The pre-budget outlook

THE UNION FINANCE Minister, Mr. Yashwant Sinha, has run through a hectic process of pre-budget consultations giving however little away of his own preferred budgetary strategy except to say that it will be ``people-centric''. Mr. Sinha, no doubt, has been at the receiving end with a spate of well-meant if sometimes utopian prescriptions including taxation of agricultural income which belongs to the domain of State Governments.

At the top of the suggestions which have been poured out this time, what stands out is the need for fiscal correction which does not mean the same thing for all those who insist on this prescription.

The key-stone in the strategy for fiscal correction is the reduction in the level of gross fiscal deficit as a proportion of the gross domestic product (GDP). In its essence, a policy of containment of gross fiscal deficit would involve the Government's willingness to tailor its total expenditure in strict relation to the resources it can gather through tax and non-tax revenue, and if at all depend on public borrowing to use resources so accessed only to meet the capital expenditure needed to stimulate economic development. Should Mr. Sinha reduce the level of public borrowing to restrain gross fiscal deficit at say 4 per cent of the GDP (which is what he promised to do in 1999- 2000) although current indications are that the deficit will shoot beyond 5.5 per cent of the GDP thanks to the Kargil crisis and the post-Pokhran economic sanctions? Contrary to the ``Washington consensus'' which holds that the containment of fiscal deficit is the be-all and end-all of a sound fiscal policy, there is perhaps a case for Mr. Sinha to raise the level of capital expenditure (and particularly public investment in infrastructure) even while pruning non-development expenditure with a degree of firmness which does not normally belong to a politically sensitive Finance Minister. Much more than the slashing of public expenditure to bring it down to the level of affordability, what Mr. Sinha needs to do is to start a process of redeployment of public expenditure in favour of education, public health, shelter and basic amenities for the poor. Given the dismal record in the management of subsidies (which have largely benefited the least deserving among the intended beneficiaries) and the virtual failure to rightsize the Government in the wake of deregulation of the economy, a statutory non-government agency in the form of an Expenditure Commission would be an appropriate instrumentality for efficient fiscal management. Can Mr. Sinha ``sell'' the proposition to the National Democratic Alliance with all its implications of which a drastic pruning of subsidies would be the major imperative?

The belief that a growth-oriented budget should necessarily involve tax give-aways through a plethora of exemptions is strongly ingrained in many sections of Indian industry. The fact that some big corporate businesses virtually stay free of the direct taxes regime is hardly compatible with the sumptuous dividends they are able to distribute among their shareholders. That in a regime of moderate taxation, such anomalies should at all continue is a pointer to the tax reforms needed to bring the Government in a more proper equation with corporate business enterprises. Nor is the need for toning up the tax enforcement machinery less acute. In crafting the key proposals for the budget for 2000-2001, Mr. Sinha can hardly overlook employment generation and poverty alleviation. While the demand for larger allocations of funds for poverty alleviation cannot be whittled down on the ground that such schemes have not been conspicuously effective in the past, the Finance Minister will certainly be expected to insist on the States (and bodies of local self- government) becoming more accountable for the resources entrusted to them.

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Section  : Opinion
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