The Union Budget presented by Finance Minister P. Chidambaram, as the government'sally CPI leader Gurudas Dasgupta says, has an eye on the election and is silent on containing inflation.
The loan-waiver announced for farmers may prove to be a double-edged sword?a loss for the banking sector and may close further financing from banks to the farming community.
The budget has been communalised too in the name of doubling allocation (Rs 1000 crore) to the Ministry of Minority Affairs. Several benefits to a particular religious community are certainly not in the interest of the nation. He announced multi-sectoral development plans in 90 minority-concentrated districts.
Finance Minister, however, is not silent on inflation. He has made candid admission that this is a task he cannot undertake. He says, ?Keeping inflation under check is one of the cornerstones of our policy. Recently, the Prime Minister declared: ?I think no government in country can be oblivious to the objective of ensuring reasonable price stability without hurting the growth process. There is no clearer enunciation of policy.? Chidambaram states that the government is vigilant on this score and prepared to make swift adjustments. The policy pronunciation stops at that without a roadmap. The simple premise is that prices would continue to rise as the market forces apparently now determine that and for the sake of the market they are not supposed to be reined in. This is a prescription that goes against the suggested ways in the Economic Survey.
The loan-waiver of Rs 60,000 crore is expected to benefit about four crore farmers. The Finance Minister says that it would not affect their future creditworthiness and would be eligible for future credit. Past experience suggests otherwise. In 1980s too similar waivers up to a loan amount of Rs 10,000 were announced. The farmers who availed it were denied future credit from scheduled commercial, regional rural and cooperative banks. It is unlikely to be different this time as well because the banks assess creditworthiness and also past credit records before granting a new loan. Besides, this would be net loss to the banking sector. Chidambaram does not say that waived loan would be government'sliability. Obviously, the banks would have to bear the brunt of the loss. There is a sober way of looking at it. The banks can now wipe out their non-performing assets (NPAs) as most of these loans have not been repaid. In short, it is a generosity shown at the cost of the common depositors. The government instead should have brought in a proper scheme which could have deferred the loan repayment and compromised on interest payment. Thus farmers should have been given an option to repay the loan in a longer term without levying any interest. This would have saved the banks from losing at least the principal amount.
With an eye on election, the Finance Minister'spopulist move certainly is a pernicious step that would hurt the economy. The decision is most imprudent. An RBI study has found that 26 per cent farmers take loans from private money lenders at a very high interest rate. The government'sstep would not benefit the extreme poor category of farming community. The Finance Minister'sannouncement for National Health Insurance is again to benefit insurance companies, most with foreign moorings. So would the provision to waive part income-tax for health insurance. The provision does not take full care of the health needs as none of these cover out-patient treatment. But the income tax relief announced would benefit the salaried class to some extent. But much of the benefit would also be taken away from the government employees as the Pay Commission recommendations are expected in a month'stime. Their slab would rise. As per the announcement the lowest slab would begin at Rs 1.5 lakh. Up to Rs 3 lakh tax would 10 per cent (now 30 per cetn), up to 5 lakh it would be 20 per cent and beyond that 30 per cent. Chidambaram, however, has not withdrawn 6 per cent on income-tax levied since he took over in 2004. In reality it would mean actual taxes would be 16 to 36 per cent and not 10 to 30 per cent as announced. Finance Minister says that the benefits given would be revenue neutral?meaning it would have no financial implication or loss of revenue. It simply means the government is trying to make it by inclusion of some new sector in the service tax net.
Economic Survey paints, if not grim, not so rosy picture of the economy. It has admitted a slowdown of economy. The GDP growth is projected to fall from the tomtomed 9.2 per cent to 8.7 per cent. Though Reserve Bank of India in its recent assessment has been more modest saying the growth would not be more than 8.5 per cent. The Economic Survey does not state how it has surpassed the figure of RBI.
The survey cautions that the projected ?demographic dividend? may turn into ?demographic nightmare? if skills are not adequately created and accompanied by better delivery of healthcare and encouragement of labour intensive industries. It is a tacit admission that Manmohanomics of jobless growth since 1991 is not benefiting the people.
It also admits that proper employment opportunity has come down. It says that there has been growth in ?informal?, which is casual, employment in the organised sector. It is an admission that quality employment is eluding the masses
The first nine months of current fiscal witnessed a ?moderate? slowdown in the growth of the industrial sector, mainly on account of manufacturing sector. The consumer durables basket also showed negative growth. This is a serious comment on the purchasing capacity of the people. It shows that the market is not attracting people because they do not have surplus.
The reason survey states indirectly is the growing inflation estimated at 5.6 per cent. High prices have kept the people off the market, as their primary concern is to spend on daily necessities.
Though the survey claims that inflation ?is projected to decline? to 4.1 per cent, it does not state how it would achieve that miracle with the projection in fall of rabi crop by 3.3 million tonnes. The survey admits the loss of dynamism in the agriculture and allied sectors in the recent years and calls for a second green revolution. It admits that farmers particularly in rainfed areas need to improve income?euphemism that they do not have sustainable income.
The survey now emphasises on the role of government?not the private sector as it had been doing for the past many years?for adequate infrastructure development for sustaining the growth momentum and to inclusiveness of the growth process. It notes that there has not only been industrial growth ?moderation??euphemism for slowdown?but there has also been a fall in sectors like power generation, movement of railway freight and production of steel, cement and petroleum.
It calls for improving productivity but does not analyse how productivity could be sustained without proper employment opportunities and at high inflationary level.
Rupee appreciation, which should have been welcome and be considered a national pride in normal economic conditions, has added to the problem. The export-based industry is suffering owing to slowdown in the US economy an indicator that despite 17 years of globalisation the economic fundamentals of the Hindu rate of growth era have not changed.
The survey expresses concern over balance of payments as well predicting an era of ?considerable uncertainty? in quantifying the downside risk to global growth arising from the downturn in housing market and sub-prime mortgage market crisis in the US. ?More surprises in the next six months cannot be ruled out?, the survey cautions. The premise of the survey is contrary to what Finance Minister P. Chidambaram had said some days ago that Indian economy was insulated from the US crisis, as fundamentals were different.
(The writer is a senior economic journalist.)
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