labels: economy - general, writers & columnists, union budget 2003
Very nice, populist budget news
Kiron Kasbekar
28 February 2003

Mumbai: There's little you can find to quarrel about in the specific proposals in finance minister Jaswant Singh's Union Budget proposals for fiscal 2003-04. His stress on infrastructure, health, and a more sensible approach to personal taxation cannot be faulted, regardless of what the Mulayam Singhs of the world say - about the budget proposals being pro-rich and anti-poor.

When you see a proposal like health insurance for the poor and middle class, it doesn't matter whether a finance minister had elections in mind or not. It is definitely something the country needs. We need more proposals like it, and our politicians need to understand that good popular facilities can be sustained and expanded if we cut down on bad populist spending.

We hope Singh's optimism about controlling the deficit is proved right. Reduced tax levels for the automotive, IT, textile, tourism and other industries should boost their sales. What the government loses through lower rates it could recover through higher volumes. The big if will be the macro-economic situation.

Very sensible
One very sensible thing Singh has proposed is an attempt at debt restructuring. The offer to buy back high-interest loans to the states and their replacement by lower interest loans will, if successful, lop off a massive Rs 81,000 crore from the states' indebtedness. The downward trend in interest rates since disbursement of those loans makes this fair as well as pragmatic. We hope it works.

On the specific proposals, some people may say that he could have done a little better here and a little better there, with the surcharge on income tax, for example, or cutting excise on two-wheelers, or something else. But, look at it this way - a lot of things will become cheaper, from cars to walking sticks. So, if you still can't afford to buy a car, you can purchase a walking stick!

When a finance minister makes it a point to mention excise reduction on walking sticks (how much does the government get from excise on walking sticks anyway?), and says less about reducing fertiliser subsidies, he clearly has the coming state elections on his mind. But you can bet that this is exactly what any of the opposition leaders would do if they were in Singh's shoes. And today's people in power would be lambasting them for making the proposals.

You can't even complain that while cars become cheaper, driving them will become more expensive with the 50-paise per litre cess on petrol and diesel to fund the National Highway Development Project. After all we need better roads, which could actually result in improved fuel efficiency.

War? What war?
What may hit us really hard is not the 50-paise per litre cess but a whopping rise in crude oil prices if George Bush decides to ignore world opinion and the reports of the UN weapons inspectors and attacks Iraq. It would have been good if the finance minister had made some provision for such an eventuality. So you could well expect some serious mid-term corrections, including some austerity measures and high taxes if America goes to war.

Given the resource constraints the finance ministry has had to work under, there is little more that could have been done in terms of tax concessions. In fact, you might say that he may have given away too much with an eye on elections. And that has resulted in a high projection of the fiscal deficit, which may rise even higher, as is usual.

The danger here is the possibility of inflationary pressures being stoked again after many years of low inflation rates. If that happens, a second Gulf war and high crude oil prices may well become available as an excuse for the government's finances going awry. Privatisation, seen by some as a milch cow, may not work this year too.

Disastrous populism
If populist politicians, including leading lights in the ruling National Democratic Alliance, have stalled reforms like privatisation, it's nothing new. Populism has been the country's bane; it always gets the better of common sense.

When P V Chidambaram was finance minister in a non-BJP, non-Congress government, barely five years ago, his own alliance members stymied some of his most sensible decisions, including a review and slashing of government expenditure. This is an area that remains untouched since then. Even the BJP, with all its post-Gujarat bravado, doesn't dare to take this bull by the horns.

Another issue is taxation of agricultural income. It's been missed again, and it has again become a subject of some criticism. But think about it. When a majority of India's parliamentarians are elected from the rural areas, how do you expect any party to bell this cat? I guess we shall just have to wait for a time when the rural-urban population ratio gets inverted in favour of the urban. When will that be? Another two decades? Three decades?

There are a few other ways in which this issue can be tackled sensibly before we see such a shift in the population ratio. But we shall discuss that in another article.

Food? What food?
Meanwhile we continue to have the irony of a country in which millions of people starve while the government holds huge stocks (45 million tonnes) of food grains bought from public funds to appease farmers. In an interview with NDTV, the finance minister argued that to move 2 lakh tonnes of food he would need 20,000 trucks. Who would arrange those?

Sure, we need to tackle the poverty problem on a war footing; but we don't need to treat it like a war on our borders, where you need to suddenly transport everything in one single rush. The government could easily move the cargo in many rounds over many months. It could easily manage with, say, a thousand trucks making many trips. Cost: an average Rs.1,500 per trip? Rs.2,000? Should the cost be more than Rs 4-5 crore?

Forget the nitty-gritty calculations. Broadly whatever the government spends on disposing of these stocks would be neutralised by the savings it makes on the interest cost of holding them. The hitch is clearly not money. The hitch is that food distribution on a massive scale would raise wages in the rural areas, reduce local food prices, and make the government unpopular with the rich farmers.

The heavy and avoidable food grains procurement that successive governments have been doing to keep the farm lobby happy is also a major impediment in making Indian agriculture more competitive. Why should a farmer bother to shift to other crops or invest more when the government guarantees pick-up of whatever he produces, whether the country needs it or not?

So, while it is difficult to quarrel with what Singh has proposed, you cannot but feel sad that yet another finance minister has been unable to deal with the most basic and most urgent of our problems.

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Very nice, populist budget