DR. WAQUAR ANWAR analyses the paradoxes and inconsistencies in the Budget 2008 and concludes that it is the continuation of Manmohan Singh policy devised a decade and a half ago.
Budget 2008-09 has been lauded loud by many classes of people, and it appears that it addresses the concern of most of them. Thus the document is probably successful in its basic objective of addressing all and sundry. This please-all feature has made the budget speech of the finance minister an exercise in a non-budget policy and political document.
A budget is basically a financial statement and its covering speech ought to be a description required to understand and appreciate the projections therein. But what we find here is a speech that discusses some outlays that are minor in nature [(e.g. grant of Rs. 5 crore to a college (para 27)], describes some matters that are non-budgetary in nature [e.g. recruitment of candidate belonging to minority communities in Para-Military Force (para 48)], and ignores at least one significant matter (i.e. provision of Rs. 60,000 crore announced as farmers’ debt waiver and debt relief).
How come a budget be called a budget if it ignores a considerable amount (Rs. 60,000 crore). The outlay is announced but it is not included in the projection. In an interview after the budget the finance minister is reported to have said, “We will sit with the bank and find way and means to provide adequate and equivalent liquidity….I will provide liquidity to the banks over a period of time.”
Referring back to the budget speech, we find the announcement that the implementation of debt waiver and debt relief will be completed by June 30, 2008. In other words the cost of these debt waiver and debt relief will be reflected in the books of accounts of the banks till full liquidity is provided. In accountancy parlance this is called window dressing!
Farm loan waiver is a welcome move that was needed at this juncture. However, there are other related issues that cannot be ignored. As a one time sop it is not the ultimate solution. It is like a life saving drug. But it has its side effects. It will create a bad precedent; giving a feeling that loan taken from banks need not be refunded. The vicious circle would continue. Along with other measures the government may think in terms of waiver of interest portion of the loan, keeping premium refundable, and further interest free loans.
Budget 2008 is a continuation of the policies that were spearheaded by Manmohan Singh when he first joined the Congress establishment as the finance minister. All that was good in that policy is continued faithfully by his able deputy. All that was wrong in that policy continues to be so till date. The irony is that despite the change in establishment of that of Congress to BJP, and the other way round afterwards, the policy adopted by Manmohan Singh, then FM, has remained intact. In this aspect there is no difference between the two political parties. The difference may lie in the competence of the men holding the portfolio. Chidambaram is proving to be abler than the men assigned to the position by the BJP-led NDA.
The fundamental objective of economic reform policy adopted in mid 1991 was to bring about rapid and sustained improvement in the quality of life of people in India. The quality of life referred to the level of life expectancy, nutrition, literacy, school enrolment and medical facilities. There is a need to assess the situation with respect to all the aspects severally. One cannot deny that quality of life has increased, but only in respect of a handful of persons. The vast majority still languishes and the gap between haves and have-nots is ever increasing. Budget 2008 furthers this gap.
The policy document of mid 1991 was termed as programme of macro economic stabilisation. Under that policy the measures proposed included providing better choice to consumers by exposing the public and private sector enterprise to both domestic and international competition. Access to foreign technology, changes in trade and exchange rate policies, reducing exchange import duties, free market economy and globalisation were all designed accordingly. Hats off to Manmohan Singh that all these features envisaged and declared by him more than one and half decade ago are found in all the intervening budget documents, including Budget 2008. P. Chidambaram should also be complimented for not only being faithful towards the policies of his government but also for efficiently implementing the same. Now what if there is any problem that is owing to the policy itself.
TAX AND ADMINISTRATIVE REFORMS
Budget 2008 continues the tax and administrative reforms which Chidambaram has been executing for the last four years. The changes in income tax slabs for personal income tax are in line with these reforms. Although the taxpayers were not expecting the extent of benefits passed on to them, such lowering of tax rates is a declared policy. The policy has paid dividend also. Despite the lowering of tax rates tax collections have increased. The finance minister is correct in his compliments to the taxpayers, “Trust will beget trust, moderation will beget revenues and fairness will beget compliance.” “Income taxpayers have made out a persuasive case for some relief.”
The Budget 2008 further continues the process of reduction and standardisation of excise and custom duties. The industry has been responding positively to these reforms making out a persuasive case for further relief.
A disturbing phenomenon of the Indian budget is its positive correlationship with international, particularly US, economy. Budget 2008 has not suggested any measure to free economy from the ills of others for which we are not responsible. On the contrary, the old and decadent policy of linking our fate with the developed countries in general and the US economy in particular perpetuates. A portion of paragraph 74 of the budget is quoted here as a proof of our contention. “Since 2005-06, there has been an unmistakable boom in investment…. The trend is reflected on the foreign investment side too. During the period April-December 2007-08, foreign direct investment amounted to US$12.7 billion and foreign institutional investment to US$18 billion. Our policy is to encourage all sources of investment, domestic and foreign, private and public.”
The increasing role of stock market and the large flow of funds involved as a result of foreign institutional and direct investors in our economy is a dangerous sign because firm economy cannot be based on speculative markets. Obviously the buoyancy we are witnessing in stock market, both upward and downward movements, is not related with fundamentals of our economy but it is guided by speculative markets. Instead of feeling proud of the situation we should feel concerned and take care before it is too late.
DEBT SERVICING
We have tried to prepare a summary of the account of consolidated fund of India as depicted in the table. Further we have tried to analyse debt servicing position of our economy based on the account of the consolidated fund of India as depicted in another table. The position that comes to light is very precarious. In the revised estimates of the 2007-08, 94.5% of the fresh intake of internal and external debt was required for servicing the liabilities on account of interest and the instalments of debts due for payment. For the budget estimates of the year 2008-09 it is projected that 96.5% of the intake of internal and external debt will be required for debt servicing. In other words, almost all fresh debts are consumed in payments of interest and instalments of old debts. And take new loan to pay off old loans. This is a vicious circle that is crippling most of the capitalist economies. This can further be understood with reference to the share of non-debt revenue in our economy. Total non-debt receipt as a percentage of debt servicing is estimated to be 37% for the year 2007-08 and 41% for the year 2008-09.