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June 2, 1998


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'In one sentence, this is an absurd Budget'

Ashok Mitra

If I have to sum up in one sentence, I should say this is an absurd Budget. A Budget should be a statement on the country's economic trends and the governments intentions about how to influence these trends. But Yashwant Sinha's Budget does not say a thing about which direction he wants the economy to move. There is no reference to actual or postulated rates of saving or capital formation, or to any projections with growth in agriculture and industry.

There is no reference to the balance of payment situation and how developments in external economic accounts are to be tackled. Nor is there a SINGLE reference to the prospects with respect to prices and inflation control.

I reach the following conclusion after listenting to the finance minister for what seemed to be two interminable hours:
a. All notions of swadeshi are successfully buried. Various measures including amendments to the Foreign Exchange Regulation Act, the Stock Exchange Act and financial reforms aka the M Narasimham Committee report are intended to make life easy for potential foreign investors. To these are added lollypops thrown towards the direction of the NRIs.
b. Partly to balance the picture, there is an attempt to placate the so-called Bombay group, such as the number of import duties proposed, for example, to protect the steel industry, the paper industry and the small-scale sector. Some adjustments in excise duties will also help the domestic industrialists who are already in the field. But the finance minister has not a clue about how to energise either the supply schedule or the demand side pertaining to the industrial process.

No reference at all to the monetary policy or the interest rate structure. Stray items are mentioned about an additional outlay in the public sector for 'n' number of infrastructural activities and some tax holidays offered to the private sector for specfic investments. But these are in the nature of spraying with a shotgun rather than aiming with a rifle.

Let me sum up my point of view. Of course there are descriptions of fresh allocations for agriculture as an industry. But this is standard practice with all finance ministers. Manmohan Singh did it, so too did P Chidambaram. Some of these programmes are implemented haphazardly on the proposed allocations do not finally come to be made at all. And what leaves one all together uncomfortable is a lack of perception about what the totality of the proposed activities is going to lead to.

There is an explicit and overt attack on the public sector. The government has served notice through this Budget that the public sector is being prepared for public hanging and it does not really at all bother the government about the impact of such a decision on either production and employment.

The second very explicit impression the Budget leaves is the anxiety to join the brigade of populism. The overall deficit could be as high as 8 per cent of GDP in 1998-99. But the FM does not lose any sleep; he proceeds to raise the general exemption limit from income tax, which will please the middle class no end. This act, of what I would say is gross irresponsibility, is accompanied by the heroic statement that he will at one go raise the number of income tax payers by 50 per cent. The two statements cannot be reconciled.

The RBI is supposed to follow the broad guidelines set for it by the government. If the government keeps mum, the nation's central bank will not know which direction to turn. In fact, it is one of the implicit obligations of a budgetary exercise, whichever the country, to present a rounded picture of the targets and instruments of over all economic policy. And this will cover both fiscal and monetary instruments.

You cannot have a set of monetary measures that run counter to the fiscal measures proposed. There must be coherence within the two sets of policies. Sinha has exonerated himself from this responsibility by simply ignoring his obligations towards macro-economic analysis and projections.

This, I feel, is a Budget with zero message. The only message, perhaps, is that the government is rattled by the Pokhran explosions and is not at all sure what consequences it will have for long or short term capital inflows. It also does not dare conceal its nervousness about a kind of repeat of the currency speculation as took place in Indonesia in the Indian context.

The Budget therefore is an essay in verbosity, but which does not pinpoint the government's responses to the major issues that concern the economy. In other words, this government has made up its mind that its role that its role is only to live for the day and hope for the best for tomorrow.

I will add a last point. Both at the beginning and towards the end of this extraordinarily long Budget speech, the finance minister has indulged in rhetoric of a familiar kind -- the poor in India are supposed to be the main inspiration for all that is contained in the Budget document. But although there's a reference to a need for augmenting primary education and the supply of potable water in the countryside, the question of protecting and expanding the PDS claims no space anywhere in the Budget speech. Prices rise across the board in the country, the poor has the option to die quietly in a gentlemanly manner.

Foreign investment, I do not think, would go up. The kind of lollypops that the FM has given will not impress the average foreign investor who is prone to look at the totality of the political and economic situation before deciding to risk his capital in any overseas venture. The finance minister's faith in NRIs also amuses me no end. Going by their record during 1991, they will be the earliest lot to desert a sinking ship.

Ashok Mitra, economist, former finance minister of West Bengal and Marxist MP, spoke on the Rediff Budget Chat.

Budget '98

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