BUDGET 1999-2000
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A true Vajpayee-Sinha budget

Mohan Guruswamy

I would be remiss if I did not admit that I had a pretty good hunch what to expect from this Budget. The concessions to boost housing activity, sale of multi-use vehicles, across-the-board special customs duty, reduction in the number of slabs for excise and customs, and the emphasis in the speech on agriculture were all expected.

The increase in income tax and indirect taxes was unexpected. But they have not gone up by very much and we must be thankful for small mercies.

What was also expected was a timid and tepid Budget, a true Vajpayee-Sinha Budget. And that we have got.

The first reaction by the finance secretary that the stock market was responding well to the proposals betrays the true concerns of the finance ministry and the government. We all know that the Sensex is a poor indicator of the state of the stock market, which in turn is a poor indicator of the state of the economy. When the market went skywards in Dr Manmohan Singh's first year, the economy was actually contracting.

Yet the finance ministry is obsessed with the Sensex. I have had to often tell the finance minister thctt the economy would be better served if he stopped constantly peering at the stock market monitor from his table and spent more time reading the notes and papers produced by the ministry and the RBI.

The Budget does not reflex too many concerns for the major problems that confront us today. The first and foremost is the declining trends in capital expenditure. For instance, there is no new central initiative on irrigation. The government has proposed to spend a measly Rs3,480 million on irrigation and flood control.

The increased outlay for agriculture on the other hand is very welcome. But what and how the government proposes to do with this additional money is not specified, which suggests that it is a typical N K Singh ploy. Say it now, but hack it later. If there was a real appreciation of the consequences of the declining trend and if the budget were addressing it, the finance minister would have stated this loudly and unambiguously.

Unless we create more productive assets in the rural sector, we limit the size of our market. This is the one great lesson we must learn from the Chinese. Also, unless we start broadening the distribution of benefits, the economy will continue to resemble a colonial one with the only difference being that capital and benefits flow to the metropolises instead of the metropolitan country.

I was hoping the finance minister would have announced a dynamic programme for primary and elementary education, say with a new and additional outlay of Rs15,000 million, for building new schools and improving amenities in existing ones, as long as the states pay for the teachers. This would have created rural jobs and added to the demand for cement and steel. I had even suggested that he could call this the Amartya Sen Yojana.

It looks like Dr Sen will have to make do with the Air-India pass instead of something substantially more meaningful. The military, particularly, the Indian Army, is in a bad way in terms of basic equipment. I had hoped for a special allocation of about Rs30,000 million only for indigenous equipment. This would have boosted industrial production.

I had hoped for many similar initiatives, which would have had an immediate effect on industrial production and employment. Instead, he seems satisfied that the prime minister's nowhere-to-nowhere six-lane expressway at a ridiculously low Rs40 million per kilometre will do the trick!

The measures announced by the finance minister, hoping to stimulate the capital market, are welcome, even if not enough. UTI should benefit and the investor could find the investment route offered attractive. But this does not guarantee that this time around UTI will invest intelligently. This can be assured by taking UTI out of the FI cartel that functions in Bombay under the guise of the Heads of Institutions Meeting.

HIM is the single most dangerous instrumentality the government has to meddle with the investment decisions of the FIs. The FIs must be made to compete with one another rather than collude with one another. The finance minister seems blissfully oblivious of this. Who can blame the poor man? He is constantly having to peer over his shoulder looking out for fellows in South Block.

I would also be remiss if I did not make the mandatory howl about the increase in IT rates. Well, really it is not all that much and, given the circumstances, the FM has done well to resist the temptation. The return of the refinery sector to the ranks of the dutiable is unfair to the projects still to come. If mega power projects can be exempt, an even better case can be made out for refineries. What made sense last year still makes sense.

The real disappointment of the Budget is the low target of Rs100 billion set for disinvestment. He could have easily targeted something much bigger, like Rs250 billion. Selling the swadeshi component of the Japanese-managed Maruti Udyog alone could fetch over Rs50 billion. One of the oil companies could fetch a little more. There is no dearth of takers for many of our PSUs. The government only needs to have a proper instrument to do the divestment, like the Truehandstalt in Germany. The Disinvestment Commission has no less than 43 proposals pending with the PMO.

The finance minister's disinvestment target is actually about the same as this year's achievement, considering the fact that he has earmarked a whopping Rs17 billion as budgetary support for loss-making PSUs, including eight whose wage bills exceed their turnover. Money from this would have given him the funds to make major deployments.

When the finance minister concluded his speech, a line from an old Harry Belafonte song "...It was clear as mud, but it covered the ground!" kept coming back to me again and again. That about sums up my feelings about this Budget. It's better than last year's, but once again the bureaucrat in Yashwant Sinha has got the better of him.

Mohan Guruswamy was until recently adviser to the finance minister.

Budget 1999-2000

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