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Besides
political realities and the Common Minimum Programme document, what he wrote
for our readers in recent months may be a guide to what his Budget would aim
for
INVESTMENT
As long as the investment to GDP ratio is stuck in the rut of 22-24 per
cent, there’s no way that the growth rate can be taken to a higher level of
8 per cent or more. That is plain and simple commonsense. No one has
invented a gravity-defying formula to make an economy take wings without
adequate investment.
So, look out for passages (in political manifestos) dealing with measures to
encourage savings, promote domestic investment and attract foreign
investment. For every promise to curtail government expenditure add one
mark. For every promise to open a sector to foreign direct investment or to
remove sectoral caps add two marks. Each time the document uses the word
swadeshi deduct one mark.
AGRICULTURE
Both parties (BJP and the Congress) are dominated by urban leaders. Both
have acquired a new breed of corporatised-politicians. This is a huge
disadvantage. Neverthel-ess, I hope that there are enough men and women in
the two parties who acknowledge that 70 per cent of the population lives in
rural areas, 70 per cent of the workforce is dependent on agriculture and
the agriculture sector contributes only 28 per cent to the GDP. The story of
Indian poverty lies in those three numbers.
The answer, in the short term, is to increase farm income and supplement
that with income from off-farm activities. This calls for huge investments
in dams, canals, water harvesting, irrigation facilities, improved seeds,
soil testing, better fertilisers and pesticides, storage facilities,
transportation and access to markets. If we can raise the level of
productivity in six agricultural products: wheat, rice, pulses, oilseeds,
sugarcane and cotton to the best-level in the world, we can lick poverty in
ten to twenty years.
The Ninth Plan (1997-2002) outlay on agriculture and allied activities was
Rs 42,462 crore out of a total Plan outlay of Rs 859,200 crore. This
included the Centre, the states and the Union Territories. As a percentage
that amounted to 4.9 per cent. In fact, in the last two years of the Plan
period the percentages were only 4.1 and 3.9. Over the Tenth Plan period
(2002-2007) the projected outlay is only 3.9 per cent of the total Plan
outlay, and in the first year (2002-03) it was only 2.6 per cent. Need more
be said about the concern of political parties and governments for
agriculture?
DISINVESTMENT/PRIVATISATION
The two words are not synonyms, yet they are frequently used
interchangeably. The intent is to confuse. No one has done it more
successfully than my friend, Arun Shourie. Just as the public sector became
an article of faith in the 1960s and 1970s, deconstructing the public sector
is being currently driven by blind faith.
If a public sector enterprise can compete and be successful in an open
market economy, we should let it remain in the public sector. All other
public sector enterprises must be privatised. Privatisation alone will
unlock the true potential of the company. Thus, while NTPC must remain in
the public sector, we must create more BALCOs, out of ailing public sector
companies.
If the (pre-election) document waffles about privatisation, deduct five
marks. If it contains a statement like we shall dilute the governments
shareholding in public sector banks to 33 per cent without altering the
public sector character of the bank, deduct ten marks. If it describes
disinvestment/privatisation as selling the family silver to pay the grocer’s
bill, dump the document.
INFLATION
The manufacturing sector loves inflation. Inflation is an excuse to push up
prices. Tax collectors love inflation because excise and customs revenue
targets can be reached without sweat. It is the common man who hates
inflation.
If the (pre-electoral) document betrays any tolerance for inflation, burn
it. If it does not contain a strategy to contain inflation, shred it. If it
is serious about keeping inflation below 3 per cent, read it. Look for
passages on controlling government expenditure. Will the number of
ministries/ departments at the Centre be slashed to no more than fifty? Will
the total number on the government rolls be reduced by at least 10 per cent
over the next five years? Will the revenue deficit be wiped out by 2009-10?
I know that the average voter is not only homo economicus. He or she is
swayed by other legitimate concerns and, sometimes, other irrelevant
considerations. But, just this one time, I hope he or she will vote as homo
economicus.
BUDGET NEXT
From agriculture to manufacturing to infrastructure to social justice, there
were (in Jaswant Singh’s interim-Budget) critical shortfalls in capital plan
outlay that is investments. Apart from slowing down current growth, there is
also the opportunity cost of not making the crucial investments in time.
Among the few ministries/departments that have outperformed the budget
estimates of capital plan outlay are the elementary education, petroleum and
natural gas, rural development and urban development.
