Those who expected P Chidambaram to place the Budget to address the constraints of growth collapse, fiscal consolidation and political expectations were left disappointed. This was a cynically political budget whose ramifications will be suffered by the next government
Among the challenges that P Chidambaram recognised while preparing Budget 2013 were the sliding rate of growth, fiscal deficit, current account deficit, inflation and inclusiveness of growth. To remain politically correct, he mentioned the bypassed sections viz., minorities, Scheduled Castes, Scheduled Tribes and women. At this crucial juncture, we expected Mr Chidambaram to place the budget in most prudent manner optimising under the constraints of growth collapse, fiscal consolidation and political expectations. He certainly had the peer pressure to make the budget people-friendly with an eye on the forthcoming elections. He neither succeeded on any front nor failed completely but presented a pathetic attempt.
Unfortunately, the challenges which he posed to deal with were the most vital ones. While dealing with these constraints he scored some success but where he recorded failures were the most critical ones for the economy. The sliding down of growth rate could not be hidden but he ended up blaming on the world economy down slide or forcing borrowed optimism in his statement. In the feeble attempt he concluded that higher growth leading to inclusive and sustainable development is our Moola Mantra.
Could he address to this Moola Mantra in the entire budget is a question that requires answer. He touched some Mantras but forgot to deal with Moola. In order to boost the growth rates, the Finance Minister should have unleashed new schemes to improve culture of savings and investment in the economy especially in Household sector. The rate of savings has fallen to 30 per cent (an all time low),a fall of almost 6 percent of the GDP in the last past few years. The downslide of the household sector savings is the more critical one despite the fact that we have good money flow in the economy. The entire surplus in the economy is being absorbed by the spiraling inflation both in rural areas and urban sector. No wonder savings have not been generated in the economy and as a consequence, investment is not forthcoming. According to the basic theorems of macro economics of public finance, the budget leads us nowhere to promise that dream rate of growth in the coming year. This baggage has to be carried by the next government.
Poor fiscal marksmanship is the hallmark of the Indian fiscal management and Chidambaram is not an exception; however, he is smart enough to manage the budget figures indicating that there is a good control on the fiscal discipline by cutting down on the Plan and Non-Plan capital expenditure during last year. This certainly affected some of the schemes undertaken for development in different regions of the country and FM is not repentant about it. Nor does he make any mention of these expenditure sacrifices. He is quite happy that the flagship programmes, forked to have double gain of the political popularity and the public opinion, are well funded. These included MNREGS, PMGSY, JNNURM and RKVY. The Budget allocations to rest of the on-going programmes continued more or less in the same tune and naturally ensure that growth will not necessarily step up in the coming year.
In a very popular overtone, the Finance Minister addresses from paragraph 17 through 22 to the target groups of Scheduled Castes/Scheduled Tribes, Women, Children and Minorities and disabled persons and stylised the speech by mentioning Gender Budget and Child Budget with allocations of Rs 97,000 crores and Rs 77,000 crore, respectively.. The figures are arrived at after taking into consideration all the schemes where child or woman could be even remotely connected. No doubt that there are schemes which are directly impacting children and women but allocations on these do not reach those numbers. This certainly gives some political mileage to the Finance Minister and he has tried to garner such political mileage even at the international level by maneuvering with a few internationally popular phrases. Focusing on the millennium development goals he mentioned about child malnutrition in India and provided added emphasis to health education, drinking water but all these could only have a small incremental welfare to the intended stakeholders, still far from what is expected.
Agriculture has always been the favourite domain of most of the Finance Ministers wherein the promises to farmers are too many and the achievements are scarce. In the last year, farmers of the country have lived up to the expectations of the Finance Minister and Prime Minister by recording better performance. This was better than expected and in fact the agriculture sector did not disappoint like other sectors. Here the Finance Minister did not try to gain support by enhancing investment but continued with the mill viz., agricultural credit, Rashtreeya Krishi Vikas Yojana and farmers’ producers organisations. These may not make substantial difference.
Meanwhile, the National Rainfed Area Authority is totally forgotten. The investment in the agricultural sector does not even promise anything that can lead to higher growth in productivity in the sector, the blue print of the earlier years continues to dominate this budget too. In that case, can the Finance Minister expect the agricultural sector to perform better than what it performed during the last yearIJ
The Economic Survey pointed out sliding down of growth rates in manufacturing and services sectors. We expected larger emphasis on investment in industries and services sector. The FM also devoted a large number of paragraphs (55-82) to boost the investment in manufacturing and services sector. The limit of tax free bonds was Rs 30,000 crore in 2011-12 and it went down to Rs 25,000 crore during the last year. The Finance Minister allowed institutions to issue tax free bonds limiting to Rs 50,000 crore based on need and capacity.
As Finance Minister of UPA, Mr Chidambaram was expected to woo the voters and he chose four important blocks of voters viz., the middle class tax payers, women, minority including Scheduled Castes/Scheduled Tribes and the youth. Very resoundingly in his budget speech he made three promises with more rhetoric than substance. The promises include a bank for women, Nirbhaya Fund (without any clear objective), Skill Development Corporation for youth and Direct Benefit Transfer schemes. Immediate impact of any of these is not discernible. He did not meddle with the tax slabs or tax rates under direct taxes in order to make the middle class voters feel that they have gained in the process. The revenue loss due to non-alteration of the tax rates or slabs is substantial and that will impact revenue next year, to be confronted by someone else. His schemes for Scheduled Castes/Scheduled Tribes and the Minorities and for women also raised many eye-brows due to their implementation bottlenecks.
RS Deshpande | Director, Institute for Social and Economic Change, Bangalore