the end Mr. Chidambaram could not resist the temptation
of doing some bean counting, and dwelt at inordinate length
on a plethora of minor tax and spending changes that he
could very well have left for his fellow parliamentarians
to glean from the budget papers. But despite that the
basic philosophy that guided him in the preparation of
the budget came through loud and clear.
the economy doing very well, tax revenues buoyant, and
the revenue and fiscal deficits both decisively on the
way down there was no need to take any decisions that
would either affect the political stability of the government
or ruffle the feathers of the public.
this 'don't rock the vote' approach, the finance minister
has done some welcome fine tuning the peak rate
of customs duty has been brought down from 15 to 12.5
per cent and most duties on raw materials have been brought
down much further and excise duties have been made to
converge further on the median central VAT rate of 16
per cent. The government intends to intensify its direct
assault on poverty by increasing the allocations for and
its eight pronged Bharat Nirman programme.
he has attempted to ease the plight of farmers by lowering
interest rates on crop loans and farm credit, and of the
aged poor by increasing the central pension from Rs75
Chidambaram's approach would have been irreproachable,
if the economy had been in even a semblance of balance
already. But it is far from being so. The budget therefore
needs to be measured against a second yardstick
to what extent has it sought to remove the structural
flaws in the economy and in the centre's finances so that
the economy can achieve its full potential. By this yardstick
the budget has done absolutely nothing.
is true that the share of investment in the GDP has risen
by a quarter from 25.3 per cent in 2001-02 to 30.1 per
cent in 2004-05. But the increase is entirely in the private
sector. Private investment is going into industry, trade,
services and housing; only a small part has gone into
infrastructure and that has been confined mostly to the
telecommunication and ports sectors. This boom in private
investment is not only continuing but gathering strength,
but it will prove short-lived if the infrastructure continues
to deteriorate at the present rate.
is aware of this and has sought to dispel fears by emphasising
the government's achievements in this field. But to do
so he has cited absolute figures and carefully refrained
from comparing these with the country's actual needs.
For instance the installation of 35,000mw of power generation
capacity in the 10th Plan 7,000mw a year
is indeed a record. But in terms o the country's needs
it does not compare with the 4,000mw a year that was installed
during the Seventh Plan. Between 1985 and 2005 the economy
has almost quadrupled in absolute size and the demand
for electric power has grown even more rapidly. To equal
the Seventh Plan's achievement the installed capacity
should be going up by closer to 9,000mw a year. The truth
is that even at 7,000mw a year investment in power generation
continues to fall behind the country's growing needs.
The situation with regard to roads is infinitely worse.
The decline in the revenue and fiscal deficits is also
good only on the surface. The more than 7.5 per cent growth
of GDP in the past three years has imparted a welcome
buoyancy to tax revenues. This has allowed Mr. Chidambaram
to bring down the revenue deficit to 2.6 per cent and
the fiscal deficit to 4.1 per cent of the GDP.
as in the case of infrastructure these figures only draw
our attention away from the fact that for years this and
its predecessor government have been running a Ponzi scheme
borrowing to service past borrowing on a
truly grand scale.
is because, as the budget documents show, debt serving
now exceeds the entire current revenue of the central
government. Mr. Chidambaram is therefore borrowing
not only to finance development expenditures but also
to pay the salaries and pensions of the central government's
last three year's revenue growth has eased this crisis
somewhat so much so that if all goes well the government
will at last be able to pay all of four crore civil servants'
salaries out of its own money. But one would have to sustain
a 7.5 per cent growth rate for 50 years to get to the
point where even the entire salary and pension bill can
be met from current revenues.
only way to do this, and allow borrowed money to be actually
invested in roads, ports and power plants, is to cut back
the government's non-development expenditure drastically.
This means cutting government subsidies, notably on fertilisers
foodgrains and petroleum products. But on this Mr. Chidambaram
has said not a word.
he implemented the Rangarajan panels' recommendations
on petroleum product pricing alone, he would have raised
for the exchequer without putting any significant burden
on the public. But faced with the Left's obduracy on the
issue of subsidies he has chosen discretion over valour.
The author, a noted analyst and commentator, is a former
editor of the Hindustan Times, The Economic
Times and The Financial Express,
and a former information adviser to the prime minister
of India. He is the author of several books including,
The Perilous Road to the Market: The Political Economy
of Reform in Russia, India and China, and
Kashmir 1947: The Origins of a Dispute, and a
regular columnist with several leading publications.