Here is an opportunity for the Prime Minister to rate the performance of his
ministers call the minister and ask him or her why targets were not met, why
projects fell behind schedule. The Prime Minister may be surprised to find
that many ministers will be clueless. Despite six years at the helm of
affairs, the quality of governance under Mr Vajpayee has not improved. Among
the poorly performing ministries are defence (shortfall in capital
expenditure), home (deteriorating law and order), personnel (CBIs poor
record of convictions) and law (vacancies in high courts and backlog of
cases).
The interim budget is mainly a reiteration of the existing programmes. An
assortment of new programmes has also been announced targeting specific
voter groups.
Some are indeed reformist for example, the farm income insurance scheme, the
stamp duty reforms and the accelerated drinking water supply scheme for mega
cities.
Some are plainly populist such as the merger of dearness allowance with the
basic pay of government servants, the laghu udyami credit card scheme (for
small and medium enterprises) and the liberalisation of free baggage
allowance.
Many others are just announcements with no indication of the source of
funds. No funds have been provided for the agriculture infrastructure and
credit fund or the small and medium enterprise fund or the industrial
infrastructure fund. The Indira Gandhi canal project has been promised
innovative funding. The PURA scheme, a favourite of President Abdul Kalam,
has been provided a token allocation of Rs 1 crore.
The interim budget suffers from the usual weaknesses associated with the NDA
regime. It does not address the question of unemployment (nor does it repeat
the false claim of the Planning Commission that 83 lakh jobs per year were,
or are being, created). It does not explain the poor demand for investment;
nor does it propose any initiatives to attract investment. It does not
explain the rising trend in the rate of inflation. Unnecessary Spin: Let me
get back to the fiscal deficit. The budget estimates and the revised
estimates, as given in the budget papers, are not comparable. There is a
spin on two key figures: Recoveries of loans and non-Plan expenditure on
capital account. There is a footnote under each, but the footnotes confuse
than clarify. I have, therefore, eliminated the spin and taken the budget
estimates as the revised estimates under these two heads. The result is that
the fiscal deficit is Rs 139,195 crore rather than Rs 132,103 crore. This
translates to 5.05 per cent of GDP rather than 4.8 per cent.
MACRO WARNINGS
To quote the words of a (recent Reserve Bank of India) report:
• There is not yet adequate evidence of a clear increase in investment
demand
• Resource mobilisation by corporates in the primary market has actually
been lower during the year
• The fiscal situation still remains a cause for concern
• The tax-GDP (ratio) in the economy continues to be low
• As the revenue deficit is high, the burden of fiscal correction naturally
falls on public investment
• The public sector dis-saving, which began in 1998-99, has been rising over
the years.
You may well ask, what is new? Is it not the same boring list of old
complaints? Very true, but some day, some government will have to address
these issues.
THE POOR & REFORMS
Joseph Stiglitz is in India and has been in the news. Between 1993 and 1997,
he served on the council of economic advisors to US president Bill Clinton.
That period marked the dream run of the American economy. Mr Stiglitz was
awarded the Nobel Prize for Economics and the world outside began to take
note of his speeches and writings in much the same way that Dr Amartya Sen
is noticed in the country after he won the Nobel. What is Mr Stiglitz’s
message? Read his words: I believe that globalisation the removal of
barriers to free trade and the closer integration of national economies can
be a force for good and that it has the potential to enrich everyone in the
world, particularly the poor. But I also believe that if this is to be the
case, the way globalisation has been managed, including the international
trade agreements that have played such a large role in removing those
barriers and the policies that have been imposed on the developing countries
in the process of globalisation, need to be radically rethought.
What are the crucial elements of his message? Firstly, globalisation is good
and that it has the potential to enrich everyone. Secondly, it has the
potential to enrich the poor. Thirdly, the management of globalisation needs
to be rethought. And finally, the policies that have been imposed on the
developing countries need to be radically rethought.
What applies to globalisation applies with equal force to economic reforms
that we have undertaken. And what Mr Stiglitz has said about globalisation
has greater relevance to the way economic reforms are being managed today.
The World Bank and the International Monetary Fund are the targets of Mr
Stiglitz’s criticism. In our context, their places are taken by the Planning
Commission and the finance ministry. Between the two, they are implementing
a set of policies that have turned large sections of the poor hostile to
economic reforms.
