The Budget keeps at the forefront the basic needs of the rural masses and gives a thrust, by appropriate and sizeable allocations, to the imperative goals of enabling agriculture to diversify and expand into hitherto insufficiently exploited areas of agro-processing, floriculture, horticulture and oilseeds; repairing, renovating and restoring water bodies; strengthening and improving the employment and income generation programmes and the public distribution system; and making universal access to drinking water, education and healthcare a reality in the foreseeable future.
Here, particular mention must be made of Mr Chidambaram's expressed determination to make the Small Farmers Agri-Business Consortium the central instrument for generating employment on a scale that will be able to absorb the burgeoning labour force and contributing to rural wealth.
This was part of a Prosperity 2000 strategy prepared by the International Commission on Peace and Development, headed by Dr M. S. Swaminathan, which was incorporated in Dr Manmohan Singh's Budget of 1994, but without effective follow-up action thereafter.
The Infrastructure Consortium of bankers and financial institutions, capable of making available Rs 40,000 crore from their combined pool of resources is also a great idea, if only it can be put to action. Altogether, there is enough scope in the Budget for giving the needed fillip to both public and private investment, provided sustained effort is put in towards vigorous implementation.
Three innovative mechanisms envisaged in the Budget hold the promise of a holistic approach to industrial development, rural economy and public sector efficiency. They are the Investment Commission, the Fund for Regeneration of Traditional Industries and the Board for the Reconstruction of Public Sector Enterprises. The Investment Commission, in particular, is a delectable twist, removing the sting out of the bugbear of disinvestment and privatisation.
The pilot food stamps scheme can rid the public distribution through fair price shops of a lot of hassles. The planned equity support and investment proposals for the power, telecom, railway, roads, coal and civil aviation can also do nothing but good.
The novel idea of gender budgeting based on benefit incidence analysis is quite an interesting one, and will endear Mr Chidambaram to the distaff side of the population. However, the absence of any mention of the Golden Quadrilateral gives rise to the disturbing question as to its fate. Mr Chidambaram should not fall into the familiar trap which is the curse of the country of blanking out the good projects of political opponents.
It is a wonder how Mr Chidambaram has got away, for the nonce apparently unscathed, with proposals which should normally be anathema to the Leftist die-hards.
He has taken the bull by its horns by explicitly stating that everything possible should be done to encourage, attract and actively seek foreign direct investment; he has gone one step further by increasing the FDI component percentage in telecom (from 40 to 74), civil aviation (from 40 to 49) and insurance (26 to 49).
He was able to ride out the agitated commotion from some sections of the House at this point, but whether he would subsequently be forced to retract remains to be seen. Yet another sensitive decision (which, surprisingly, was received in silence) was removing 85 items from the reserved category of small-scale industries, despite their being a sort of holy cow to many.
More than the minimal changes, and some goodies, in the direct and indirect tax proposals, the Finance Minister's assurance of combining moderation, stability and trust in sprucing up the tax structure is to be welcomed. He cannot also be faulted for not making changes in tax slabs.
He hopes to keep the interest rate regime "benign" but, on present showing, the chances of his succeeding seem slender. Also, he has confined himself to the conventional sources of revenue, without exploring new and untapped avenues.
With all the obvious constraints, Mr Chidambaram has managed to increase budgetary support to plan schemes, increase the quantum of the States' share of taxes and duties, and managed to lower the revenue and fiscal deficits to 2.5 and 4.4 per cent respectively. It will be churlish not to give him three cheers for a commendable job competently done.
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