DR. WAQUAR ANWAR analyses the Union Budget 2009-10, points out its failings and concludes that Pranab Da’s presentation of budget was more like an election speech.
It all appeared that “Professor” Pranab Mukherjee was giving a class in economics for around 150 students. With the exception of around a dozen of serious participants, the rest were only physically present on the eve of budget presentation in the parliament. Even the two members who were just behind the finance minister and whose faces were most of the time partly in full glare of the camera were noticed blinking eyes, moving with uneasiness in their chairs and discussing, if not gossiping, with each other. This is a sad story of the state of affairs. The members were mostly not interested in the proceedings and the finance minister made his budget speech either an election speech or a dab affair.
It was more like an election speech. Budget means quantified presentation of estimated inflow and outflow of funds. For such estimation, figures relating to previous periods in respect to actual and revised inflow and outflow are presented so that computations may become comparable and understandable. The same thing is described in the budget speech. But a detailed description of the achievements of the past four years highlighting mostly the flagship projects of the ruling establishment is nothing but an exercise in showing performance in the whole era. Whether the performance has been commendable or condemnable was not a budget issue. It is an election issue as such.
The penultimate paragraph of the finance minister is an interesting election echo, “The Indian people have repeatedly shown that they can be relied upon to make sound decisions to secure the nation’s future… I have no doubt that when the time comes, our people will recognise that made it all possible. The hand that alone can help our nation on the road to peace and prosperity.” The beauty of this direct election resonance is that the informal election speech ended here. By the time the disinterested lot of MPs could understand and protest, the speech was over. The political seasoning of Pranab Mukherjee stands confirmed.
DUBIOUS ESTIMATIONS
It has become a practice of the respective ministers to present budgeted estimates (BE) by overestimating revenues and underestimating expenditures so that the resulting figures may become publicly digestible! As public memory is short nobody notices the extent of actual variances from the budgeted estimates. In order to understand the fallacy involved one can simply compute the variances between Budgeted Estimates (BE), Revised Estimates (RE) and the Actual figures relating to any year. One would gasp at the extent of overestimation of revenues and underestimation of expenditures, wondering that the figures relate to the same year.
CONSTITUTIONAL PROPRIETY
Despite accepting that “in these days of financial stress, tax rates must fall” the finance minister did not announce any tax rebate and took refuge in the plea that the mandate available for such a basic change was not expiring because of the nearing general elections. On the face of it this question of constitutional propriety appears to be a case of high political morality. In other words this proves the political maturity of Indian democracy. A question has been raised as to the propriety of the application of this political morality. In these days of economic turmoil when the whole world is affected by the financial tsunami with its epicentre in the USA, every nation is compelled to take hard decisions. One expert has rightly termed the budget as an ordinary presentation in the extraordinary times! This guise of morality has made the whole exercise as extraordinarily ordinary budget!!
No bug of democratic mandate did check the government from announcing additional funds of Rs. 13,317 crore for its flagship programmes. Earlier the stimulus packages announced by the Reserve Bank of India were not stalled in the name of any constitutional propriety. An estimated additional spending of Rs.150,000 crore and Rs.40,000-Rs.50,000 crore worth duty rebates were committed in the course of these two stimulus packages announced recently.
EXPENDITURE SHORTFALLS
It has become a regular phenomenon that different ministries are not utilising their quota of budgeted expenditure and thereby let the funds lapse. In normal conditions this practice may not have much significance but in the current situation when one of the corrective measures to stimulate the economy is to increase public expenditures such things should not be pardoned. The shortfall by different ministries this year was to the extent of Civil Aviation 25%, Coal 26%, Shipping 20%, Communication 9% and Power & HRD 10% each, etc. These things indicate that budgeting and budgetary control in government departments are not being done with the required care. The recourse to conventional incremental budgeting is an easy route.
PPP
Public Private Partnership (PPP) to attract private finance for investments for the development of infrastructure is continuing. Both Rail Budget and the Union Budget talk about the virtues of PPP. Paragraph 16 of the budget speech informs that such private sector investments are being encouraged in telecommunications, power generation, airports, roads and railways, etc. Projects worth Rs.27900 crore have been approved and those worth Rs.67700 crore have been accorded in-principle approval. Paragraph 17 of the budget speech informs about the mode of financing such private investments. Banks are encouraged to provide fund for the private entrepreneurs. Sixty per cent of such financial accommodations provided by the commercial banks will be refinanced by Infrastructure Finance Company Limited (IFCL). In order to ease out such commitments of the IIFL it will be allowed to raise additional funds to the tune of Rs.40,000 crore from the market. Thus, in effect, a major portion of the investment of the private sector will be financed by the domestic market. This is a typical case of drainage of fund. Such multiplicity of layers and agencies simply adds to the cost of the job done because at every level interest, commission, margin and profit element will add on the overall cost of completion of the projects. Further this amounts to increasing the complexities of operations making it all cumbersome.
CONSOLIDATED FUND OF INDIA
In order to understand the financial health of our country we have prepared a summary of the Consolidated Fund of India as depicted herein. These four tables depict Revenue Receipts, Revenue Disbursement, Capital Receipts and Capital Disbursement. Budget 2009-10 figures have been shown along with Revised Estimate for the current year, 2008-09.
The table relating to Revenue Receipts depicts that major portion of revenue accrues from taxes which comprise Corporation Tax, Income Tax, Customs, Excise Duty, Service Tax and others. Current year Revenue deficit is estimated at Rs.338,715 crore and that for the year 2009-10 has been budgeted as Rs.238,534 crore.
Major share of revenue disbursements is utilised by Economic Services and Defence services. Economic services include Agriculture, Rural Development, Energy, Environment, Science & Technology, Industry, Transport, etc.
Capital receipts overwhelmingly comprise Internal and External debts. Internal debt comprises 14 day, 91 day, 182 day, 364 day Treasury bills, besides market loans and securities against small savings.
Major portion of capital disbursements is consumed by repayment of internal and external debts.
Internal debt of India is increasing at a fast pace calling for the need to pause, analyse and think about the path of growth we have adopted.