Unless economic reforms enrich everyone (in India), particularly the poor,
more and more people will lose faith in the process that was started with a
bang in 1991. In our situation, I believe, the touchstone is whether
economic reforms have enriched the poor.
How do we do that? By putting money in their hands not through the doles but
by increasing their capacity and opportunity to earn more. According to the
Planning Commission, the number of poor in the country during 1999-2000 was
260 million. The question is, how much money has been put in the hands of
these 260 million people during the past five years?
Of these 260 million, 193 million lived in rural areas. It is safe to
presume that most of them were dependent on agriculture. Since 1999, the
monsoon has been dismal. The percentage of districts with normal/ excess
rainfall has been consistently low. It was 67 per cent in 1999, 66 per cent
in 2000, 68 per cent in 2001 and only 44 per cent in 2002. So, agriculture
could not have given the poor more income. Capital invested in the
agriculture sector could have, to an extent, compensated for the poor
monsoon. Public investment in agriculture, however, has also fallen during
the past few years. Up to 1996-97, it was always above Rs 4,000 crore a year
and investment in agriculture as a per cent of GDP was consistently at 1.6
per cent. Since then there has been a decline, and during 1998-2002 period
for which figures are available, public investment was only Rs 3,870 crore,
Rs 4,222 crore, Rs 3,919 crore and Rs 4,794 crore respectively. As a
proportion of GDP, investment in agriculture has fallen to 1.3 per cent.
The conclusion is that the government did not step up public investment in
agriculture and hence public investment would not have put more money in the
hands of the rural poor. Another way to put more money in the hands of the
poor is to ensure that they get jobs. They story of employment is equally
dismal. According to the Economic Survey of 2002-03, the rate of growth of
employment on current daily status basis declined from 2.7 per cent per
annum during 1983-1994 to 1.07 per cent per annum during 1994-2000. The
unemployment rate increased from 5.99 per cent during 1993-94 to 7.32 per
cent during 1999-2000. The absolute number of unemployed increased from
20.13 million during 1993-94 to 26.58 million during 1999-2000. There is no
evidence that either the unemployment rate or the number of unemployed has
declined since 1999-2000.
Yet the Planning Commission, in an unabashed and unprecedented political
advertisement, has claimed that the rate of growth of employment since
1999-2000 has jumped to 2.07 per cent and the number of jobs created has
also jumped to 87 lakh annually. For performing that miracle, (deputy
chairman) KC Pant deserves to be canonised!
PRICES, UNEMPLOYMENT
If the poor remain poor, and if their number is either stagnant or on the
rise, economic reforms will get a bad name. The number that matters to the
poor is not the GDP growth rate but the inflation rate. If the former has
touched 8.4 per cent in one quarter, please remember that the latter has
breached 6 per cent. Another number that matters is the rate of
unemployment, and that is well over 8 per cent. The golden quadrilateral is
important, but what matters to the poor is investment in all-weather roads
connecting villages to towns and markets. Cellular mobiles are indeed a sign
of progress, but what matters to the poor is a village telephone that works.
Foreign direct investment is vital, but what matters to the poor is
investment in agriculture and in urban housing that will get rid of the ugly
slums. Mr Stiglitz says in his book that his parents taught him to care and
reason. Who will teach those values to our governments?
POLITICAL GOODIES
I cannot complain about some announcements (made by Jaswant Singh) because I
have been demanding them for months. The peak rate of customs duty has been
slashed from 25 per cent to 20 per cent, and that is good. Excise and
customs duties on a wide range of goods have been reduced, and that too is
good. Cars will be cheaper, so will be air travel. The remarkable thing is
that nobody is complaining, not even domestic manufacturers who will now
face more intense competition. During the last 12 years, government,
entrepreneurs and the middle-class have arrived at a compact. Under the BJP-led
government, that compact has become stronger. The government will do things
from time to time to keep these classes happy. Urban markets will be stocked
with imported goods. Government spending will continue unabated. There will
be enough space for scams and scandals, and for making money. It is an urban
and middle-class driven strategy of so-called growth.
The disquieting aspect is that there is an unspoken consensus on this
strategy. Neither the Communists nor the Socialists nor the Dalit parties
nor the Dravidian parties are questioning the rationale behind this
strategy. Would the Congress have done anything different if it was in the
position of BJP and heading a coalition on the eve of Parliamentary
elections? I doubt it, because the Congress is as much driven by the urban
and middle classes as BJP is.
