The Hindu : A status quo budget, says Manmohan Singh

Online edition of India's National Newspaper
Sunday, Mar 02, 2003

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A status quo budget, says Manmohan Singh

By Sushma Ramachandran

NEW DELHI March 1. Describing it as a "status quo budget'', the former Finance Minister, Manmohan Singh, today criticised the 2003-2004 budget proposals for not providing any demand stimulus to the economy or providing any measure for fiscal consolidation. He was also concerned about the neglect of the agricultural sector and the failure to address the issue of declining employment levels. He went to the extent of saying that the budget has not factored in any of the "basic economic concerns" that should be reflected in the document.

Expressing concern over the widening of the fiscal deficit and prospects of rising inflation, the Leader of the Opposition in the Rajya Sabha told The Hindu that instead of achieving "fiscal consolidation", there was nothing in the budget to either restructure expenditure or realign the tax administration in order to curb the fiscal or revenue deficit. There could be a possibility of the primary deficit contracting owing to a decline in interest rates, but in case inflation reared its head or a war erupted in Iraq, he felt the capacity to reduce the interest rates would be curtailed.

He warned that the fiscal deficit, which is nearly six per cent in the current financial year, was likely to rise next year, despite the target of 5.6 per cent in the budget proposals.

"It's a budget which gives goodies to diverse sections to provide a feel good factor," he said, while charging that there was nothing in any sector to give a stimulus to demand. The expectations that it would give the industry a boost are thus likely to be belied in the coming days, he said.

While conceding tax breaks to the middle-class were not unjustified, he felt a budget should be judged on the extent to which it tackled the major problems facing the economy. While it could not redress these problems, it could at least indicate that the movement is in the right direction. The GDP growth rate in the last few years of BJP rule had hovered around 5.25 to 5.5 per cent while the current fiscal had a dismal growth of 4.4 per cent.

This is despite the eight per cent growth target set for the Tenth Plan period, which has begun in 2002-2003.

Dr. Manmohan Singh argued that the budget did not provide any stimulus to achieve this eight per cent target. Both savings and investment rates have been stagnating, while the public sector savings have become negative. During the time of the Congress Government, he said public sector savings were 2.5 per cent of the GDP.

Strongly critical of the lack of focus on agriculture, he noted the per capita agricultural output was growing at a rate lower than the population growth ever since the BJP came to power. He said agriculture was starved of public investment in areas such as modernising irrigation, land reclamation and water conservation. He did not see any proposal to send private banks to rural areas as any solution to these issues. "How many private banks will go to the rural areas?" he asked. He pointed to the reality that 18 per cent of the priority sector credit was meant for the agriculture sector but was not percolating down to the ground.

In this scenario, he found only one high-tech horticulture scheme and nothing else to provide a boost to agricultural growth.

Similarly on the employment front, he pointed to economic survey data, which showed that the organised sector employment levels have been declining for the last three to four years.

The budget did not have any proposals to reverse this trend. "I do not see any credible answers to these basic issues," he said.

While contending that the year of the worst-ever drought was hardly a time to raise fertilizer prices, he said that in contrast, prices of cars and refrigerators were made cheaper along with long-term capital gains in the hands of "the rich and the super rich". Besides, the rise in petrol and diesel prices would also impact on the farm sector.

On the compulsion to reduce subsidies, Dr. Manmohan Singh said, "we also cut subsidies".

But, he felt the Congress Government also made sure that the terms of trade moved in favour of agriculture, which was not the case at present.

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