Finance Minister Pranab Mukherjee has already had
his ears full of advice from industrialists,
bankers, economists and others — through newspaper
articles, TV channels, consultative meetings and
quieter conversations. By the time you read this
piece, the broad contours of the Budget will be in
place. What will be left are the final numbers, Mr.
Mukherjee’s flourishes to the Budget speech, and the
odd proposals that invariably find their way at the
fag-end of the exercise.
As everyone has guessed, this Budget will reflect
all the key economic elements the President’s speech
to Parliament. The leitmotif is inclusive growth. As
I have written earlier in this column, the greatest
governance challenge is to reduce the massive
disparities and inequalities in growth: between
rural and urban; and between the north, west and
south on the one hand, and the central, south east,
east and north-east on the other.
A key element of inclusive growth will be larger
outlays on the national rural employment guarantee
scheme under the NREGA. Yes, the performance of the
NREGA leaves much to be desired. There are leakages;
money often goes to the rural mafia instead of the
intended beneficiaries; and the scheme is worst
implemented in the poorer districts which suffer for
abysmal administration. It is also true that giving
a dole to a person below poverty line for 100-days a
year does not help create the rural infrastructure
that could eventually lift her or him above poverty.
Even so, the NREGA is an important tool to give some
source of livelihood to the poor, and it should be
expanded. Equally, I hope Mr. Mukherjee will dangle
a carrot — such as increasing the outlays for those
districts that have used the funds more effectively
The other elements of inclusiveness involve kick
starting the Bharat Nirman programmes. These are
huge projects. Just to give a flavour, these involve
• Roads to over 38,400 villages, plus almost 21,000
lesser habitations in hilly and tribal areas.
• Telephone connection to almost 67,000 villages.
• One crore hectare of irrigation: six million
hectare from major and medium projects; three
million hectare for ground water development; and a
million hectare for minor irrigation projects.
• Water supply to over 55,000 uncovered habitations;
plus potable water for almost 217,000 villages.
• 6 million rural houses at the rate of 1.5 million
• Electricity for 125,000 villages.
It is quite possible that these ambitious targets
will not be achieved. But this government has come
to power by promising hope of a better tomorrow.
This can only happen by significantly improving
rural infrastructure. Therefore, Bharat Nirman will,
and must, get the pride of place in the country’s
governance. That will require sustained funding,
matched by good implementation.
The list can go on. Education. Rural health. Rapid
acceleration of national highways, which was
comprehensively destroyed by the previous minister
of Surface Transport. Ports. Airports. And power,
where the peak deficit for 2008-09 was over 12%;
where of the total target of 11,000 MW for capacity
addition during 2008-09, only 3,500 MW was achieved;
where ‘Power for All’ entails building a generation
capacity of at least 200,000 MW by 2012 from the
present level of 147,715 MW.
Therefore, expect large outlays in Budget 2008-09.
Given that tax revenues won’t be very buoyant up to
the first half of the year, expect the Centre’s
fiscal deficit to be around 5.5% of GDP.
You can also expect some reform measures. I would be
looking at a divestment target of around Rs.20,000
crore to Rs.25,000 crore; a clear intent to increase
foreign direct investment in insurance to 49%; to
reform the pension scheme; to announce programmes
for raising FDI in key sectors. If I were to hope
even further, there could be the end of the
securities transactions tax and the fringe benefit
tax. There may even be some cleaning of the tax
regime, by getting eliminating all exemptions that
are due for expiry; and by getting rid of the
surcharge and, instead, raising the maximum marginal
income and corporate tax rate to 35%.
These should soothe markets and establish the reform
credibility of this government. But these won’t get
the deficit to below 5.5% of GDP. Mr. Mukherjee,
therefore, will have to bet on what the ‘bicycle
theory of deficits’. If you cycle fast, you won’t
wobble and fall. Similarly, if you grow fast enough,
you can handle a higher deficit in the short run.
With the hope that growth and revenue buoyancy will
soon come into play, when fiscal rectitude can also
The bicycle theory is dangerous. Politicians and
bureaucrats love deficits, just as diabetics love
candy. So, while I won’t begrudge Mr. Mukherjee his
one fling with 5.5% deficit, here’s warning: “Beware
of keeping the purse open. It can be looted before
you can say ‘Raja Rammohan Roy’”.
Published: Business World, June 2009