Let me take an example. The foreign exchange reserves are more than $100
billion, and they are increasing by the day. A dozen ideas on using the
reserves have been floated by economists. I have suggested several options
that deserve to be examined and acted upon. Not one Opposition party,
including the Congress, has seized the issue to present alternative ideas.
The finance minister gleefully waded into this pool of silence and announced
that anyone can walk into a bank, buy dollars up to $25,000 a year and remit
it abroad anywhere he likes, for whatever he wants, and no questions will be
asked. I am sure this brilliant idea was made at a Page 3 party!
The ostensible purpose is to create a demand for dollars and stem the
appreciation of the rupee. There are many ways in which this could have been
achieved, but none has commended itself to the government than allowing
$25,000 to be taken out anywhere for anything! The second round of sops
includes grand plans to set up a Rs 50,000-crore agriculture infrastructure
and credit fund and a Rs 10,000-crore small and medium industry fund;
provide cheaper credit to infrastructure and manufacturing industries; and
offer a special bond scheme for senior citizens. These are what they are
announcements. Mr Singh, more than anyone else, knows that the funds cannot
be set up in four weeks as promised and, even if set up, may not be
operationalised for months or years.
Some months ago, the government announced that it would give nearly Rs 2,000
crore to the states to be given to sugar mills to pay off sugarcane arrears
to farmers. Not one farmer in Uttar Pradesh or Tamil Nadu has seen the
colour of that money. Rural India and the poor have a way of discounting and
digesting these announcements. They know they are the fall guys in the
curious mixture of selfish politics and self-serving economics that passes
for a growth strategy. The only way they can show their anger against the
rulers is to vote out the ruling party in the elections.
They have done this with amazing regularity. While this is the rule in state
elections, the situation is different in an election to Parliament. Along
with bijli-sadak-pani (power-road-water) issues, some broader concerns weigh
on the minds of the voters. These include daily-grind issues like security,
crime and law and order as well as emotive issues like language, regional
pride and building a temple. What will play uppermost in the minds of the
voters of one state may not be so in another state.
GOOD POLITICS
It appears, though, that the broader the alliance the greater the chances of
success at an election. The 2004 Parliamentary elections will be decided by
the new generation of voters living in rural India. That voter was born
after 1975. He or she is semi-educated, unemployed (or under-employed) and
poor. Nothing has happened in the last few years or in the last few days to
lift his or her spirits. No political party has so far come out with a grand
vision to rescue the very poor of India over 300 million and give them a
decent life. Nor is there any strategy to help another 300 million find jobs
or occupations that will give them more income, a better house, access to
better schools and hospitals and a better future for their children.
Every wave of liberalisation seems to bypass 600 million people.
Liberalisation and economic reforms, if they must have meaning to this 600
million, must translate into more greenfield investments of which there has
been so little in the last few years. Secondly, they must create new jobs.
If the two leading parties, BJP and Congress, are serious about economic
reforms, before they stake their claim to rule the country, they should lay
out a well-researched and detailed plan to promote investment and ensure
job-creating growth. Both parties must express their readiness to engage
each other in a debate on these issues over the next 12 weeks. Absent such a
script and absent such a debate, the choice before the people will be
between Tweedledum and Tweedledee.
WHAT PEOPLE WANT
In my view secularism is a necessary political position, but not sufficient.
The aspirations of every class of people have travelled beyond secular
politics. Every class and every section demands a government that delivers.
The BJPs current position on governance is that it will deliver on matters
that concern the urban population and the middle-class. Hence, the golden
quadrilateral is more important than village connectivity. Hence, the
cellular mobile telephone will reach every village before water and
electricity do. Hence, tax collection from 25 million income tax assesses is
more important than job creation for 80 million unemployed youth.
Elections 2004 throw up a rare opportunity for the Congress and other
parties to present an alternative vision of economic reforms. The Congress
vision in 1991 for heavens sake, please read that manifesto again was a
dramatic break with the past. That was the starting point of a fresh
adventure that has taken India not all Indians to new heights. The next
path-breaking vision must be aimed at taking all Indians to new heights. Who
will be the author of the script for a brave, new India: Mr Vajpayee or Ms
Gandhi? |
