As Finance Minister Jaswant Singh gets ready to present his maiden budget next month, he would be facing a daunting task of being assessed in comparison with his predecessors of the past decade. With compulsions of electoral politics weighing down heavily on him while planning the proposals, he would be under tremendous pressure to demonstrate that good economics can also be good politics.
Jaswant Singh, however, will have the elbow room to manoeuvre and provide sops as major macroeconomic indicators are far better than the situation in 1991-92. The changes in the social and agricultural sector along with the reforms in the banking sector have made his task easier in some ways. However, there are areas of concern as well with the country facing one of the severest droughts in recent history and the manufacturing sector showing a recessionary trend.
Though the fiscal deficit is hovering around 5.5 per cent of the GDP, it is an issue that will test the skills of the new finance minister. In the Manmohan Singh period, fiscal deficit averaged at about 5% of the GDP compared to 4.5% under the United Front government.
The decade of liberalisation has made sweeping changes in the various sectors of society, economics and politics. When Manmohan Singh presented his first budget in 1991-92, the nation was in midst of a major balance of payment crisis. The nation’s foreign exchange was enough to meet just two weeks’ imports. India had mortgaged its gold to prevent defaulting on its international obligations. Today, the foreign exchange reserves have crossed $72 billion and India is slowly moving towards full convertibility of the rupee.
A close look at the major macroeconomic indicators show forex reserves during 1991-92 to 1995-96 stood at $21.7 billion and rose to $29.3 billion under the United Front government. Then finance minister P. Chidambaram was credited with presenting a ‘dream budget’, which was rated highly by the industry and economists. But many of his proposals failed to fructify on the ground.
Then emerged the era of ‘rollback’ Yashwant Sinha, who had to see most of his reform initiatives thwarted by warring allies. In spite of all the drawbacks in his tenure as the finance minister, Sinha, left behind a relatively strong economy for Singh to give a push forward.
In the first flush of liberation during the days of the Narasimha Rao government overall GDP grew by 5.4% between 1991-92 and 1995-96, while during the two UF governments during 1996-98 GDP rose by 6.3%, political wrangling and uncertainty notwithstanding.
A quick estimate shows GDP in 1998-99 to 2001-02 has grown by 5.5%. Similarly, the farm sector during the Manmohan Singh era grew 2.6% compared to 3.6% in the UF government period. In 1998-99 to 01-02 this sector witnessed a 3.3% growth.
The sluggish industrial growth at 4.7% in the NDA government tenure is an area of concern though many believe that a recovery is already underway. By initiating the first flush of reforms, the Congress government was able to overcome the recessionary trend then prevailing and post average industrial growth of 6.2% between 1991-92 to 1995-96. The market friendly push in policy making under P. Chidambaram resulted in an industrial growth of 6.4%.
The improved performance in the agriculture sector with total foodgrain production of 211 million ton will help the government withstand the severe drought.