The more things change, the more they remain the same
What should the government do in Monday’s Budget? The key dilemma is how to stimulate the economy without raising an alarm about the fiscal deficit. It should not borrow so much that interest rates go up. Since it’s necessary to give a signal to international investors that the government is serious about curbing its deficit, it’s important to come up with a road map for reducing it, writes Manas Chakravarty.Who manned the FM station| ABC of budget| See graphicsHow the budget is bornindia Updated: Jul 06, 2009 12:47 IST
Presenting the United Front government’s Budget in 1996, Finance Minister Palaniappan Chidambaram informed us that one of the first acts of Prime Minister Deve Gowda was to convene a meeting of chief ministers on the provision of basic minimum services for everybody. The meeting recommended the adoption of seven objectives to be attained by the year 2000. These were: “100 per cent coverage of provision of safe drinking water; 100 per cent coverage of primary health centres; universalisation of primary education; public housing assistance to all shelterless poor families; extension of the mid-day meal scheme; road connectivity to all villages and habitations; and streamlining the public distribution system targeted to families below the poverty line.”
Eight years later, while presenting the first Budget of the United Progressive Alliance government, the same Chidambaram told us the goals he had set. These included, among other things, drinking water for all, electricity for all, more housing for the poor.
Four more years down the road, in 2008, Chidambaram told us the goal of the National Rural Health Mission was to “establish a fully functional, community-owned, decentralised health delivery system”. He promised that the mid-day meal scheme “will now be extended to upper primary classes in government and government-aided schools in all blocks in the country”. He reiterated the objective is “to supply safe drinking water to uncovered habitations and slipped back habitations”. And he pointed out that “strengthening the Public Distribution System would mean adequate supplies, reasonable subsidies and efficient delivery of the subsidised food”.
And just in case this sounds like an anti-Chidambaram tirade, Yashwant Sinha made pretty much the same noises earlier.
Subsidies are another fascinating subject. In 1996, Chidambaram proposed a discussion paper that would list all the “subsidies, visible and hidden, so that there can be an informed debate and a consensus”. In 2002, Sinha told us that “it is essential that [subsidies] are reduced to a minimum over the next three to five years”. In 2004, Chidambaram said: “All subsidies will be targeted sharply at the poor and truly needy.” But by 2006 he was urging MPs “to help the government evolve a consensus on the issue of subsidies”.
Also, there is often a disconnect between various parts of the Budget speech. Part A promises the most wonderful things, but Part B brings us down to earth with a thud. For instance, in the 2006 Budget, while the finance minister promised to take the country to 10 per cent GDP growth, Part B of the speech gave the impression that this would be done by measures such as increasing customs duty on vanaspati, imposing excise on packaged software sold over the counter and extending a concessional rate of duty to all LPG stoves.
Of course, all this is a bit unfair. Gowda was, after all, merely doing some political grandstanding when he promised all those impossible things by 2000. As a matter of fact, there has been substantial progress in the social sector during the last few years and spending has gone up quite a bit. The National Rural Employment Guarantee Scheme, for all the allegations against it, has certainly raised wage levels, as seen from the difficulty farmers in Punjab now have in getting migrant labour. Literacy has made impressive strides.
But perhaps we need to gauge progress by a different yardstick. The National Commission for Enterprises in the Unorganised Sector says in its report that over 836 million people in the country are “poor and vulnerable”, living on less than Rs 20 a day. It says this segment “has experienced very low rates of improvement in living standards as a whole since the early ’90s”. A recent UNICEF report points out that 29 per cent of the population lives in abject poverty, while 46 per cent of our children suffer from moderate and severe malnutrition. We are 66th out of 88 countries in the Global Huger Index, just above Zimbabwe.
Nor has the government record on other measures been very impressive. It has been criticised for not doing enough to reduce the fiscal deficit (government borrowing) during the boom years of 2003-07. Its reluctance to do so has led to limited scope for increasing borrowing now, when the economy is in a slump and government spending is needed more than ever. And the less said about the state of infrastructure the better.
But all this is history. What should the government do in Monday’s Budget? The key dilemma is how to stimulate the economy without raising an alarm about the fiscal deficit. It should not borrow so much that interest rates go up. Since it’s necessary to give a signal to international investors that the government is serious about curbing its deficit, it’s important to come up with a road map for reducing it.
But much of the recent improvement in the economy has been on the back of government spending. So the government will have to continue spending, without increasing its borrowing — how it squares this circle will be interesting.
But with the economy so weak, this may be the wrong time to suddenly rediscover the virtues of fiscal rectitude. This Budget, Pranab Mukherjee may do well to quote St Augustine, one of the most important saints of the Catholic Church, who pleaded during the heydays of his dissolute youth, “Lord, grant me chastity and continence, but not just yet.”