On Indiaâ€™s Union Budget
Undoubtedly, the Union budget 2009-10, presented by finance minister, Pranab Mukherjee, to Lok Sabha on July 6, has disappointed certain sections here and abroad that had been expecting India to go in for the Washington Consensus-based economic reforms in full swing. They had based their expectations largely on the assumption that Left had been the only impediment in their way all these years. With Left not only distancing itself from the Congress-led UPA but also having suffered big reverses in its citadels like Kerala and West Bengal, and the Congress increasing its strength substantially, there would be no irritants. Even a cursory glance at Economic Survey 2008-09, placed before Parliament on July 3, seemed to support this view. They were almost sure that the active economic role of the government would substantially shrink, and the process of phasing out subsidies, disinvestment of public sector undertakings, privatization of nationalized banks and insurance companies, and the curtailments of the rights of organized working class would go ahead. Full capital account convertibility of the rupee would no longer be delayed. The government was expected to reduce the incidence of taxation on the corporate sector because it was to raise Rs 250 billion through disinvestment. Restrictions on FDI (foreign direct investment) were to be drastically curtailed. Thus both indigenous as well as foreign capitalists had come to nurture high hopes that were reflected in articles and editorials in newspapers and discussions among the pro-corporate economists and other experts on the electronic media.
Lo, and behold! These expectations have not materialized. Though the finance minister has not rejected them for all time to come, yet he has made it sufficiently clear that political situation in the country and the compulsions arising from universal adult franchise do not allow him to fulfill these expectations. Indian electorate, despite being illiterate or ill-educated, is politically conscious and cannot be easily duped by so-called experts and wise men with their pontification through print and electronic media. The BJP, now the main opposition party, has learnt this twice, first in 2004 when its “Shining India” campaign and lately, a few months ago it shouted that it alone had a strong leader who could give a determined government failed miserably to lure voters. The Left too has been made to realize that its outdated thinking does not cut much ice now.
The Financial Times, soon after the budget was presented, termed it disappointing to investors and forecast that, in the absence of structural reforms, and widening fiscal deficit, would sell off their stocks. It did not answer: what will they do and where will they go? Another prestigious British journal The Economist wrote under the caption: “India’s budget: Hopes suspended” : “After the Congress party’s decisive re-election in May, investors hoped the budget would start clearing the tailback of delayed reforms the government had been unable to pass in its first term, when it relied on the support of India’s communist parties. “
There were high expectations behind more than 20 per cent rise in the sensitive index of the Bombay Stock exchange from the day election results came till the presentation of the budget. The official Economic Survey boosted these expectations. Soon after the presentation of the budget, the Sensex tumbled down and a big hue and cry was raised as if the world was going to end. The Economist lamented: “No FDI caps were lifted, not even in insurance, which is under the finance ministry’s purview. And the finance minister budgeted only 11 billion rupees from disinvestment. By the end of the day, the stock market had fallen by almost 6%.”
The corporate sector has embarked on propaganda that this budget will damage the future prospects of Indian economy by widening budget deficit to 6.8 per cent of the GDP during the current financial year. It will, in turn, push up the inflationary pressure. Since the government is going to indulge in heavy public borrowing. At present, it is supposed to meet 34 per cent of its expenditure by public borrowing. Consequently, it will create tremendous difficulties in the way of mobilization of resources by the private sector. The rating agency S&P is rumoured to have threatened to downgrade the country and create difficulties in its international financial dealings.
Economists, drawing their inspiration from the Fund-Bank, are unhappy that Mukherjee has not listened to them and reduced the expenditures “on misdirected subsidies of fuel, fertilizer and food (3.7% of GDP) as on education and health.” To give a concrete example, Shankar Acharya, a former chief economic adviser to the Government of India, had this to say, “Finance Minister Pranab Mukherjee’s maiden Budget for the freshly reelected UPA government disappoints in two major dimensions: it is timid on economic reforms and imprudent on fiscal management. Taken together these features weaken the likelihood of an early resumption of high economic growth, which, in turn, weakens the long-term sustainability of inclusive growth.” One may recall, not long ago, the tribe of economists to which Acharya belongs, attacked NREGS (National Rural Employment Guarantee Scheme) and rural loan waiver as economically unsound. The former was supposed to put a premium on idleness and the latter to give rise to the danger of “moral hazard.”
Raising and maintaining the rate of economic growth to 9 per cent or more is a laudable aim but to realize it India has to maintain and strengthen social cohesion and reduce regional imbalances (see, Martin Wolf, “What India must do if it is to be affluent country,” Financial Times, July 7). Mukharjee’s budget proposals give priority to this. He has proposed to create 12 million work opportunities every year, reduce the number of people below poverty line by 50 per cent, raise the rate of agricultural growth to 4 per cent per annum to bring about an appreciable change in the life of more than 60 per cent dependent on it, extend and improve social safety net and strengthen the delivery system so that money is not pilfered on the way.
The one-time bank loan waiver is to cover as many as 40 million farmers. Under the Agricultural Debt Waiver and Debt Relief Scheme, 2008, farmers having more than two hectares of land were given time up to 30th June 2009 to pay up 75 per cent of their over due loans and be free of the loan burden. This deadline has been extended up to 31st December in view of the difficulties faced by them due to the late arrival of the monsoon. A taskforce is going to be set up to look into the difficulties of the farmers that have borrowed from private moneylenders. The irrigation facilities will be extended at an accelerated pace.
The NREGS was launched in February 2006 under the NREGA (National Rural Employment Guarantee Act) has been immensely popular in spite of bureaucratic bungling and leakage of funds. During 2008-09, employment opportunities were provided to 44.7 million households as against 33.9 million in 2007-08. The government is going to expend its geographical coverage and increase the daily wage to Rs 100. More and more activities will be covered by it.
The government has proposed to enact a National Food Security Act so that starvation is prevented. People below poverty line will be provided every month 25 kilograms of wheat or rice at the rate of Rs 3 a kg. The government has proposed to extend and strengthen its Bharat Nirman Yojana to bridge the divide between urban and rural areas, accelerate the construction of roads in rural areas, build more houses under Indira Awaas Yojana for weaker sections and launch special schemes for workers in the unorganized sector.
Obviously, the government aims at rejuvenating the economy by putting more purchasing power in the hands of the lower classes by giving them employment opportunities so that they contribute to the production of goods and services and buy their requirements. This will impart them a sense of dignity and involvement in nation building. Mukherjee’s proposals are, thus, in accordance with the thinking of national movement