Editorial: No respite from the crisis

Finance Minister P. Chidambaram coming out of Parliament House with a copy of Economic Survey 2012-13.

THE much-touted “India growth story”, which always had a downside to it, has been unravelling for some time. After rapid growth of gross domestic product (GDP) from 2004-05 to 2007-08, it was hit by the global downturn in 2008. Growth rates recovered briefly in 2009-11, but have been declining since. The GDP growth rate for 2011-12, we are now informed by Economic Survey 2012-13 , was 6.2 per cent, down from the rosy prediction of 7.1 per cent in the report of the Economic Advisory Council to the Prime Minister in February 2012 and lower than the 6.5 per cent claimed until recently. Despite the lowering of the growth rate for 2011-12, which should have had a positive base effect on the growth rate numbers for 2012-13, the rate of GDP growth for 2012-13 is currently estimated at just 5 per cent. However, our Finance Minister is not one to be easily deterred by bad news. He has reiterated in his Budget speech that the country must treat growth of GDP as the highest goal, presumably to be achieved at any cost. Does the Budget contribute significantly towards this declared goal?

More to the point, the nature of growth is important. The Finance Minister has declared the commitment of his government to “inclusive growth”. This should mean paying attention to sectors of the economy and sections of the population that have not benefited significantly from growth so far. For instance, the country faces a continuing agrarian crisis despite the improvement in growth rates of agricultural output in recent years. The continuing suicides of farmers constitute a tragic manifestation of the crisis, but there are other indicators as well. The Survey mentions declining per capita grain availability as one such. Likewise, it is known that the rate of expansion of employment and its quality have been matters of concern. Hunger and malnutrition are widespread, and the levels of deprivation in terms of access to education and health care huge. A single Budget cannot, of course, solve these problems, but does it address them?

The Indian economy faces a large current account deficit in its balance of payments, and the stagnation in the world economy offers little prospect of our exports growing rapidly. Is foreign capital at any cost the only answer or is there scope for other measures to deal with the problem?

The Union Budget does not even begin to move towards finding credible answers to these questions. Granted that the Budget is merely one of several policy instruments the government has, the fact that it accounts for close to one-seventh of the country’s GDP would lead one to expect some serious responses to the challenges outlined above. Instead, the Budget numbers, apart from lacking credibility, show little effort to mobilise resources for development on the revenue side. On the expenditure side, drastic cuts have been effected across the board in 2012-13 as against Budget Estimates (B.Es), so Revised Estimates (R.Es) show much lower spending, enabling the Finance Minister to claim that he has reduced the fiscal deficit for the current financial year to 5.2 per cent of GDP. The Finance Minister has resorted to the ruse of then comparing the Budget outlays for 2013-14 with the sharply lower Revised Estimates for 2012-13 to claim that he has provided adequate resources to ensure “inclusive growth”. This is a patently untenable claim.

The Central Plan outlay has fallen short in the Revised Estimate for 2012-13 to Rs.4,29,187 crore from the B.E. of Rs.5,21,025 crore. The claim that the Central Plan outlay for 2013-14 at Rs.5,55,322 crore is up by nearly 30 per cent over the R.E. for 2012-13 is, to say the least, disingenuous. Comparing the B.Es for the current and the next financial years, the increase is a mere Rs.34,297 crore on Rs.5,21,025 crore, 6.58 per cent, lower than the rate of inflation, and hence a fall in real terms. It is the same story with education, health and so on. In most cases, the increase in terms of B.Es barely covers inflation or is even less. Thus, education gets Rs.65,869 crore in B.E. 2013-14 against Rs.61,427 crore in B.E. 2012-13, an increase of 6.7 per cent, again less than the rate of inflation.

Just as there has been little real increase in Plan outlays, so has there been little effort to mop up resources from the well-to-do for development. The claim has been made that Rs.18,000 crore of additional tax revenue is expected. This is indeed a trivial amount in relative terms, but even this is based on the assumption that the economy will grow at more than 6 per cent in real terms. Even though the Finance Minister and the Survey talk about the need to raise resources through taxation, there is no such effort in the Budget. The one-time surcharge of 10 per cent on the 42,800 persons who have admitted to receiving incomes of more than Rs.1 crore in a year is cosmetic and reminds us unwittingly of the massive scale of under-reporting of incomes by the wealthy. One must also note that the government has lawfully forgone Rs.5,33,583 crore of tax revenue in 2011-12 and is expected to forgo Rs.5,73,627 crore in 2012-13 on account of tax concessions! However, it professes to be unable to find the resources to fund a universal public distribution system. Such priorities hardly conduce to “inclusive growth”, whatever that much-abused term may mean.

Finally, when people are reeling under the impact of double-digit food inflation and the overall rate of inflation is also not under control, the government has contributed to stoking inflationary fires with frequent increases in petro-product prices and has followed this up with a sharp reduction in energy and fertilizer subsidies in the Budget.

Putting the General Anti-Avoidance Rules (GAAR) on the back burner, reassuring foreign companies facing charges of tax evasion that they will be treated kindly, and praying for growth to be delivered by oodles of foreign finance capital do not constitute the most credible response to the economic challenges facing the country. The Budget has failed to address, even in a preliminary way, the issues of inflation, unemployment and inclusive growth.