The Hindu : Opinion / News Analysis : Will Chidambaram win and retain friends?

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Monday, Feb 28, 2005

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Opinion - News Analysis

Will Chidambaram win and retain friends?

By Ashok Dasgupta

NEW DELHI, FEB. 27. ``Eighteen days hence, I present the Budget for 2005-06. The current year promises to end on a good note and I hope to have as many friends as of now, 18 days ahead.''

That was the Finance Minister, P. Chidambaram, addressing corporate leaders of the nation as well multinational companies and diplomats representing business interests of their countries while inaugurating the annual general meeting of the International Chamber of Commerce, India on February 10.

The D-Day has arrived, and as Mr. Chidambaram rises in the Lok Sabha at 11.00 a.m. tomorrow to read out his speech and commends the Budget to the House, he will be at a loss to gauge as to whether he has won some, or lost some. If Mr. Chidambaram manages to have the same number of friends with a possible change in constituents, he should be satisfied.

"Not a please-all exercise"

After all, ``serious'' budget-making is not a ``please-all'' exercise. For, even a ``populist budget'' makes the economist and pro-reform friends turn critics. In such a situation, if he happens to win many more friends than earlier, his exercise will immediately make the grade of a ``dream'' Budget.

As a matter of fact, Mr. Chidambaram is not particularly in an enviable position, hemmed in as he is, with demands from all quarters. At the top of his agenda, and that of the United Progressive Alliance Government, are the initiatives enunciated in the National Common Minimum Programme (NCMP). An indication that these programmes will be reflected in the Budget and taken up for implementation in a phased manner is clear from the detailed references by the President in his address to the Joint Session of Parliament.

Overlapping these programmes, in a way, are the development schemes evolved by the Prime Minister, Manmohan Singh, by way of urban development plan for 60 cities and the social development schemes outlined by the Congress president and the Chairperson of the National Advisory Council (NAC). For this, Ms. Gandhi has also indicated part provisioning of the resources required for implementation.

Resources required

Funding all these will require huge resources and to fund which, the Finance Minister will necessarily have to bank on fresh avenues of tax collection. In this exercise, the all-party Standing Committee on Finance has already provided the direction — the tax net for direct taxes has to be widened to bring more high-end tax-payers into the fold and innovative methods introduced to stem the evasion of taxes and increase compliance so as to meet the revenue collection targets set under the Fiscal Responsibility and Budget Management (FRBM) Act. To meet the targets, the growth in tax collection has to be to the extent of 22 per cent during 2005-06 and the next year.

However, considering that the budgeted targets for the current year are unlikely to be met under some heads, the Standing Committee's apprehensions of the Government failing to achieve the FRBM Act targets sound all the more realistic. And hence, the need for concentrated efforts to widen the tax base, check evasion by certain exempted categories and add more services into the taxable fold.

And last of all, but more important, are the policy prescriptions contained in the Economic Survey 2004-05 which, as always over the years, look at issues with the lens of an economist for further sustained and vibrant growth of the economy. In effect, the policy indications of the Survey in regard to the cut in the present scheme of subsidies to fund irrigation projects, opening up of more sectors to foreign direct investment (FDI) and hiking the current caps on others are all measures that are required to be implemented from the economists' viewpoint. But implementing some of them may not be politically feasible, owing to the UPA coalition's obvious compulsions.

`Vigorous efforts needed'

The fact remains that all these measures recommended by the Survey are required to be implemented as they are essential for meeting the NCMP objectives. Although the economy has seen robust growth in recent years, the Survey has noted that ``vigorous efforts are needed to accelerate growth of ensuring that the economy grows at least 7-8 per cent a year in a sustained manner over a decade and more and in a manner that generates employment so that each family is assured of a safe and viable livelihood.''

What is worse, ``it is doubtful that the targeted high growth can be achieved with the current levels of investment...Even after its increase in the last two years, the investment rate continues to be not only far below that in China and East Asia but also lower than that assumed in the Tenth Plan,'' the Survey goes on to say.

It follows, therefore, that the FDI opening up and labour reforms are married into the NCMP objectives for a necessary step-up in investments and any part implementation, owing to political pressures, will lead to a road to nowhere.

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Will Chidambaram win and retain friends?