This gap points in a number of directions. First, that the government would have been more successful in curbing the fiscal deficit if it had not done away with the practice of monetisation of part of the overall deficit. Second, if deficits had been maintained at actual levels along with monetisation, the expansionary effect of recent budgets would have been quite significant, with positive results on the growth and poverty alleviation fronts. And, finally, that if the Government had not merely stuck with monetisation but also dropped its obsession with the fiscal deficit, especially in recent times when food and foreign reserves have been aplenty, the 1990s would have in all probability been a decade of developmental advance.
 
Budget 2000 reflects the fact that the BJP-led Government has consciously chosen to forgo this opportunity by making "second generation" reforms its principal thrust. Central to that strategy is a further push to financial liberalisation. In hypocritical fashion, the Budget speaks of formalising the autonomy of the RBI, even while it ties the central bank's hands by liberalising the conditions for foreign capital inflows. Financial flows on the capital account into the country have been further liberalised by offering tax concessions to venture capital funds, raising the ceiling on equity holding by foreign institutional investors (FIIs) investing in firms in secondary markets to 40 per cent and promising to sell public equity in banks up to 67 per cent of the total, some of which would be picked up by foreign investors. So long as India remains the flavour of the time with foreign investors, this would only enhance the quantum of foreign capital inflows. In order to neutralise partly the impact this would have on the central bank's operations, the Government has chosen to ease the domestic capitalists' access to foreign exchange to undertake investments abroad.
 
The other route through which foreign exchange reserves would be run down is through the indiscriminate import that is likely to result from accelerated import liberalisation. Even while the BJP's capitulation to pressure from the United States to advance the dates for doing away with quantitative restrictions on the import of 1,429 items (714 to April 1, 2000 and another 715 to April 1, 2001) threatens to de-industrialise India and affect the livelihood of primary producers, the maximum rate of duty on agricultural products has been reduced fro m 40 per cent to 35 per cent. Allowing indiscriminate access to foreign exchange without imposing any conditions which tie such use to the earning of foreign exchange to meet future commitments is a sure way of paving the way for financial crises of the South-East Asian kind. The attack on domestic producers, namely, the import-competition route, occurs in a context where developmental expenditures are being squeezed. While the Budget claims to increase Plan outlays by 13 per cent over last year's budget estimates and 22 per cent over the actual spending in 1999-2000, Plan outlays in many crucial sectors, such as agriculture, rural development and irrigation, have been lowered. In addition, the actual spending on these important areas may turn out to be even lower. Thus, in both the previous fiscal years, the Central Government spent much less than it had budgeted for in almost all the crucial sectors of Plan outlay, such as agriculture, rural development, irrigation, energy, industry and minerals, thus depriving the economy of important sources of growth.
 
There have also been shortfalls in expenditure on social services. So, these critical areas of spending continue to be shortchanged. The slated 13 per cent increase in capital expenditure in this Budget at first appears to reverse this tendency. However, defence alone accounts for 80 per cent of the increase in total capital expenditure. One consequence of this "new militarism" characterising the BJP's tenure is that, in an effort to dampen U.S. criticism of this tendency, the Government is willing to make huge concessions on the economic front with regard to trade and foreign capital flows. The other consequence is that non-defence capital expenditure is budgeted to remain stagnant or decline in real terms. Further, in his effort to prove that despite this hike in defence outlays, overall expenditures and the fiscal deficit are to be controlled, the Finance Minister has chosen to attack food and fertilizer subsidies, besides capital expenditures unrelated to defence.
 
The orchestrated outcry on the unsustainable level of food and fertilizer subsidies appears to be almost a conspiracy. In fact, even if we consider only revenue expenditures other than interest payments, the share of food subsidies in expenditures has been more or less constant in recent years and the combined share of food and fertilizer subsidies has in fact been falling. Yet, the most striking "achievement" of this year's Budget is that at a time when the evidence points to a decade-long stagnation or even increase in the incidence of rural poverty, the prices of food distributed through the public distribution system (PDS) are to be hiked to realise a 12 per cent reduction in food subsidies. In order to sanitise this effort, Yashwant Sinha has presented the subsidy reduction as an effort to target subsidies at the needy, namely the population below the poverty line. That population, he argues, would now be eligible for double the quota available earlier.
 
What he left virtually unstated was the fact that this larger quota would be available at a much higher per unit price. Households below the poverty line would now have to bear with 68 per cent increases in the issue prices of wheat and rice. Even people above the poverty line, many of whom are also poor by a wider definition, would have to pay 23 per cent more for wheat and 30 per cent more for rice because they will now be charged the full economic cost. Not only does this mean that most pe ople who use the PDS will end up paying much more, but it also penalises the State governments that have been running a more broad-based and efficient PDS. This is because this price relates to the rate at which the Central government releases foodgrains to individual State governments, some of whom have been supplying it at a lower rate to consumers through the PDS.
 
The irony is that, while this measure will clearly hit ordinary people very hard, it may not lead to a decline in the food subsidy bill at all. This is because as prices rise, offtake from fair price shops tends to decline, and so the Food Corporation of India (FCI) is left holding even more stocks, with high carrying costs which add to its losses. This is indeed one reason why the level of stock-holding of foodgrains is already so high. As mentioned earlier, the availability of large foodstocks with the government calls for an effort to use the surplus foodstocks to part "finance" employment programmes that help strengthen the rural infrastructure. This would have helped improve agricultural growth performance as well as increase rural incomes and reduce poverty. The Finance Minister has, however, chosen to ignore this opportunity and persist with a strategy of reform that goes to the contrary. The financial component of such reform requires curbing borrowing from the RBI and cutting a range of expenditures as part of the effort to appease international finance, even if the consequence is a combination of policies which squeeze the poor and underm ine growth prospects. These are further indicators of the fact that under the BJP the overall interests of international finance have come to dominate economic policy-making in India. And it is that dominance which has put the Government in a state of pa ralysis with respect to triggering growth and reducing poverty. The interests the BJP-led Government seeks to serve and those it wishes to penalise are therefore clear.