All We Need is Prudence

Illustration: Mayanglambam Dinesh

THE UNION Budget as originally envisaged under Prime Minister Jawaharlal Nehru was meant to be a platform to announce policy. Today, it has become a process of accounts. For years, new institutions were set up and policy direction was dominant. Now, as India awaits its 82nd Annual Budget, one is forced to ask: how relevant is the budget making exercise to the economy when much of the contentious and key policy making happens outside of the document?

Is India’s Budget becoming more and more remote from its ground economic realities? In the very way it is made now, the Budget is left with only a few, albeit important, issues that concern the Centre, especially the fiscal deficit. Beyond that, most economic decisions are being taken in the periphery of the Budget document, often at the state level, and these are the real inflection points for the economy going ahead.

Though the Budget may not be a policy document, it cannot be absolved from giving direction to the economy. Perhaps, we have become attuned to deciding the Budget’s success by how it tinkers with taxes. Is the idea of the Budget becoming merely about how companies may or may not benefit? Is it really relevant to the aam aadmi in terms of how their economic standing will improve? More importantly, can it heal economic injury by a meticulous approach to social spending? India’s image is determined no longer by its growth rate, but by policies and intentions that support equity in wealth and improvement in people’s livelihood. As Vindi Banga, a former Unilever president and now with private equity firm Clayton Dubilier & Rice, points out, “Most global investors are interested in governance, the political situation, institutions etc, as these correlate strongly with sustainable economic performance. A few are concerned with broader social parameters and environmental issues.”

Let’s pick a few key issues. In agriculture, growth is dismal and scores of farmers have committed suicide. Those who are still struggling explore jobs as casual labour and get sucked into urban poverty. The Budget last year tried to bring in fresh investments, but that was too little to resuscitate the sector. We need almost a revolution to transform agriculture. “The reform process has bypassed agriculture, and the high inflation reflects the under-performance of the sector. Budget after Budget, there are only small steps,” says Crisil’s Chief Economist DK Joshi. “We need a shake-up like the green revolution to change the picture.”

Infrastructure, too, is facing a massive identity crisis. There are problems in public services, lack of incentives for the private sector to invest, and little by way of execution. Public services are caught in bureaucratic tangles. The public works departments responsible to lay roads, as is widely known, have huge incentives to ingratiate themselves with tender applicants, and because of the inefficiencies involved, the funds for what was envisaged as the original project even lapse at a later stage. Such procedural issues infest state electricity boards and water boards, which were created to develop public projects, but have no systems to ensure that they perform.

“You cannot separate the water from the pipe,” says Vinayak Chatterjee of Feedback Infrastructure. “Outlays don’t make sense without institutions to implement the plans. It’s not enough to allocate resources when the delivery mechanisms have problems.” This is true not just for roads, but also for water supply and sanitation. “Even the JNNURM (Jawaharlal Nehru National Urban Renewal Mission) faces severe challenges.”

Indeed, merely adopting a well-intended approach and spending money do not guarantee good results. This is even truer for game-changers like healthcare and education, for India to ultimately reap the benefits of the demographic dividend — a young population. In the past, the government has been successful in creating institutions like the Infrastructure Development Finance Company (IDFC) and the India Infrastructure Finance Company Ltd (IIFCL) through the Budget.

The real issues stalling the economy lie outside the Budget. Compared to what it was decades ago, today the Budget seems toothless. A few programmes for climate change projects may be a step in the right direction, but a bigger issue is that of the sustainability of the environment and the functioning of industry within such parameters for equitable and balanced growth. Centre-state issues concerning the environment are yet to be resolved, which often derail industry. Every time a project is proposed, it gets stuck in a maze of ad hoc approvals, far removed from clear-cut policy guidelines. Though Environment and Forest Minister Jayanthi Natarajan held a press briefing to prove that her ministry has not been a stumbling block to development, the fact that the policy is nebulous threatens environment protection and equal rights to those who give up their land for development, as well as leaves industry disillusioned.

THE REASON for the Budget’s existential crisis is that policy and factors of growth outside of it have become increasingly more critical. “Issues like land acquisition, where regulatory processes and investment norms are involved, are more in focus now,” reminds Abheek Barua, economist with HDFC Bank. “A balance between public policy finance and some of these issues is becoming important.”

Over the past few years, the Budget has moved far from how Nehru had envisaged it. Even if you consider the numbers, majority of the Budget consists of salaries and pensions, government debt and interest payments on it, leaving the government with little room for manoeuvre in allocating the rest of the expenditure. The fiscal deficit is already close to 5.9 percent of the GDP, and adding the states and off-balancesheet items, the overall deficit can touch 9 percent. The government’s aim to bring this down to 4 percent within three years seems like a distant dream, unless taxes are raised, subsidies slashed and slices of other expenditure chucked. None of this is likely to happen given the elections are round the corner.

From being a proud population hoping to grow with the economic curve, Indians have turned disillusioned with what defines our economic prosperity. India’s perception has been eroded not just for the champagne-clinking global honchos at Davos, but most importantly, within the country. Even as one stares at the 2014 General Election, P Chidambaram’s Budget needs to look beyond appeasing just a section of the people. It needs to steer clear of heroics and focus more on the fundamental tests we face. We tend to forget that more often than not — as the bulging stock market proves — money is chasing India for short-term returns, and it doesn’t matter whether these investors are pleased or not. What we need to attract is long-term finance, which depends on the growth in India’s social infrastructure, besides economic revival.

Last year, then finance minister Pranab Mukherjee had quoted Hamlet in his Budget speech, “I must be cruel, only to be kind.” The Budget doesn’t have to be either. What we need is a prudent budget that can help keep the economy steady and alleviate sluggishness.

Indranil Pan, chief economist of Kotak Bank, says he does not expect Chidambaram to wave any magic wand. Given the flip-flops in policy making, rollbacks and a dent in India’s image as a growth destination, experts know that sometimes no news is good news. “Even as Chidambaram talks of impetus to growth, the best our country can bargain for is economic stability.”

Is it time for India to rethink how and what the government presents in the Budget? Can it go beyond just being an account to becoming accountable?

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