Any budget is a mixed bag. A budget is judged?wrongly in my view?on the day it is presented. It should be marked only after the financial year is over. Once upon a time, budgets had an inviolable sanctity. Later, the budget became a bag of tricks and budget figures lost all meaning. The Fiscal Responsibility and Budget Management Act has brought some discipline. Nevertheless, we still make unfounded budget promises; we still borrow too much; and many ministries cannot spend the money given to them, yet ask for more.
I am an avid reader of Mr P. Chidambaram. He is very refreshing. Whatever he tells the Parliament, in the book he writes nothing but truth. I have taken the above paragraph from his book A View From The Outside. He has the passion of a politician and understanding of an economist. He is candid, except when he is in office. It is with the same flourish and aplomb that he presented his last budget in this government.
He has been extremely lucky, for no other finance minister in our history stayed in the job as long as he has. And he inherited a booming economy with an overflowing food stock from the NDA. The balance of payment position was excellent and the NDA had completed all the necessary reforms. Hence for four years, without doing any reforms, Chidambaram could carry on dancing to the Left tunes, and still stay steady on the growth path.
As Chidambaram wrote about unfunded budget promises and unspent allocations?we have seen it happening in NREGA where the implementation is less than ten per cent and still it has been extended to all the 596 districts. This time the allocation is low and there are all the indications that it is being allowed euthanasia. We will see it again in the big-ticket Rs. 600 billion farmer loan write-off. This is a welcome step wrongly introduced. The FM knows, the programme is hurriedly announced, for political sloganeering, unfunded and the benefit is not targeted.
But I liked the budget. It has given some relief to the helpless salaried class. I had made a strong pitch for this in my column: Don'tSit, He will Tax Your Seat (Feb. 24, 2008). The rates are still higher than most of other developing countries like Brazil, China and Russia. There is nothing wrong if the budget was politically correct. It has to be. The politicians who see economics separately fall prey to corporate shenanigans and lose out in the political sweepstakes.
After globalisation there is a class of politicians in India who talk as if economics has to be separated and nourished as if it was an end in itself. After all, reforms are for the welfare of the people and it should have a human face. Every year banks write off over Rs 25,000 crore industry loan as bad loan. There is no hue and cry. Of late there is a thinking, promoted by the media, if you are good to the people it is bad economics and if you are good to industry it is good economics that will serve growth.
Like agriculture industry too need incentives. Investment is the dynamo of growth. The budget, however, has not really enthused the new entrepreneur class.
Congress may not benefit politically from Chidambaram'sbudget. For, it has not addressed the price rise. Under UPA quality of life did not improve, unlike during the NDA. On infrastructure front, the most essential aspect of growth, the UPA has been a failure. The new budget has nothing to offer on this count. Even Choudhary Devilal had written off farmer loans to the tune of Rs. 10,000 crore in 1990, and it was more liberal, giving money directly to the peasant. But his party was voted out. The Congress seems to have created more problems than it can ever solve from its mindless populist binge.
What the Indian farmer immediately needs is money in hand. He needs better irrigation of his fields, power connection, cash availability on demand, urban connectivity, competitive price and non-exploitative marketing facility. There is no provision for any of this in the budget. Rural electrification, rural road scheme, crop insurance and Kisan Credit Card scheme, most of them flagship initiatives of the Vajpayee government languished under the UPA. The 2008-09 budget is also silent on all these aspects.
Yet the budget on the first day, as Chidambaram himself admits, was judged “politically correct” by large majority. In fact, we should have waited for the year-end. To see if stagnation in many areas reversed, if farmer suicides halted and if savings and consumption picked up.
For four years the UPA was particularly unkind to the common man. The loan waiver and the raise in income tax exemption limit have created the euphoria. Both were long overdue. It is unfortunate that Chidambaram has made it a poll plank. No political party has the right to bribe the voter with public money. But this is exactly what Chidambaram has done.
There is the obvious fudging of figures. One, that most of the allocations on NREGA and loan waiver are exaggerated. Equally unacceptable is the communalisation of budget by selecting the Muslims as the hobgoblin. It is clear, with the Sachar Report, numerous other minority specific steps and now the special allocation for the selected 90 districts and the doubling of allocations for the Minority Affairs Ministry the UPA has whetted their political appetite. But the Congress will get only a small portion of their loyalty, as the claimants are too many. These allocations will again largely go unspent. So Chidambaram has left a large cushion to meet his deficit.
The Finance Minister has played the poll opera staying steady on the World Bank prescribed finance sector reforms. He has ensured that money goes to the coffers of the corporate and power and fund to Congress minions. The loan waiver is supposed to benefit 40 million farmers. The biggest stunner of the budget. But as I noted earlier, no provision for this whopping amount is made in the budget. The banks would be provided adequate liquidity by the government over a period of three years, says the Finance Minister. The waiver is applicable to loans disbursed by commercial banks, RRBs and cooperative banks. The cut-off is December 31, 2007. The balance sheet of these banks will be hit resulting in erosion of their net worth as the government is not talking of compensating their loss. The initial reports indicate the bank stocks taking a beating. Indian banks are entering a period of consolidation and readying for increased competition from foreign banks from April 2009. What the new situation created by the loan write-off will do to their valuations is to be seen.
The Reserve Bank of India Report on Trend and Progress of Banking in India 2006-07 says that the waiver between the commercial banks and Regional Rural Banks (RRBs) may not exceed Rs 100 billion. The balance of Rs 500 billion if allocated will go to the cooperative banks, which are presided over by Congress and CPI (M) politicians in most states. What a huge poll eve bonanza. The reaction of experts to the loan waiver has been cautious and qualified. That it will not help the farmers in dry, draught-prone areas with comparatively larger holdings like in Vidarbha, Bundelkhand and Rayalseema has been commented upon. But most farmers in Kerala, Tamil Nadu, Karnataka, Orissa and Haryana will. And Gujarat where the last decade has seen growing farm prosperity and a ten-fold increase in farming loans.
The farm loan waiver gives the impression that the farmers are habitual defaulters. Only ten per cent of the farmers default on loan repayment according to the NABARD reports. Two-third of the farmers, experts say, depend on local money-lenders and they will not benefit. It is likely that the money-lenders double up as farmers and corner the benefit of the loan write-off, with some help from local political bosses. Since the Finance Minister has made a claim that 40 million farmers will enjoy the largesse the opposition has a good case to demand a computerised list of the names and addresses of all the beneficiaries. This will not be difficult for the government as it has a plan to complete the process by June this year. And the Congress will learn that honesty is a better strategy.
(The views expressed in this column are personal. The writer can be contacted at [email protected])