A lacklustre Budget from which we have to take what little comfort we can in feeling that it could have been a lot worse. But is the ‘worst over’ and will India would clock a growth of 6-plus percent next year? Unlikely, says Shreekant Sambrani.
Indian annual Budgets are not mere compilations of tax proposals and spending programmes. They are fundamental statement of policy. These days, they are also major media events. As the B-day approaches, channels announce non-stop coverage. Every self-respecting member of the media presents its slate of commentariat stars, much the way Yash Raj Films and UTV announce their blockbuster Diwali ouvres. There is much expectation, aided by carefully placed leaks.
This year was no exception. In the wake of slowing growth and mounting concern about runaway Budget deficits, reports surfaced that Finance Minister P Chidambaram was likely to meet his target of 5.3 per cent of the gross domestic product as the deficit for the year. A day before the Budget, an unusually wise and perspicacious pre-Budget Economic Survey also pointed out inflation, especially food inflation, and opportunities for the burgeoning young labour force as the major areas of concern, even as it sounded a note of cautious optimism about the worst being over.
How did the Budget fare? Chidambaram hinted early on that the deficit was contained. He asserted that he will not cross the “red line” and presented a figure of 5.2 per cent. That is less of an achievement than it seems at first sight. Even if no statistical or procedural legerdemain is involved in this number, we have to remember that the revised estimates of the expenditure for 2012-13 is Rs 650 billion (0.6 per cent of the GDP) lower than the Budget estimates of March 2012.
The general practice is that there is a late flurry in the January-March quarter to spend the allocations in the Budget. By the simple expedient of not allowing this, Chidambaram has met his stated target. This was widely expected to happen.
The survey identified the mounting budgetary deficit as the main cause of inflation. It also said that the gap between the supply and demand of food items, especially, pulses, oils, vegetables, milk and meat and eggs has been increasing and has added to the inflationary pressure. It recommended logically that steps be taken to control the deficit and boost the production of these commodities.
It is another issue altogether whether that would dampen inflation. The tight control on expenditure has been in evidence since last September. But despite the government claims of bringing down the increase in the wholesale price index to below 7 per cent, food prices have not shown any appreciable deceleration in this period.
The new Budget disappoints as far as the other factor mentioned by the survey, that of promoting productivity in agriculture. Agriculture gets an allocation of Rs 270 billion, of which Rs 34 billion is for research and development. That amounts to less than one-quarter of one per cent of the value of agricultural production. How is that supposed to make an impact?
Bear in mind that businesses are routinely advised to set aside one per cent of their turnover for research and development.
The survey talked about the imperative of using the demographic dividend productively lest it turn into a Malthusian trap. Chidambaram himself was eloquent in saying that what the youth in the youngest country in the world needed was opportunities, education, skill development, jobs and income. Yet the human resources development ministry gets only 4 per cent of the total budgetary expenditure of Rs 16 trillion.
The nominal increase of 17 per cent might sound impressive, but the entitlement-and-relief oriented programmes of the ministry of rural development get a whopping increase of 47 per cent! And there is a provision of Rs 100 billion for the food security bill, in addition to the regular food subsidy. Notwithstanding Chidambaram’s image as a no-nonsense tough reformer, the Budget truly reflects the priorities of the United Progressive Alliance heading towards a difficult election: perceived vote bank talismans trump essentials of long-term transformation.
The finance minister honoured his predecessor by continuing to announce a raft of schemes for all sorts of purposes: Rs 10 billion to eastern India for the second Green Revolution, similar or smaller amounts for nutritional food and coconut, skill development among tribal youth, integrated child development schemes and so on. Some of them may actually produce results, but most of them fall by the wayside and at the end of the next financial year, have enough unspent money to be cut to meet that year’s deficit target of 4.8 per cent of the GDP.
The Budget made comforting noises about the infrastructure and assured that the cabinet committee on investments would soon clear the blocked projects. But would his plea that new instruments being created for promoting investment in an economic and ecologically sound manner take away the fear of inordinate delays in clearances, inadequate supplies of fuel and stalled land acquisitions? Would his recitation of new corridors send investors there scouting for new projects?
The Budget proposed some fine tuning of measures that would affect the share and funds market, but that does not seem to have brought much cheer to the stock market. The Sensex was up 120 points when Chidambaram rose to present the Budget. By the end of the trading day, it was down 270 points, or a fall of 390!
Chidambaram was very persuasive in saying that there was compelling moral case for growth to bring about equity. He was equally forceful in saying that India needed to attract foreign investors of all sorts to get out of the trough on to the high growth path. That was to be his mantra. Would the Budget do that? I doubt if those who cared to study the Budget in Singapore, London or New York would be rushing to board the next flight to Delhi with their new projects. Not surprisingly, the rupee lost nearly 50 paise against the dollar.
Under the circumstances, we have to take what little comfort we can in feeling that it could have been a lot worse. That may address the concerns of the next election, but does it look to the next generation and perhaps the one thereafter? Is that enough to warrant the optimism of the survey and Chidambaram that the “worst is over” and India would clock a growth of 6-plus per cent next year?
Last Monday, we watched the Oscars. The awards went expectedly to the undeserving, except for Daniel Day-Lewis and Christophe Waltz, the numbers were stale and low on pizzazz, and the host was a drip! The Union Budget this year, as we sat through 100 minutes of Chidambaram’s well-modulated speech with waning interest, only reaffirmed what Benjamin Franklin had long ago said about the inevitability of death and taxes.