The Hindu Business Line : Budget 2008-09 — Politically correct, but questions remain

The increase in income tax exemption limits, cuts in excise duties on key commodities, raising of tax deduction limits for research and development expenses, etc., are too well-known and routine to merit detailed comment and discussion here. The concerns at the present time are way beyond tax rates and tax slabs.

The Tenth Five-Year Plan, from 2002-03 through 2006-07, achieved a commendable average growth rate in GDP of 7.8 per cent, well above the average of 5.5 per cent in the Ninth Plan. The sectoral average growth rates in the Ninth and Tenth Plan periods are given in Table 1, along with advance estimates for 2007-08, taken from the Economic Survey.

The healthy growth of the manufacturing, construction, infrastructure and services sectors accompanied the jump in the GDP growth rate in the Tenth Plan period. Agriculture and allied sectors lagged behind, in the sense of the average growth being invariant over the two Plan periods.

Given the well-known fact that a sizeable part of the work-force and their families are tied to agriculture, it is only natural that the problem of lacklustre growth of the sector should be addressed by the Finance Minister.

The rapid growth of the infrastructure and services sectors is welcome, but evidence from across the world shows that such sectors are prone to gross inequalities, which are only exacerbated as growth rates rise. The case, is, thus strong for addressing inequalities to whatever extent possible.

Slack in farm growth

It is apt to say that the Finance Minister has been under great pressure to address the twin issues of slack in agricultural growth and growing inequalities.

Following the rejection of the old Chinese-style and Soviet-style communist ideologies worldwide, and after the energy expended on the rhetoric of ‘socialist pattern of development’, and the blurring of the ‘garibi hatao’ focus, it was imperative for the elected representatives in our multi-party democracy to work overtime to invent a new and acceptable buzz-term — ‘inclusive growth’.

Equally important is the need to address the consequences of a rising rupee, if not the rise directly, since strengthening global linkages have raised the stake of Indian exporters of both goods and services, who now get just under Rs 40 per dollar earned, against the Rs 45-50 band they were used not too long ago.

Debt Waiver

Of all measures pertaining to agriculture announced by the Finance Minister, the most important and immediate is the debt waiver and debt relief scheme.

Though the Committee under Dr R. Radhakrishna has not explicitly recommended debt waivers, Mr Chidambaram announced a scheme of debt waiver as well as debt relief for farmers to the tune of Rs 16,666 per farmer, in the case of marginal and small farmers, and Rs 10,000 for others, respectively, for some 30 million and 10 million farmers.

In this context it is pertinent to note the trends in Table 2.

Since 1996-97, every indicator has posted growth rates pointing to a slowdown, except credit, that has expanded at an unprecedented rate of 14.4 per cent.

What has been accomplished? A dip in the growth rate and loan waivers?

The Finance Minister proudly announced that agricultural credit doubled in the first two years of the UPA Government and would reach a level of Rs 2,40,000 crore by March 2008. The Budget has set a target of Rs 2,80,000 crore for 2008-09.

The question is: what has been the role of the credit explosion on the growth rate of the sector? Will debt waivers be the officially recognised channel of bribing the electorate?

When will the sector simply receive the right price and, if need be, just free inputs instead of ‘credit’ that is not to be paid?

The Tenth Plan average investment-to-sectoral GDP ratio was 12.5 per cent. This, combined with the sectoral growth rate of 2.5 per cent, would imply an Incremental Capital to Output Ratio (ICOR) of 5, which I believe is on the high side.

The Finance Minister talks about raising investment to 16 per cent and achieving a growth rate of 4 per cent, implying an ICOR of 4. How will this be accomplished? Is it the expectation of the Government that the proposed Irrigation and Water Resources Finance Corporation (IWRFC) will bring in efficiency bonuses?

Promoting Equality

Two key sectors that promote inclusion are education and health. The Budget allocations represent 20 per cent and 15 per cent increases over the earlier fiscal, and the increases are robust.

An essential instrumentality for providing equality of opportunity is education that enables the poor and rich to aspire for an equally bright future, regardless of final outcomes that might favour one or the other.

Thus, it is heartening to read in the Budget of the provision of Rs 650 crore for establishing 6,000 high quality model schools, to be started in 2008-09.

An average of close to Rs 10 crore is a decent sum with which to establish a great school, provided there are no leakages and well-paid and highly motivated teachers are part of such model schools.

There are the other channels of inclusion, via the National Rural Employment Guarantee Scheme, SSA, the Mid-day Meal Scheme, Navodaya Vidyalayas, National Rural Health Mission, Kasturba Gandhi Balika Vidyalaya Scheme, and Means cum Merit Scholarships.

It is time the nation’s leaders raise and address the questions of why we should have such a cocktail of schemes and why allocations should go up year after year, as if resources are the problem.

Sainik schools, Navodaya schools, model schools, private schools, municipal schools, mission schools — how many more ways to divide the people, starting from the school-going age?

It is time the country makes education until Std 12 free and compulsory, and someone up there decides to have one national examination and one type of school, both in physical appearance and all other respects.

End Note: Looking at it as one more Budget, it is better than just one more. Yet there are questions beyond political correctness that one must not forget.

(The author, formerly with the National University of Singapore and the World Bank, is Visiting Faculty, Sri Sathya Sai University, Prasanthi Nilayam. He can be reached at bhanoji@gmail.com)

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