Budget Views 2001

It was a bold budget. Yashwant Sinha's current budget has attempted to break new path after the first budget of Manmohan Singh in 1991 and P Chidambaram's in 1997. If one remembers that his predecessors also suffered the disabilities of a party leading the government not enjoying a majority, there is scope for Sinha pushing through the bold reforms he has proposed.
Industry is understandably euphoric. Business leaders have freely admitted they couldn't have asked for more. While CII's Tarun Das liberally provided nine out of ten for Sinha's budget, there were a few who even awarded ten out of ten.
Only a couple of days earlier the Economic Survey presented to Parliament painted a rather grim picture of the economy slowing down, growth in industrial production dropping, agricultural production not picking up and inflation at 8.4 per cent, nearly double the level a year ago. So expectations were modest.

With government expenditure ballooning with little control over big tickets like interest payments, major subsidies, defense, salaries and pensions of government employees and with revenues not increasing at a rapid rate, the government had to resort to increasing quantum of borrowing. There was every sign of getting into a debt trap: against total revenue receipts of Rs.206,166 crore for 2000-01 (revised estimate), debt servicing amounted to Rs.228,955 crore (repayment of debt of Rs.128,288 crore and interest Rs.100,667 crore). Another Rs.112,000 crore was borrowed during the year to meet with essential expenditure. Total public debt stood at a staggering 12 lakh crore rupees: it had grown more than fourfold in ten years.
The targets for disinvestments fixed through the last few years have been found to be far in excess of the actual amounts realised (it was just Rs.2500 crore for 2000-01 against the estimated Rs.10,000 crore).

Viewed in this light, the measures proposed by the finance minister were indeed refreshing. Look at some of these:

Exemption of investment in primary issues from capital gains tax?
Dividend tax to be cut by half to 10 per cent
Liberal tax holiday for core industries, airports/ports, SEZs...
FIIs investment limit in domestic companies raised to 49 per cent .
Accelerated depreciation of 50 per cent on commercial vehicles for one year (This suggestion was made by us three years ago when the commercial vehicle industry was through a serious recession. One may hope that this, combined with a handsome reduction in excise, will help in reviving the demand for CVs).
Surcharge on corporates, except the quake surcharge of 2 per cent, to go
8 per cent special excise duty abolished on several items like cars, two wheelers, soft drinks…
Excise duty rationalised to a single Cenvat of 16 per cent
Interest rates on small savings cut by 1.5 per cent. This will lead to lower interest burden for the state and Central governments and to lower interest rates from banks and FIs.
Central staff to be reduced by 2 per cent per year
Banking Services Recruitment Board to be abolished
SICA, Company Law to be amended
Industrial Dispute and Labour Acts to be amended. This would facilitate the rigours of downsizing by companies, limiting the existing rigid conditions only to companies employing more than 1000 (which seemed to tackle the problem of retrenchment more adroitly. eg, HLL, Simpson & Co, Alstom...)
Liberal loan facilities for higher education.
Housing and infrastructure investments to be encouraged through special incentives.
These proposals have improved market sentiment tremendously. The direct tax proposals are estimated to result in a revenue loss of Rs.5500 crore; even after adjusting the effect of proposals on indirect taxes, the finance minister indicated a net give-away of Rs.2951 crore. No wonder business leader after business leader showered encomiums. Happily, the rapid widening of the tax base is resulting in buoyancy of tax collections.

Fine. Several of these measures will go a long way in improving sentiment and the 'feel good factor' so much desired by Sinha. But the crucial element is the effectiveness of the government in translating the policies into imple-mentable schemes. In this the record of the Vajpayee government has not been too reassuring. Look at a couple of instances:

Finance minister Sinha announced the intention to constitute an Expenditure Reforms Commission (ERC) in Budget 1999. Exactly a year later, he announced the constitution of ERC for a one-year term. After another year, Sinha announced his intention to implement the reco-mmendations relating to just six ministries. Remember even now decisive action has not been initiated and the measures are bound to meet with stiff resistance.
In regard to the price and distribution control mechanism for products like petroleum, fertilizers, sugar, drugs and pharma-ceuticals, the road map had been provided years ago. Still progress has been painfully slow. It would make for a lot more sense for the government to get out of many of these, like price and distribution control of fertilizers and sugar when production is high and
demand manageable. Still the di-thering continues.
The disinvestment plan continues to be a disaster. While Sinha assured a year ago of completing the process relating to several PSUs, notably Indian Airlines and Air India, it had taken the whole of 12 months to sort out procedural issues. There is a good deal of transparency, which is welcome but look at the shortlisting of bids for IA limited to the Hindujas and Videocon. The record of either in regard to entry into power sector has been extremely unedifying. After five years of big promises, Videocon had abandoned its power project at Ennore. After six years Hindujas are still dithering on the 1000 MW 'fast track Visakhapatnam project. Add to this their serious problems with the Bofors scandal. And Vajpayee Go-vernment's difficulty of building consensus, even among NDA partners, on disinvestment. eg, BALCO and Maruti. The Indian polity has not evolved to a level of maturity that will transcend purely political diffe-rences. Look at the ease with which Manmohan Singh, Madhavarao Scindia or P Chidambaram, considered ardent champions of reforms, oppose any and every move purely
on political considerations.

Sinha has taken bold steps to even think of reforming food procurement and distribution; he has talked of removing controls on movement of food grains, on transferring the task of food procurement, storage and distribution to the states. But the states may not just agree.

Prime Minister Vajpayee and Sinha should spend lot more time building consensus on major issues. Narasimha Rao did this effectively in the initial era of reforms through his dinner diplomacy. Sadly, the BJP leadership doesn't seem to do this effectively even among the constituents of the NDA. And the National Development Council meets but rarely.

With the services sector contributing to an increasing share of the GDP, it was widely expected that the scope for service tax would expand. The finance minister has just done that. A large number of services has been brought under the service tax regime.

The finance minister has kept fiscal deficit to the targeted 5.1 per cent - a tremendous feat unknown in recent years. He has targeted this at 4.7 per cent for the coming year. With two years of low growth in agriculture it is quite probable that agricultural sector can contribute much more to the growth rate in the coming year. Sinha has attempted to stimulate industrial growth by a wide range of concessions. A consistent high rate of growth of over six per cent through the Nineties has beneficially impacted on poverty alleviation. Through the last six years, the number of people below the poverty line is estimated to have dropped by nearly 10 per centage points to around 26 per cent. Especially in this context efforts to stimulate growth to over 7 per cent per annum is well-worth attempting. The finance minister deserves kudos for trying this.
Last year Sinha made a feeble attempt at reducing the number of government departments. This year he has promised to do more, promising to begin with austerity measures in his own ministry. But look at the traversty: the NDA government has the largest ministry. Vajpayee has unfortunately taken Kalyan Singh as his role model rather than Janata government's Morarji Desai, who had a star-studded 20 member cabinet that included Vajpayee. His jumbo cabinet has more than half its incumbents left with little or no work. Remember each minister brings along with him a horde of assistants, both at the secretariat and at the household. Austerity should really begin at the PM's end.

S Viswanathan