[However, how long can
'vote banking' Budgets deliver growth, employment and macroeconomic stability?
The Indian experience says " not very long" since GDP came tumbling
down to less than 5% in 2012 from a high 9.3 in 2009-10; the rupee crashed from
round Rs 45 per $ in July 2011 to Rs 55 per $ in December 2012, the fiscal and
revenue account deficits sky rocked to historic heights to cause massive
inflation, especially in food, and thus punish the very people populism was to
benefit! Here is an example of the paradox virtue with populist budgeting! They
were at an optimal level of 2.5 and 1.1 % of GDP respectively in 2007-08 but swelled
to 5.1 and 3.5% of GDP in 2011-12.]
By Madhukar
SJB Rana*
Finance
Minister Chidambaram, fresh from his novel stint as Home
Minister, presented his 8th Budget; equal to that presented by Moraji Desai,
who later on, after deserting the NC, went on to being the Prime Minister of
India from 1977-1979 ( It was PM Desai who gifted Nepal two treaties of trade
and transit for the first time in 1978 - with innumerable trade concessions
surpassed only in 2002).
This fact must have
weighed, to an extent, in P.Chidambaram's conscience while preparing the
Budget: along with the possibility that, if Rahul Gandhi develops cold feet to
lead the NC for the next general elections in 2014, it is he who is most likely
to be the NC candidate for PM - mainly because Rahul Gandhi has no proven
experience, whatsoever, to match Narendra Modi as PM as the BJP's candidate.
And, of course, there
is the Chidambaram with his international reputation for being a reformer;
which reputation he has to safeguard if he is to have a voice in the corridors
of economic diplomacy as India sorely needs FDI and FII, from the global
financial markets, which have frittered away since 2011.
Overall, the Finance
Minister has done a fine balancing act, given that general elections may take
any time before 2014, between populism and fiscal splurge that the Gandhi
dynasty subscribes to; and the need for restraint and austerity for growth and
macro economic stability. He must not be surprised that barely after he
finished his Budget Speech the stock and bond markets were going negative; the
Indian rupee further depreciated, and the Indian bonds are likely to be rated,
by global finance, as near-junk!
Against all odds no
doubt, Chidambaram had a difficult role to play over burdened by the populist
legacy of Sonia Gandhi-Pronab Mukerjee combine that, incidentally, paid huge
dividends to bring the UPA back to power in 2008.
However, how long can
'vote banking' Budgets deliver growth, employment and macroeconomic stability?
The Indian experience says " not very long" since GDP came tumbling
down to less than 5% in 2012 from a high 9.3 in 2009-10; the rupee crashed from
round Rs 45 per $ in July 2011 to Rs 55 per $ in December 2012, the fiscal and
revenue account deficits sky rocked to historic heights to cause massive
inflation, especially in food, and thus punish the very people populism was to
benefit! Here is an example of the paradox virtue with populist budgeting! They
were at an optimal level of 2.5 and 1.1 % of GDP respectively in 2007-08 but swelled
to 5.1 and 3.5% of GDP in 2011-12.
Finance Minister
Chidambaram, the architect of the well meaning Financial Responsibility and
Budget Management Act 2003, must have shuddered inside, as he invoked these
very instruments while delivering his Speech, which his predecessor chose to
ignore - yet was rewarded with the Presidency!
It
used to be said that the driver of growth in India is not the external sector
but domestic consumption by households and private sector investments. With
much pride, Indian economists alluded to the fact that India was immune from
external shocks as compared to, say for example: China.
How
is it then that as, given the recession in Europe and Japan and feeble recovery
in the US, China musters up more than 8 % GDP growth whereas India is struggling
for 5%? The short answer is this: mismanagement.
The logical question to
ask, therefore, is this: will the Finance Minister be able to arrest
mismanagement? Here one has severe doubts. Why? PM Man Mohan Singh is a spent
force as an economic reformer who certainly is no Narasimha Rao as PM, who
could lead from the front and suffered in the bargain.
The Finance Minister is
no Minister of the Economy with clout to direct his colleagues - many of whom
are senior to him and not even from the same party. Being promoted as Deputy
Prime Minister in Charge of Economic Affairs would certainly have helped; but
this is going not to be. So we are left with each Minister doing his bit over
his or her ministry with no accountability for economic performance or lack of.
