By R. Balashankar
Is the Chidambaram Budget lopsided? We already know a great deal about the Budget 2004-05. The Finance Bill is coming up for passage in Parliament next week. And experts say there are many loopholes.
Firstly, the Budget does not conform to the Fiscal Responsibility and Budget Management Act, 2003 (FRBM). Secondly, it gives the impression of wilful fudging of figures, to create a euphoric myth about the fiscal health of the economy.
Great things are brought low by a detail in the vast tableau of statistical jugglery. Myths take roots in uncertainty and they die when they are exposed to information. That is why it is said that the information society is a killer of myths.
Take the present Budget for instance. If experts are to be believed, there is a yawning gap between its intent and content. The Budget document tabled in Parliament on July 8, 2004 did not mention any GDP amount for the financial year 2004-05. However, it estimated the revenue deficit for the year at Rs 76,171 crore, which the Budget said was 2.5 per cent of the GDP. This implies that GDP is equal to Rs 30,46,840 crore. Again, Budget estimates for fiscal deficit are shown as Rs 1,37,407 crore, which is said to be 4.4 per cent of the GDP. This implies that the GDP is Rs 31,22,886.36 crore. According to this, there is a whopping difference of Rs 76,046 crore. This is really huge. And this would actually mean that we have two different sets of projections of GDP for the same year.
Again Budget Estimates (BE) amount for GDP 2004-05 of Rs 31,22,886.36 crore as compared to Revised Estimates (RE) for GDP 2003-04 of Rs 25,23,900 crore implies that annual growth in GDP in 2004-05 will be Rs 5,98,986.36 crore (BE for GDP 2004-05 of Rs 31,22,886.36 crore minus RE for GDP 2003-04 of Rs 25,23,900 crore). This represents a growth rate of 23.73 per cent! Does the Finance Minister expect us to swallow this? Irrespective of whether these errors are deliberate or inadvertent, they undermine the sanctity of the entire budgetary exercise and the integrity of all projected figures.
Errors in such basic macro economic figures also have a statutory implication since the deficit figures need to be confined to a specific band as dictated by the FRBM Act, 2003. The Budget is a roadmap showing the direction that the national economy must take and the authenti-city of the figures mentioned in the document is crucial to the credibility of the entire exercise.
For the first time the Finance Minister had to adhere to the FRBM Act, 2003 and under this, it is statutory for him to lay down the GDP figures at factor cost at current prices. This makes it difficult for the Finance Minister to pompously play around with attractive statistical data.
The Budget for 2004-05 is vastly different from all the previous Budgets in more than one way. For the first time the Finance Minister had to adhere to the FRBM Act, 2003 and under this, it is statutory for him to lay down the GDP figures at factor cost at current prices. This renders it difficult for the Finance Minister to pompously play around with attractive statistical data, which make most doom documents appear dreamy.
Later in the statements laid before Parliament as required under the FRBM Act, 2003, the Finance Minister showed the fiscal deficit to be 4.4 per cent of the GDP and the Revenue deficit to be 2.5 per cent of the GDP. Since the same ratios are sighted in the Budget at a Glance (2004-05) also, it is only logical to believe that these figures are calculated on GDP at factor cost at current prices. Here is the problem.
Analysts say that the budget document presented by the UPA Finance Minister is a bundle of fudged figures, calculation errors and contradictions suggesting a definite attempt to keep the nation in the dark about the real state of the economy.
Alleging that the minister has misled Parliament the BJP deputy leader in the Lok Sabha, Prof. Vijay Kumar Malhotra gave a notice of breach of privilege on two counts. Firstly, Malhotra alleged that the absence of GDP figures in the budget document flouted the FRBM Act, 2003. Secondly, he claimed the different derived figures achieved from the calculations based on ratios submitted in the Budget document did not tally. Which means, as pointed out earlier, that there was a huge difference in the GDP calculated based on the two percentages (revenue deficit and fiscal deficit).
Malhotra received a reply from the Ministry of Finance, which refused to accept the errors in the figures and justified the Budget document by pegging them against a convenient scapegoat in the form of a ?current market prices.? In the process the ministry seems to have got trapped in its own web.
What is more worrisome is the fact that the ministry'sreply to the BJP leader'sprivilege notice is equally misleading as the entire estimate is based on current market price which is a highly misleading computation base. For, the reply does not mention the base year for the calculation. This was pointed out at the meeting of the Standing Committee of Parliament attached to the Finance Ministry by its chairman and BJP leader, B.C. Khanduri.
Given the nature of this blatant non-conformity to statutory requirement the Finance Minister is likely to face much flak when the Finance Bill is taken up in Parliament. Another implication of this huge Budget deficit, if one is to go by the estimates made in the preceding paragraphs, is that the Finance Minister will have to look elsewhere to fund the generous populist schemes under the CMP (Common Minimum Progra-mme) of the UPA. Does it amount to misleading the house and a breach of privilege? This is for political parties, especially the main opposition, NDA, to grapple with.