Interim Budget: A Tale of Delayed Policies
An interim budget by an interim finance minister, in the midst of a global financial meltdown, is surely an extraordinary event by itself. No wonder then that all of us who were waiting with bated breath for an immediate solution to the country's economic crisis were sadly let down.
It was inevitable, given the constraints of the situation. The fact is that constitutional priorities did not allow External Affairs Minster Pranab Mukherjee, who presented the interim budget, to announce any dramatic tax relief measures to help the beleaguered "aam aadmi" - the average citizen. But the question being asked is, was it not possible for him to have taken his own argument about "extraordinary economic circumstances" to the logical conclusion and present a package to revive the economy?
Unfortunately, the problem is that any vote on account is always treading dangerous ground. In case the government had decided to go for some clear sops to specific sectors, there would have been much clamour against them by the opposition. And there would have then been the consequent difficulty of getting the vote on account passed by parliament.
In case it was not passed, the government could have actually faced the embarrassment of having the entire administration come to a grinding halt on March 31. One must concede that even the opposition may not have liked to subject the country to such a crisis, but such possibilities always loom on the horizon when the government of the day oversteps its constitutional boundaries.
In the event, Mukherjee presented a bald statement of the United Progressive Alliance (UPA) government's achievements over the last five years. It had none of the oratorical flourishes of the former finance minister P. Chidambaram who peppered his speeches with Tamil and Sanskrit poetry and invocations. In fact even Prime Minister Manmohan Singh, who held the finance portfolio between 1991 and 1996, has always ended his budget speeches on a lyrical note. Mukherjee, however, was utterly pragmatic and relied on no such props. In fact, his litany of the UPA's achievements ended up being somewhat boring and lacklustre.
As for the content, he may not have addressed the major issues of stimulus to the economy, especially on the job front, but he did place the focus squarely on agriculture and rural development. Quoting Nobel laureate Amartya Sen's comment on the need for "downturn with security", he went on to elaborate on the higher allocations being made for social security programmes as the national rural employment guarantee scheme.
The allocation for the National Rural Employment Guarantee Scheme has been pegged at Rs.30,100 crore (Rs.301 billion/$6 billion) while allocations for the mid day meal scheme, Sarva Shiksha Abhiyan and the Jawaharlal Nehru Urban Renewal Mission have also been substantially raised for 2009-10.
While the focus on social sectors and rural employment is laudable, the problem is that this is not likely to resolve the growing problem of job losses in the economy. The job guarantee scheme will need to be expanded much more to meet the needs of migrant labourers, who go back to rural areas in the absence of jobs in cities. The setback in exports reflects a global dip in demand and this has translated into loss of jobs for artisans in the diamond, textiles and handicrafts industries. This problem is growing and the UPA government needed to have expanded the scope of public investment to ensure to create the much needed job opportunities. This need not have affected the constitutional proprieties of a vote on account and would have provided a stimulus to the economy.
Mukherjee actually used the term "extraordinary measures" while referring to the need to relax fiscal responsibility measures owing to the global economic crisis. The fiscal deficit has been pegged at 5.5 percent of gross domestic product (GDP) for 2009-10, though he clearly expects it to rise to 6 percent given the urgent requirements of rising government expenditure. This includes a whopping 34 percent rise in the defence outlay, which is inescapable in the wake of the Mumbai terror attacks.
Though the widening deficit may give rise to criticism about the government abandoning fiscal responsibility, the fact is that all countries, whether developed or developing, have had to take similar measures to revive their economies. A strict adherence to fiscal responsibility targets is a luxury that this country cannot afford for the time being. The fiscal deficit for 2008-09 is estimated at 6 percent against the budget target of 2.5 percent. But this was inevitable with tax collections having dipped by as much as Rs.60,000 crore (Rs.600 billion) largely due to indirect taxes, and plan expenditure having gone up due to the need to step up public investment.
The question is why the government could not have announced another stimulus package involving higher investment in infrastructure in the budget, as this is clearly the need of the hour.
Government spokespersons are insisting that another stimulus package of about Rs.60,000 crore (Rs.600 billion) is being worked out and will be launched in case the present regime comes back to power. Timing, however, is of the essence. With jobs being lost now in the thousands, the need for huge public investment in infrastructure to spur demand and create more job opportunities is urgently needed right now. The delay in taking the decision now on such public investments could turn out to be a costly mistake for the present government.
In the event, the interim budget has turned out to be a predictable occasion for the UPA and more notably the Congress party, to proclaim the success of its policies to the electorate. Clearly referring to the election symbol of the Congress, Mukherjee has urged the people to vote for the "hand" that had steered them to "peace and prosperity". One can only hope that such prosperity is on the anvil in the next few months but given the spectre of recession and job losses, it looks a far cry right now.
(Sushma Ramachandran is an economic and corporate analyst. She can be reached at firstname.lastname@example.org)
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