Yes, there is provision for the Outcome Budget but this is a fiscal instrument of accountability to
Parliament and not the Finance Minister nor the Prime Minister.
One is left wondering
how on earth will those opening words of wisdom on the philosophy of budgeting,
its policies and priorities will be converted from rhetoric into action through
good management. Simply announcing a Coordination Committee to do the job of
implementation and execution will not suffice given the bureaucratic labyrinth
and its ineffectiveness in matters of horizontal - as compared to vertical -
communication, control, command and coordination.
Good governance is the
need of the hour as massive graft, corruption and collusion have paralysed
decision taking. Public institutions have been so weakened by the rampant
encroachment of politics into administrative autonomy that administrative
reforms is as much a necessity as is economic, financial and legal reforms.
Far too much emphasis has
been given to policies and plans with far too little on institution building,
their empowerment and modernisation. No where does good governance and
administrative reforms find place in the Finance Minister's Budget Speech!
As for food inflation
which has been the bete noire for the
UPA government, the Finance Minister has
a staggering 11% food inflation to contend with! Yet, why no mentioning at all the
reforms that are needed on the supply side vis
procurement, storage and transportation mismanagement and monopolies? The
criminal rotting of food grains in the Punjab and elsewhere in the sad presence
of massive hunger in the poor
drought-prone, poorly irrigated districts strikes s severe blow to a sought
image of Incredible India.
It is no wonder,
particularly amidst the private sector, that they question how with the
existing political divide and coalition politics is the government to grow the
GDP from 5% to 6.1% in 2014 - never mind 6.5 % as also hoped for? Many believe
it is paralyzed with indiscipline and indecisiveness. One wonders, with the
continuing unfavourable external environment, and the spectre of an early
general election forced upon it by the likes of the Gandhian Anna Hazare if GDP
will grow beyond 5,5% next year?
The Finance Minister is
to increase expenditure to 16.7 lakh
crores, (1 crore = 10 millions)
which is a whopping 27.8% rise from 2012-13. And yet he proposes that he will
manage to control the fiscal deficit to 4.8% of GDP from 5.3% in 2012-13 ? We
are not told how: just to hope found on an assumption that the GDP will grow to
6.1- 6.5%: and thus contribute the
necessary rise in total revenue to meet his expenditure plans. What contingency
plan has he in the event the growth assumption is not borne put? There is none.
Surely, hope can not be a method for sound Budgeting. Mercifully, the weather
Gods are expected to behave normally in 2014. But if geopolitical tensions
mount in West Asia economic disaster could befall us all in South Asia so
heavily dependent on the remittances economy. The World Bank estimates that a $
50 rise in a barrel of oil will lead to regional fiscal and current account
deficits rising to 1.5 and 0.8% of GDP respectively, and regional GDP decline
by 1.6% !
Yes, he plans to divest
but unfortunately allowing state enterprise's
shares to be owned by the people but not disinvesting these shares to
raise monies to support the revenue needs -- in short, to privatise state
enterprises to levels beyond the magical 49% equity only. For example, why
can't Rs 26 517 crores not be raised from the private sector to meet the
Capital adequacy needs of the 13 state owned banks to meet the Basel Ii criteria rather than allocate that amount
from tax payers contributions? Why could this tax revenue not be diverted
towards funding the debt repayment which consumes a humongous 20% of the Total Revenue?
Such a political move
would have dynamic impact on the investment climate and also reduce the
interest rate for manufacturing industries.
"The purpose of
the Budget--and the job of a Finance Minister--- is to create economic space
and find the resources to meet sociology-economic objectives" , said
Chidambaram. Is it really that? One would have thought political objectives
also are legitimate objectives. And precisely the mix between political-
social-economic objectives makes for a balanced or populist budget.
This is by all accounts
an Inclusive Budget. A budget that
espouses more the wisdom of Nobel Laureat Amartya Sen than those traditionally
ingrained in the Washington Consensus, as embodied in the IMF and World Bank's
economic policy prescriptions and strategies which near totally ignored human
and social capital in favour of financial and physical capital by underscoring
financial and economic liberalization, which has led to historic income
inequalities between thereof class. Rich
and the middle class.
