It is prescription time for Mr. Sinha

By S. Swaminathan

Come January, it is the season for pre-budget consultations for the Finance Minister and a relatively new team of bureaucrats at the Finance Ministry this time. Already the Chambers of Commerce and Industry have sent their missives on how the budget needs to be crafted in the context of a fluid economic situation with demand slackening in a few sectors of industry and particularly in the capital goods sector.

The ruling political establishment would attach to the budget for 2001-02 a facile expectation that it would set the pace for accelerating GDP growth far beyond the 7 per cent target fixed for 2000-01 (which is proving all too remote).

The Prime Minister, Mr. Atal Behari Vajpayee, has been airing a desirable growth target of 9 per cent for some time now but that could prove too arguable even for an average growth rate for the Tenth Five-Year Plan (2002-07). Granted that the potential for a more rapid growth of the economy and for a corresponding positive impact on poverty alleviation is vast, it cannot be too strongly emphasised that ``growthmanship'' for its own sake could result in unmanageable social tensions caused by increasing regional disparities and marginalisation of the poor who have no access to the skills which a globalised market demands.

Major constituencies for budget

Even though economists, as a general rule, would recommend that the budget should be anchored in the calculus of costs and benefits, the reality is that the Finance Minister has to bow before a heterogeneous audience accustomed to expect the budget to respond to their respective sectoral needs. Over the years, the process of pre-budget consultations has involved industry, labour, the consumer fora, the agricultural community, the science and technology establishment, the conclave of economists and so forth. While all these groups project their own ``wish lists'', more often than not, they tend to miss out on the basic fact that a budget, regardless of the political complexion of the ruling party or combine has a large component in terms of continuity and a marginal (if at all) element of dynamism and innovation but little that is of the character of a paradigm shift.

With all the reform fervour which has been in evidence during the last ten years, the Union budgets have varied more in magnitudes and less in terms of direction and tenor. This is no reflection on the intellectual calibre of successive finance ministers who have provided the leadership in the area of budget formulation. Nor would it be an unfair evaluation that the bureaucrats have almost invariably set the constraints for finance ministers in formulating budget proposals through projections of revenue receipts thereby limiting ``free wheeling'' of budgetary strategy as a whole.

While pre-budget consultations have resulted in a generous offering of fixations and pet theorems by the groups concerned, there has been one common thread running through the prescriptions submitted and that is the advice to the Finance Minister to reduce the tax burden and to curtail government expenditure. The economists, on their part, have perhaps consistently sung the tune of reduction of fiscal deficit seeing in it the panacea for all the economic ills of India. The noise about fiscal correction has reached such a high-decibel level that today Mr. Yashwant Sinha has put forward the statistical reduction of fiscal deficit as a paramount virtue subordinating all other objectives of a budget including the stimulation of growth, employment generation, poverty alleviation, the development of infrastructure, particularly in rural areas, the imparting of equity and efficiency in the taxation system and so forth.

A rather astonishing aspect of pre-budget consultations, in a system of federal finance, is that State Governments which have vital stakes in the Union Budget are kept completely outside the framework of pre-budget ``sounding exercises''. That State governments are extremely shrewd, calculating political animals which would only seek to perpetuate their inherited dependence on the Central resources (owing to their unwillingness to exercise their own powers of taxation as in the case of agricultural income) is a crucial factor but can it be an acceptable justification for their being kept out of pre-budget parleys by the Centre?

Challenges before FM

The Finance Minister, Mr. Yashwant Sinha has recently come out with a cryptic prospectus about his next budget. He says that it will be forward-looking, growth-oriented and investor-friendly. As a statement of premature intentions, let it pass, for after all, no Finance Minister would ever endeavour to frame a backward-looking, growth-impairing and investor-hostile budget! The problem is not that of articulating the criteria of a robust budgetary policy. The more critical issue is whether the budget will address the known areas of debility in the economy and through what policies of intervention.

At a time when the growth process seems to have been checkmated by a slowdown in demand, how can the budget provide the much- needed spurt, especially in rural markets both for consumer goods and for intermediate goods related to construction activities - cement, steel, paints, and so forth? There are serious problems both in savings and in investment levels. Can the budget trigger new investments in the public sector as the spring-board for greenfield projects in the private sector? Given a savings rate of around 23 per cent in terms of GDP, how do we raise savings towards that ambitious horizon of 30 per cent without impairing the process of tax mobilisation through the enlargement of the tax net?

How does Mr. Sinha propose to deal with the new clamour from agriculture for sustainable protection from the threat of a deluge of imports coming in the wake of elimination of all Quantitative Restrictions on imports as mandated by the WTO regime? The Sharad Joshi Committee is expected soon to submit its recommendations on the issues before the union budget is finalised. Even apart from this, will Mr. Sinha go along with the view that a massive corpus should be created for an ``Agricultural Prices Stabilisation Fund'' to save farmers from crashing prices?

Whether or not the Fiscal Responsibility Bill is approved by Parliament, Mr. Sinha seems committed to pare down the revenue deficit from around 3.5 per cent of the GDP this year to 3 per cent in 2001-02. How will this be attempted - through a dose of downsizing of the Central Government or the discredited process of an across-the-board reduction in revenue expenditure or a more than 20 per cent increase in tax revenue largely through the extension of services taxation? Will Mr. Sinha continue to rely on ``fancy figures'' of disinvestment proceeds for window- dressing the fiscal deficit? What part of the new budget strategy would reinstate ``swadeshi economics'' through escalation of import tariffs within or even beyond the WTO ``bound rates'' to protect domestic players from unprecedented competition for quality and cost?

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