labels: Prem Shankar Jha
Populism runs riot news
06 July 2009

Under the pretext of stimulating the economy he has  presented one of the most populist budgets that the country has ever known. By Prem Shankar Jha

Had this been a normal year; had the  GDP been growing at 8 per cent and the government's tax  revenues at  25 per cent a year, one could have given the budget for 2009-10 a cautious welcome.

For as in every year since 2005, the UPA government has concentrated on streamlining the tax system, simplifying payment procedures and  relying upon the spontaneous growth of tax revenues to cover a truly  massive increase in social spending.

Unfortunately, this is not a normal year. By the CSO's  preliminary estimates  the growth rate has fallen from 9 per cent in 2007-8 to 6.7 per cent. Based on  predictions  that growth could rise marginally to over 7 per cent in 2009-10, and  signs of life in a few sectors of industry, the government   has assumed that the worst is over and it can go back to business as usual once more.

Nothing could be further from the truth. To begin with, the 6.7 per cent figure  is hugely misleading. Fully 1.9 per cent out of it  is accounted for by a 13.5 per cent spurt  in  'community, social and personal services', which is no more than the  increase in the salaries,  pensions and arrears paid out to  civil servants after the implementation of the sixth pay commission's report.   

Only a quirk in the way the UN system of ;national accounts' was set up in 1948, allows us to count an increase in the salaries of civil servants as a real increase in the national income. If we deduct this to make the 2008-9 estimate comparable with those of previous years, then growth has slipped from 9 per cent to  4.8 per cent.

The outlook for this year is even more bleak. Growth fell in the second half of the year to 5.8 per cent. But this is also the period in which all of the salaries and arrears that pushed up GDP in the services sector were paid out. Thus the true growth rate from October 2008 has been not 5.8 but a shade over 2 per cent (with 1.6 per cent growth in agriculture and 2.4 per cent in industry this should not be too surprising). 

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Populism runs riot