Remember the game that little girls played? “He
loves me, he loves me not, he loves me...”. I found
myself doing a similar thing while trying to
understand Mr. Pranab Mukherjee’s Budget: “He’s done
well, he hasn’t, no he has, but he hasn’t...”. At
the end of it, my views are best expressed in three
words: “confused”, “worried” and “hopeful”.
I am confused because I haven’t got an overall sense
of this Budget. This is the first Budget of a new
government that does not have to live with the
idiosyncrasies and obduracy of the Left for its
sheer survival. While this need not require making
grand reform promises akin to Eugene Delacroix’
Liberty Leading the People, it is fair to expect
clear statements of intent about the direction of
economic and fiscal reforms. Yes, the Finance
Minister inserted clever caveat in the sixth
paragraph of his speech by saying, “Members would
appreciate that a single Budget Speech cannot solve
all our problems, nor is the Union Budget the only
instrument to do so.” Even so, I expected more
specifics on the direction of reforms.
Such as saying, “I propose to return to the targets
set by the FRBM Act from the next year, and hope to
eliminate revenue deficits by 2012-13, and keep the
centre’s fiscal deficit to no more than 2.5 per cent
of GDP” instead of making an open-ended statement
like “I intend to return to the FRMB target for the
fiscal deficit at the earliest.” Equally, I was
looking forward to clearer statements of intent,
such as: “In a country where well over a fifth of
the population live under the poverty line,
inclusive growth requires large and sustained public
expenditure programmes. But they also need to be
funded — not by large, persistent and unsustainable
fiscal deficits, but through growing tax and non-tax
revenues.” That would have created a wonderful
platform for outlining the broad contours of fiscal
reforms and disinvestment.
It is not as if Mukherjee didn’t touch upon reforms.
He did so with a feather touch — almost tangentially
as it were. Rationalising urea subsidies is couched
as the need to “move towards a nutrient based
subsidy regime instead of the current product
pricing regime”. Dismantling administered pricing of
petroleum products is stated as setting up “an
expert group to advise on a viable and sustainable
system of pricing of petroleum products”.
Disinvestment is positioned in terms encouraging
“people’s participation” in public sector companies.
Nothing was said about increasing foreign investment
limits in insurance to 49 per cent, or further
reforms of pension and financial systems. Indeed,
the only instance of a clear deadline was his intent
to release a Direct Tax Code for discussion within
45 days, and introduce a Direct Tax Code Bill in the
winter session of Parliament — which suggests that
he wants to clean up the surfeit of tax exemptions.
What then should one think of Mukherjee’s reform
intent? A canny operator who will undertake most
reforms under his bailiwick, but doesn’t want to
make too much of it in this, his first Budget? A
person who likes to operate under the radar, build
consensus, and then strike at the right time? Or one
who is not yet sure of the political grounds on
which his party stands on — and thus the rectitude?
Hence my confusion.
I’m worried about the size of the centre’s fiscal
deficit for 2009-10, which is estimated Rs.400,996
crore. That’s 23 per cent higher than the bloated
revised deficit for 2008-09, and is 6.8 per cent of
India’s expected nominal GDP. Mukherjee has also
given the states permission to borrow up to 4 per
cent of GDP. Thus, we are looking at a combined
deficit of 10.8 per cent. Add another 0.5 per cent
on off-budget items, and the number is 11.3 per
cent. That’s large, coming as it does after 2008-09.
Eventually, the deficit ratio may be less because of
higher growth. But that’s an assumption — one which
Mukherjee calls his “calculated risk”. I am also
concerned about the nature of this deficit. Much of
it is government consumption, which tends to be
addictive. It is never a good idea to allow
diabetics to dip their hands in candy jars.
I am hopeful because Mukherjee is a pragmatic man.
He knows that his government has to divest shares of
public sector companies; must garner more non-tax
revenues; and must increase effective tax collection
— not only through buoyancy, but also by better
enforcement and removal of myriad exemptions. He
knows full well what deficits can do. And why he
can’t have expenditure-driven inclusive budgets when
the effective corporate tax rate is just 22 per
cent. So, I think he will do what needs to be done.
Or at least, I hope so.
Ella Fitzgerald used to sing, “Bewitched, Bothered
and Bewildered”. Let me croak, “Confused, Worried
Published: Business World, July 2009