Thus on the economic
side, this Budget seeks inclusion through connectivity by creating industrial
corridors from Delhi to Mumbai; Mumbai to Banglaore and Chennai to Banalore. it
is expected that Japan will be a big investor in these projects. Similarly, the
ADB will fund the North East India-Myanmar corridor which will connect, in due
course, Bangladesh, Bhutan and Nepal eventually to fructify Nepal's 1996 vision
for the creation of the South Asian Growth Quadrangle. All these developments
will no doubt create a spurt equally to the BIMSTEC cooperation initiative in
the Bay of Bengal region.
Populism is clearly
manifest in its tax proposals to soak the rich, as it were. No tears will be
shared by the masses if the near- 43000 super rich have to pay a surcharge of
10% on their income tax.
What, however, is
surprising is this: how can India be complacent with just around 11 % of
Revenue: GDP ratio? This suggests that very few are actually in the tax net.
Would not measures to widen the tax net and mopping up the black money have not
have been enunciated in the Revenue Plan? Especially, when people like Sri Baba
Ram Dev have created a social movement for the inclusion of black money in the
formal economy. Why is there no target for revenue mobilisation to say 15% of
GDP when even poorer countries like Nepal garner around 13% of GDP and believe
that it could be as high as 20% with radical reforms in Revenue Administration
and more assertive application of the rule of law through eradication of
corruption.
From a political
economy perspective the Budget is a mater stroke as it focusses massively on
agriculture and rural development as well as the people below the poverty line
together with targeted focus on women, tribals, Dalits, OBCs, Muslims and not
least youth.
From Nepal's national
interest, the emphasis on watershed management and river connectivity is most
welcome. It does not take much to appreciate how strategic Nepal is in India's
eyes over food, water, employment and climate security with its vast water and
hydro resources that, if exploited for mutual benefit, can take the two
economies to a path of sustainable development and prosperity through mutual
sharing. Having said the above, it would be against Nepal's national interest
if our short sighted political leadership will exploit the grand opportunities
created by this Budget for smuggling of gold, silver, mobiles, luxury goods,
cigarettes etc. this temptation must lurk high in all political parties who
will have to fight general and local elections in the wake of the massive
unpopularity after their failure to give the people their promised Constitution
and mafia-free governance.
Youth empowerment and
leadership is at the forefront of the Chidambaram Budget 2013-14. Why not allow
them to massively come into politics on their own standing as Independent
candidates? Such an entry will enhance pragmatism and situational thinking far
removed from the vestiges of outworn 19th century political ideologies.
A model that was
propounded by Nepal's former Finance Minister Dr PC Lohani in 2003 is to have
the State pay for each vote garnered beyond the forfeit threshold of say Rs 25
per vote. What a change this will bring to the leadership panorama in South
Asia as a whole where creativity, innovation, energy and competition will rule
the political landscape rather than be left perennially in a vortex of senility
and mediocrity as now. Not only will money power and muscle power be over but so
will it unleash positively the Revolution 2020 as perceived by Chetan Bhagat.
In conclusion, while
emphasizng so much on youth and human and intellectual capital development the
Finance Minister has no Outcome targets for Employment and Self Employment, which
is a hugely disappointing.
For Inclusive Growth
and Development it is high time that we moved away from conceptualising Labour
as a Derived Demand by opting for Integrated Manpower and Educational Planning
with such a planning framework being an integral part of national and state
level planning. It goes without saying that this should be equally be a
priority approach to new planning by FICCI, CII and all Chambers and
Professional Association who should work in partnership with the governments at
all levels in a true spirit of Public Private Partnerships for Youth Leadership
Development and Empowerment.
As a footnote let me
add that the Chindabaram Budget 2013-14 will leave no choice but for the BJP to
have Narendra Modi elected as their candidature for the Premiership of India in
the battle Royal between the Congress and BJP and their allies. He has the
answer to the electoral imaginations underlying this Inclsuive Budget. Modi can
ignite the missing link, which is the
national private sector and the international financial markets. No more are
the rich Industrial Countries interested purely in poverty eradication of
others but the malaise in the own economies which only rising Asia, Africa and
South America can salvage for them.
* Professor, South Asian Institute of Management, Former Finance Minister of Nepal.
