|
This
is where the overall thrust of the budget is likely
to be adverse even for these stated goals of the NCMP.
The Budget has effectively offloaded a substantial part
of central borrowing onto the states, by requiring their
borrowing to go up by Rs. 29,000 crore to finance their
plan expenditure, instead of directly borrowing itself
and handing the money to the state governments as was
done earlier. This may simply be financial window-dressing,
but if it affects the states' ability to borrow then
it is also likely to affect this kind of critical expenditure.
Further, instead of providing much-needed protection
to Indian farmers who have been battered by the extreme
volatility and high subsidised prices prevailing in
world markets, the Finance Minister has left unchanged
the current tariff rates on agricultural commodities.
The only exception is the in the case of cut flowers
- which affects not even one per cent of farmers. Nothing
has been done, for example, to protect cotton and oilseed
farmers, who have been in great difficulties in recent
times.
The only areas where there is some actual budgetary
evidence of positive shift are in spending for the ''social
sectors'', that is, health and education. The NCMP had
made the following promises in this regard. For education:
''The UPA government pledges to raise public spending
in education to least 6 per cent of GDP with at least
half this amount being spent on primary and secondary
sectors. This will be done in a phased manner.'' And
for health: ''The UPA government will raise public spending
on health to at least 2-3 per cent of GDP over the next
five years with focus on primary health care.''
Certainly the central budgetary allocations and actual
expenditure in these areas have gone up, although the
pace is still too slow to meet the proposed targets.
But here once again, the real issue relates to state
finances, since state governments are the primary providers
of both education and health services. And here, as
seen above, the budget is far from ensuring adequate
finances for the states.
A major claim of the NCMP was with respect to food security.
''The UPA will work out, in the next three months, a
comprehensive medium-term strategy for food and nutrition
security. The objective will be to move towards universal
food security over time, if found feasible. The UPA
government will strengthen the public distribution system
(PDS) particularly in the poorest and backward blocks
of the country.''
In the past eight months, such a food security strategy
has not been unveiled. It could be argued that this
is not the job of the Finance Minister anyway. But what
is true is that the budgetary strategy of moving many
items off-budget actually ends up putting the burden
on public sector organisations such as the FCI. The
FCI is being made to provide the entire food component
of the Food-for-Work programme (around Rs. 5600 crore)
and the SGRY (around Rs. 3000 crore) without any compensation.
Not only is this absurd, it amounts to weakening both
the FCI and the PDS over time.
The NCMP places great emphasis on infrastructure investment.
''Public investment in infrastructure will be enhanced,
even as the role of the private sector is expanded.
Subsidies will be made explicit and provided through
the budget.'' Quite the opposite, in fact, is what is
happening. Capital expenditure of the central plan in
the current year was only Rs. 22,712 crore, which represents
a shortfall of 14 per cent from the outlay. And in this
Budget it is slated to go up by only 3 per cent compared
to last year's outlay.
Instead, once again, the attempt is to move such items
off-budget, by creating a Special Purpose Vehicle (SPV)
to finance infrastructure projects in specified sectors.
This will lend funds (presumably created through deficit
financing) of longer term maturity, but these will not
be counted in the budget! There is nothing wrong with
such spending, of course, (although the limit is still
quite meagre, at only Rs, 10,000 crore) but the fact
that it is not accounted for in the budget once again
raises issues of lack of transparency and lays the seeds
for future budgetary problems.
In a sense, all this creative accounting and downright
cooking of books stems from the obsession with fiscal
discipline which results from the reliance on the Fiscal
Responsibility and Budget Management Act. A softer version
of this was mentioned in the NCMP: ''The UPA government
commits itself to eliminating the revenue deficit of
the centre by 2009, so as to release more resources
for investments in social and physical infrastructure.''
This would be fine if the government showed the political
will to raise tax revenues, which is eminently feasible
in the current economic context. But if tax revenues
are not increased as a share of GDP, a focus on fiscal
discipline necessarily means reducing expenditure. The
fear of openly financing deficits through money creation
is leading to the same occurring by the back door -
which is fine in macroeconomic terms but raises other
problems over time.
What the Finance Minister is trying to do is to please
everyone at once by supposedly providing more resources
for spending, while maintaining the veneer of ''fiscal
responsibility'' by moving many expenditure items off-budget.
This is not a recipe for fiscal health or the viability
of public enterprises; nor is it sustainable for more
than a few years at best. The interests of those whom
the Finance Minister claims to serve - the poor in general
and farmers and workers in particular - would be much
better served by an open process of increased spending
in critical areas accompanied by increased tax revenues.
What is interesting is that all these failures, or acts
of commission and omission which directly contradict
the NCMP, have been accompanied by much pious verbiage
of the opposite nature, as the Finance Minister has
spent long paragraphs in his Budget speech emphasising
his concern for the poor and extolling the need for
pro-poor fiscal and development policies. The problem,
quite simply, is that Mr. Chidambaram has not really
put his money where his mouth is.
|
