BUDGET 1999-2000
COLUMNISTS
INTERVIEWS
ECONOMY
INDUSTRY
FINANCE
ECO SURVEY
RLY BUDGET
PROCESS
BUDGET 98-99
BUDGET 97-98
ARCHIVES

'Not a win-win Budget, but better than last year's'

This Budget lacks a general sense of direction. The major positive element is the rationalisation of customs and central excise. Several positive signals are also made in areas like the public distribution system, employment schemes, rural infrastructure etc.

But these are still in the nature of statements of intent and have yet to be implemented. So why am I saying this Budget lacks a sense of direction? This is primarily because the big problem was one of reviving growth including export growth. There is nothing in this Budget that contributes to reversing the downturn in the economy. At least directly.

There is a lot of discomfort also about the figures on the fiscal deficit and the macro balances. If comparables are being compared, the fiscal deficit to GDP ratio is around 5.9 per cent. Not 4.4 per cent as the finance minister makes it out to be. I am also uncomfortable about the hike in the customs duties and direct taxes.

The impact of repealing the ULCRA on housing, especially urban housing is going to be very significant and will eliminate excess demand for urban housing, especially in conjunction with changing rent control legislation and the floor space index. The other angle, of course, is the funding of elections because traditionally the exemptions permitted under the ULCRA have heen used for political funding.

Let me discuss the GDP growth rates. The nominal GDP growth rate is projected at 13 per cent. One can break this up whichever way one wants into a real GDP growth rate and an inflation rate. The finance ministry has broken it up as a real GDP growth rate of 6.5 to 7 per cent and the rest inflation. I see no reason why the GDP growth rate should go up to 6.5 per cent.

There's nothing in the Budget except hope that this will happen. Let me now come to the fiscal deficit. The FM has an absolute figure of Rs 800 billion with a sleight of hand on small savings. If one includes this, the fiscal deficit to GDP ration is actually 5.9 per cent. There's an additional point. In 1998-99, the Budget estimate for the fiscal deficit was 5.6 per cent and the revised estimate was 6.5 per cent.

If there is such a big gap last year, there's no reason to believe that there won't be such a gap this year also. And therefore the argument advanced by the finance ministry about reduced pressure on interest rates may not be a valid one.

Lack of political will, I suppose, is the reason why downsizing was not done earlier. And not enough demands on the part of citizens. Incidentally, this is the first Budget since 1991 which actually talks of downsizing government and scraps four secretary level posts. Four may not seem a big number, but it is a beginning.

The agriculture sector in India has a lot of potential and is capable of contributing to eight-plus per cent GDP growth rate. The problem is that the agriculture sector has been untouched by reforms and continues to be untouched even after the present Budget.

For example, there are still all kinds of restrictions on inter-state movements of agricultural products. I think most of the orders under the Essential Commodities Act should be immediately scrapped if not the Act itself.

One can divide the reforms into the external sector component and the domestic sector component. The external sector reforms were easy. They didn't affect most of the population. In contrast, if you leave out industrial delicensing and some changes in the financial sector, virtually no reforms have taken place in the domestic sector. In that sense, reforms have really slowed down since 1993-94.

I don't think another discussion paper on reforms will help. Nor is it necessary because across all varieties of the political spectrum, there seems to be a consensus on the need for reforms. However, if the discussion paper is only on the terrible fiscal state we are in, then perhaps there's some utility. The average citizen or the average politican does not realise that the Central government is completely bankrupt.

The point I am making is that this Budget does not do enough. Therefore, I can't accept the phrase win-win Budget. But of course it is a better Budget than last year's.

Everyone believes in symbolism. But I would draw a difference between Wagah and four secretaries. Wagah was mostly symbolic, although there is a case for improving our bilateral relations with our neighbours in south Asia. But the four secretaries are more than symbolism. As I said earlier, this is the first time some government jobs have actually been axed.

I am not at all confident that either the revenue deficit or the fiscal deficit will be brought down. That is precisely the reason I made a distinction between revised estimates and budget estimates. Virtually no government has had any control over expenditure, the three main elements of expenditure being interest payments, subsidies and defence expenditure. So expenditure is virtually exogenous, and the deficit becomes a function of revenue.

I see no reason why growth rate should go up. Therefore, like in 1998-99, I think the indirect tax assumptions will go wrong. So I don't believe the statement about revenue and fiscal deficits coming down.

There are several areas in agriculture where private sector participation is necessary. Cold storage and processing are not the only ones. One has things like credit, insurance, extension services. I made the point that the Budget does not do enough on reforming agriculture. Why it doesn't is a question you should ask the FM, not me.

Sinha's last Budget was based on hope. So is this one. I hope he is right, but I fear he will be wrong and the numbers will go haywire.

Bibek Debroy

Budget 1999-2000

Budget Day Special

Business news