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Thursday, Sep 30, 2004

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AUSTERITY AT LAST

SCEPTICS MAY LAUGH off the idea of saving Rs.2,000 crores annually through the series of austerity measures announced by the Central Government on Tuesday as a drop in the ocean but the truth is that it sends out a bigger signal. The previous National Democratic Alliance Government, and the Bharatiya Janata Party in particular, did not have much need for any such austerity measures and instead projected the image of being an extravagant Government. Mega events like the Bharatiya Pravasi Divas to humour well-heeled non-resident Indians, party conclaves in 7-star hotels and at exotic locales like Goa, and the lavish spread at Prime Ministerial social engagements were extensively reported in the media. But criticisms, if any, tended to be treated with disdain by the then establishment. All this at a time when plenty of evidence surfaced about mass deprivation, hunger-related deaths, joblessness, and debt-induced suicides. Against such a background, the message of fiscal rectitude that the new Government intends to send out through its austerity measures should be appreciated.

For many, it may also come as a surprise that a country that was "shining" till April this year has had to adopt austerity measures just six months down the line. Leaving aside the debate on whether India was shining or not, post-election developments warrant mobilising more resources. The United Progressive Alliance Government has come to power with a number of promises to provide food, employment, education, and health care to the deprived sections of the population who articulated their anger quite vehemently in the 14th general election. These promises need resources and these have to be over and above what was provided in the annual budget. The Planning Commission, which was given an additional Rs.10,000 crores to flesh out the priorities listed out in the National Common Minimum Programme, has actually allocated Rs.12,000 crores to supplement the food-for-work programme, the mid-day meal scheme, the project for universal education (Sarva Shiksha Abhiyan), and other targeted schemes. To find these funds, the Government will have to cut wasteful expenditure and raise additional resources. Some unexpected developments have also had an impact on revenues. Global oil prices are on the boil, in the process pushing inflation in oil-importing economies. The Government's fire-fighting measures to dampen inflationary trends have led to a reduction of customs and excise duties, which has knocked off more than Rs.2,000 crores from revenue expectations. The Government also had to yield on some of its budgetary proposals such as the transaction tax on securities; this too will lower its earnings. All told, there is going to be revenue shortfall and excess expenditure, leaving the Government with little option but to go in for some belt tightening.

Some protest must be articulated against the announced move to appropriate public sector profits to meet official expenditure. Such profits have long been the favourite target of Governments in a financial bind. But the continuation of this practice goes against the stated objective of the present Government to grant full functional autonomy to public sector units. Secondly, most of the profitable enterprises are in the crucial infrastructure sector. Taking away their profits will cripple their investment plans. The UPA Government would do well to realise that infrastructure development is of critical importance if the country has to achieve eight per cent-plus growth in the coming years. As for the other measures announced by the Government, it is revealing that austerity has been mandated for furnishing Government offices and official residences. This amounts to an official confession that there is unrestrained wasteful expenditure in the Government.

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