THE elite euphoria over the Union Budget for 2001-2002, carefully nursed by government and corporate spokespersons in the electronic and print media, should not blind us to the economic crisis facing our country. These aspects - which include a significa nt slowdown in agriculture through the 1990s, a less-than-impressive growth in industry, especially manufacturing, over the same period, a remarkably slow growth of employment between 1993-94 and 1999-2000 as evident from the National Sample Survey data, and the persistence of mass poverty despite all the hype over liberalisation-induced growth - have received little or no attention in the Budget and in the commentaries of the government and corporate cheerleaders. Although the Economic Survey draws att ention to some of these questions, such as the slow growth of agriculture, its policy recommendations amount essentially to more of the same policies which have brought the country to this pass, only at a more accelerated pace.
The Budget is faulty on at least two counts: its premises and its priorities. First, its premises. The Budget's diagnosis of the decline in the growth momentum of the last three years is that we are not liberalising, privatising and globalising rapidly e nough. Thus it is presumed that if we provide all possible incentives to large capital, Indian and foreign, rapid growth will automatically follow, and it will take care of problems such as poverty and unemployment. It is also presumed that the only way to attract foreign capital is to move rapidly towards capital convertibility, and to subject every policy proposal to the acid test of whether it will help retain and/or enhance the "confidence" of the foreign investor in the Indian economy. It is assume d as an article of faith that the government's sole role in the economy should be that of providing a minimum set of public goods that the private sector will find unprofitable to provide, including, of course, "law and order" to ensure that the rules of the economic game are properly followed.
These are all untenable premises. In every case of successful development, including the East Asian ones that our policymakers repeatedly invoke, the state has played a crucial role. Investments in infrastructure have rarely come on largely private initi ative. The same holds for investments in human development. Public investment in agriculture has been a key to agricultural growth in India and elsewhere. The current crisis in Indian agriculture is not merely one of unremunerative prices or the severe d amage being and likely to be caused by the removal of quantitative restrictions (QRs) on imports, although these are also important. The crisis is fundamentally about the neglect of investment in agriculture, the slowdown in productivity growth, the weak ening of public funding of research and development in agriculture, and the lack of support to post-harvest and marketing activities.
THE revised estimates for 2000-01 are, in the aggregate, not far off the budget estimates. The Finance Minister has found this to be a matter for self-congratulation. However, a look at the disaggregated figures of receipts and expenditures shows that th is "achievement" has resulted from severe expenditure compression, especially in relation to capital expenditure. The government's capital expenditure, as per the revised estimates for 2000-01, is lower in nominal terms than the Budget estimate by 9.4 pe r cent. When inflation at around 8 per cent is taken into account, the decline in real terms can be seen to be much larger. Central Plan outlays of some sectors have borne the brunt of the cuts. For instance, the revised outlay of the Ministry of Mineral s and Mines is down by 28.2 per cent and that of the Ministry of Steel by 29.7 per cent, compared to budgeted outlays. Revised outlays on energy are 12.4 per cent below the budget estimate and those on agriculture and allied activities 11.8 per cent less than budgeted. For all the professed concern about outlays on social services, the revised estimate of outlay for this sector is nearly 10 per cent less than budgeted.
In terms of proposed outlays for 2001-02, the total Central Plan outlay is budgeted to be 11 per cent higher than those of 2000-01, which in real terms implies little increase. If the last year's experience is any guide, the final outlay may well be much less. The Finance Minister's tax proposals involve a loss of Rs. 2,128 crores on customs duties and of Rs. 5,500 crores on income tax and corporate taxes. Excise duties, on the other hand, are slated to rise by Rs. 4,677 crores. The excise duties in res pect of a number of articles of common consumption have been increased. Thus, there is no real effort to mobilise resources from the very rich. Although the Finance Minister has assumed that buoyancy in direct tax receipts arising from both growth and be tter compliance will make up for the estimated loss, it is worth noting that last year's corporate tax receipts were lower than anticipated, as were customs. By contrast, receipts from income taxes, a significant proportion of which is paid by salary and wage earners, exceeded the budget estimates.
The Budget has provided a plethora of incentives to investments in infrastructure by the private sector, including ten-year tax holidays. It has allowed 100 per cent foreign investment in non-banking financial intermediaries, and raised the ceiling on fo reign institutional investor (FII) holdings in a company to 49 per cent. It has made it easier for rich Indians to invest their money abroad, and has taken steps towards capital convertibility at a time when in the rest of the world there is rethinking o n this issue. It is not surprising that foreign investors and Indian corporates are pleased with the Budget. It is, however, by no means certain that this pleasure will get reflected in significantly increased investment. Nor is it obvious that private i nvestment will be greatly stimulated by the reduction in interest rates on small savings on the ostensible ground that these were high in real terms and acted as a floor to market rates of interest. With inflation hovering at around 8 per cent, the real interest rate on provident funds can hardly be made the villain of the piece.
THAT the Budget priorities are callous is evident in its handling of labour as opposed to its treatment of the corporate sector. It seeks to do away with the very notion of security of employment and suggests that if employers were given the right to hir e and fire at will, and engage contract labour for a large part of their business, suddenly investment will boom and everybody will find a job. The proposed carrot of enhanced compensation for retrenchment is poor comfort for the worker.
The budget speech makes clear the intention of the government to complete the demolition job begun in the last year's budget with respect to the public distribution system (PDS). Having raised the issue prices of foodgrains in the PDS to a level that has led to a sharp decline in offtake and a large rise in stocks with the government, the Finance Minister has now proposed to minimise the role of the Central Government and the Food Corporation of India (FCI) in PDS, ostensibly to promote the involvement of States, and ultimately to abandon the poor and the food-insecure to the tender mercies of private trade. This move is of a piece with the government's claim, based on highly questionable statistics, that poverty has declined dramatically to just 27 pe r cent. The claim that the problem we have on the food front is one of how to cope with surpluses provides a measure of the callous policy priorities of the National Democratic Alliance (NDA) regime.
The refusal of the government to launch a massive food-for work programme, using the large stocks of foodgrains, build much needed rural infrastructure and stimulate a public investment-led growth process stems from its wrong premise that growth in India is not demand-constrained, but only incentive-constrained.
