The Hindu Business Line : Populism over prudence

In one stroke the Government has tried to please 3 crore farmers and, if one takes the average family size of four, 12 per cent of our population. Only time will tell whether the so-called relief for farmers really turns into vote bank. But this government, otherwise very weak on all fronts, has delivered this bold initiative to woo farmers at the cost of the banking sector and fiscal prudence.

The Rs 60,000-crore waiver is about 1.3 per cent of the GDP and almost half of the estimated fiscal deficit for the next year.

The question is: who will pay for this? We are going through very uncertain times of global slowdown this year, with inflation as a major cause of concern. In such a scenario, the grant of Rs 60,000 crore waiver is definitely going to fuel inflation. It’s political populism against economic prudence.

If one views this budget as probably the last budget of this Government then one is clearly disappointed. During the past four years the Government completely missed the opportunity to bring about major policy initiatives to accelerate the reform process.

In fact, if the Government had initiated large irrigation projects and agricultural reforms, we would have avoided the sad events of farmer suicides, leave alone the Rs 60,000-crore hole in our pockets.

It is ironical that on the one hand we have spiralling food inflation and on the other we are writing off Rs 60,000 crore farmers loan. It can happen only in India. The revenue estimates of the budget have been prepared on high expectation of GDP growth of about 9 per cent during 2008-09.

In that backdrop, the Finance Minister has estimated fiscal deficit of 2.5 per cent, which clearly does not include the Rs 60,000 crore waiver and the big impact on account of hike in salaries based on the Sixth Pay Commission to be implemented from April 1, 2008.

I am sure the fiscal deficit for the next year is going to be much larger than 2.5 per cent.

(The author is Managing Director, Ican Investments Advisors Pvt Ltd)

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