The Hindu : National : `Deficit projection unrealistic'

Online edition of India's National Newspaper
Saturday, Jul 10, 2004

National

National

`Deficit projection unrealistic'

S. Gurumurthy, All India Joint Convenor, Swadeshi Jagaran Manch, writes:

In the overall assessment of the Swadeshi Jagaran Manch (SJM) the budget for 2004-05 is long in words and short on numbers. It is a classic illustration of how over the years elegant words have gradually but effectively become substitutes for hard numbers in budget debates. This ends in successfully marketing a deceptive exercise.

While the budget hit the headlines as a great agricultural thrust, the allocation for agriculture in the budget is virtually the same as in the Interim budget of Jaswant Singh in February last. Also the Finance Minister launches what he calls a `massive scheme' for restoration of the destroyed water bodies with a paltry allocation of Rs.100 crores.

The fine print reads that the budgeted period for restoration of water system is 5 to 7 years. Likewise the allocation for irrigation nowhere matches the grand words in the budget speech. The removal of excise on tractors will not bring down the prices appreciably as the tractor makers have to pay the input excise duty, which they cannot MODVAT. Actually the excise shelter for large farm equipments makers will hit the cottage industry engaged in manufacturing them. Yet the budget has been hailed as giving a farm and rural thrust for these very reasons.

Again the budget is full of non-budget policy items that steal the show in the media. For example, the increase in FDI caps in the telecom, civil aviation and insurance sectors, the New Board for Reconstruction of PSUs, the new Investment Commission, the National Manufacturing Competitive Council, the Inter-institutional Group for Infrastructure Financing, and so on are not budget items. It has become a practice with all Finance Ministers to pack the budgets with non-budget items to ornament their budgets. This compels interest groups to welcome the budget for their reasons. The well-publicised adulations of these interest groups become compliments for the budget. This budget suffers from this mischief more extensively than the previous ones.

Again, whenever FDI limits are increased the general trend is to welcome it as a measure of liberalisation of the domestic economy. The lobby for liberalisation joins the chorus to praise the budget for reasons other than budget considerations. How dangerous this approach is can be judged by the fact that these are issues still to be negotiated at the WTO. The unilateral opening of the services sector segments such as insurance, aviation and telecom erodes the negotiating position of the country in the WTO circuit. This vital issue is totally ignored in making domestic FDI policies and in the debate on them. In fact, sudden announcements in the budget veto all debates on the FDI changes. Chidambaram's proposals on FDI are not in the larger interests of the country, but only serve interest groups. But still this passes as a vote for the budget because of faulty debate.

Again for most of the medium term schemes announced by the Finance Minister such as free water for all, free electricity for all and Backward States Grant Fund, there is not a word on where he will get the money to finance them. In fact, the Backward States Grant Fund is merely a renaming exercise in the budget and the funds are merely transferred from one head to another.

Also the fund will become operational only from 2005. The budget undeniably exaggerates the revenues. The Finance Minister estimates that the revenue will go up by Rs.63,000 crores (almost 25 per cent). The officials of the Finance Ministry are unable to give credible explanation for the high revenue projections. They have themselves admitted that the estimates are ambitious, bureaucratic terminology for the unachievable. So the budget deficit projected is unrealistic. The Finance Minister promises Rs.40,000 crores for infrastructure development. This money is yet to be found.

Again the substitution of the turnover tax on stock market transactions is not an alternative to a capital gains tax. The former is an indirect tax while the later is a direct tax. This measure is contrary to the idea of taxing income. It taxes even transactions that result in losses. Again the promise of introduction of VAT from 2005 when the Finance Minister drops mandatory MODVAT on textiles on the side lacks credibility.

There are however three positive aspects in the budget. First, the elimination of excise duty on cotton textiles. The SJM has been urging Finance Ministers to eliminate excise structures to allow the industry to consolidate well ahead of the globalisation of the textile industry. But this exemption should have been provided some time in 1999 and removed now. But unfortunately it has been brought into force now. But it is definitely a welcome measure. Second, the cess on education that will yield over Rs.5,000 crores is a welcome measure. But the issue here is one of delivery, an area where governments fail badly. But all that Chidambaram can do is to provide money. Third, the raising of the IT exemption limit to Rs one lakh. This too was long over due.

But these apart, on the whole, the budget is an exercise in deceptive public relations. It addresses neither growth nor social justice in numbers.

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