Comment

‘Lower Growth and Higher Deficit’

Digvijay Singh

Last year’s budget was given a ten out of ten by several observers. Yet we have ended up with a lower growth rate and a higher fiscal deficit than previous years! The Finance Minister has blamed extraneous factors for it. The point, however, is while the recession was there for everybody to see, why was there no corrective action to stimulate the economy through public investment? Let us not forget that this was precisely the period when the government had an unprecedented opportunity in the form of 60 million tones of foodgrain rotting in our godowns. Captive to the orthodoxy of containing the fiscal deficit, the government squandered the opportunity.

There has been a steady shortfall in revenue collections in the last few years. The FM mentioned that the shortfall in tax revenues in 2001-2002 was of the order of a little over Rs. 20,000 crore, but what he did not mention is that the states too have lost in the process. This has further worsened the already strained finances of states. There is a non-transparency about revenue projections. The reasons for the fall in revenue are inadequately explained. The economy grew even slower, but the revenue shortfall is more this year. Is it because there is a slackness in revenue collection or are there too many give-aways in the form of specific exemptions?

Electoral reverses and the consensus about the neglect of the agriculture and rural development sectors in the economic reform process seems to have prompted the Union government to create a new package to make the budget appear farmer-oriented. However, like in previous years, this is unlikely to achieve very much.

Of special interest to my state is the proposed Jayaprakash Narayan Employment Guarantee Programme to be launched in selected districts. I have been of the view that vulnerable blocks in the selected districts based on incidence of hunger, malnutrition and forced migration should be identified for targeted coverage to provide at least 150 days of employment.

It is unfortunate that we continue to talk of second generation reforms and their deepening in the same bland way without an assessment of the varied fates of states in India consequent to the first generation of reform. In many of these states there is a deceleration of growth on account of inadequate investment (both public and private) rising unemployment and they are victims of a new callous ethic of the Central Government that shirks responsibility on a "states-better-get-smart" slogan while sitting in command over resources. The reform-linked funding promised to states is inadequate on several counts including scale. Madhya Pradesh has been a reforming state and it would receive an incentive of only Rs. 38 crore.

Reform-linked funding that is presented is often only in conformity to a standard set of prescriptions like reducing fiscal deficit and non-plan expenditure management that does not appreciate either the historical situation of development or existing development needs of different states. In terms of non-plan expenditure management, it is the Centre that has to learn from many reforming states. While many states have tightened their belts, even normal flows owed to them like revisions of coal royalty have not been given. The reform package is often a one-sided draft.

The same insensitivity to the cause of the poor and poorer regions is displayed while doing away with cross-subsidisation in the oil sector – creating a situation of kerosene used by the poor getting costlier and petrol getting cheaper. The attention to the plight of the textile sector has come too late to be of much use. This again is indicative of the reluctance to address the key concern of employment generation. The proposal for the creation of an infrastructure Equity Fund is welcome but would the fund have a set of rules that nudge investment into states that are lagging behind in infrastructure? It is precisely such a policy orientation that the BJP Government is unlikely to give.

Not a ‘bold’ Budget All of us, including the Finance Minister and his advisers, seem to have forgotten the fundamental principle of tax collection. Laid down by Chanakya in his famous ‘Arthashastra’, it calls upon and requires the ruler to collect tax the way the honeybee collects nectar from flowers. The bee does not pinch the flower. Unfortunately, the recent budget does not ensure that. In the western countries, the interest rates on savings are low because the governments there take care of citizens after retirement under the social security obligations. Do we have the same system here? It is a betrayal of millions of fellow countrymen to cut interest rates on savings, charge service tax on life insurance premium that one pays for old age security, tax dividends and curtail 80 L & 88 rebates. The respected Prime Minister has described the budget as ‘bold’. Had there been any proposal to tax the hitherto un-taxed it would certainly have been so. Instead of bringing more people in the tax net, the same taxpayers have been further squeezed. -V Rajlal By e-mail, March 13, (ET)