No reprieve from stagnation

FINANCE Minister Yashwant Sinha's fifth successive Budget is in essence a continuation of the policies of liberalisation, privatisation and globalisation (LPG) followed by the National Democratic Alliance (NDA) regime with even greater zeal than the initiators of these policies, the minority Congress(I) regime of 1991. The utter irrationality of these policies is dramatically illustrated by the simultaneous existence in the country of close to 60 million tonnes of foodgrain stocks with the government on the one hand, and more than 300 million people living below even the abysmally low poverty line as defined by the government on the other.

The Finance Minister claimed in his budget speech that his Budget would be an effort to meet the challenges outlined in the Economic Survey 2001-02. It was evident from the data provided in the Economic Survey that the economy was facing a situation of very slow growth during the second half of the 1990s. The rate of growth of value added in industry is officially admitted to have declined from an average of 8.5 per cent a year during the period 1993-94 to 1996-97 to 4.8 per cent during 1997-2001, and that in agriculture and allied sectors from 4.5 per cent to 1.2 per cent. According to the Economic Survey, "...The key problem facing the economy today is the reinvigoration of economic growth in the current decade." In fact, the problem is deeper than the Economic Survey is willing to admit. The economy, now under LPG policies for over a decade, has shown no acceleration in growth during this decade over that during the 1980s. In respect of the material producing sectors of agriculture and industry, the growth performance is in fact distinctly poorer than in the 1980s. For the first time since Independence, in the 1990s the annual rate of growth of foodgrain production has fallen below the rate of growth of population. As a result, the net availability per capita per day of cereals has declined from 468.5 grams in 1991 to 390.6 grams in 2001, and that of pulses from 34.3 grams to 26.4 grams over the same period.

The data from the National Sample Survey (NSS) show that between 1993-94 and 1999-2000, the rate of growth of rural employment at 0.58 per cent a year was considerably lower than that in the period 1987-88 to 1993-94 at a little over 2 per cent a year. Thus, even by official admission, the economy is currently in a crisis of industrial and agricultural stagnation and slow employment growth. Under these circumstances, with a huge stock of foodgrains, foreign exchange reserves of around $50 billion, and an official inflation rate of just 1.1 per cent, one would have expected the Finance Minister to give the economy a big push by opting for a massive exercise of asset building through food-for-work programmes. Such a programme would have simultaneously provided employment to the rural poor, decreased the costs to the Food Corporation of India (and thus the government) of holding three times the recommended buffer stock of foodgrains, and given a much-needed demand boost to stagnant industry, besides creating useful productive assets. The Finance Minister has chosen not to do anything of this kind. What has he chosen to do instead?

The Finance Minister has provided further tax concessions to imports by reducing import duties, resulting in an estimated loss of Rs.2,200 crores in a full year, and has perversely raised excise duties to net an estimated additional revenue of Rs.6,700 crores. He has given foreign companies a bonanza of tax reduction from 48 per cent of profits to 40 per cent. But he has sought to raise direct tax revenue mostly from the salaried segments of the population through the removal or lowering of certain exemptions and a surcharge on income tax. He has also lowered the interest payable on small savings, usually preferred by risk-averse fixed-income earners. While efforts to increase direct taxes would normally be welcome, in this particular instance the favoured treatment to foreign companies accompanied by sops to domestic large industry contrasts sharply with the treatment meted out to the salaried and other fixed-income earners. On the whole, the tax proposals of the Budget reinforce the already highly regressive nature of India's tax structure.

The Budget makes a rather feeble effort to stimulate growth. While the Central Plan outlay is slated to rise by 12.7 per cent over the revised estimates for 2001-02, the budgetary support for this is only 46 per cent and the rest is assumed to be raised through internal and extra-budgetary resources of public sector enterprises. Thus the Plan outlay remains a statement of intent, and it is doubtful whether it will go much beyond that, given the ground realities and past experience.

Given that the estimates presented in recent Budgets have been revised considerably later - a case in point being the estimate of the ratio of fiscal deficit to gross domestic product (GDP) for 2001-02 estimated at 4.7 per cent by the Finance Minister in his Budget speech in 2001, and revised to 5.7 per cent in this year's - it is difficult to take the budget estimates overly seriously. In any event, the real thrust of the Budget lies not so much in these numbers as it does in its overall policy thrust. That thrust remains unchanged from the earlier LPG budgets of the 1990s. As in earlier budgets, this Budget also contains significant moves towards capital convertibility. Non-resident Indians (NRIs) can now repatriate freely their deposits as well as income earned in this country by way of dividends, rent, interest and so on. The limits for investment abroad for Indian companies as well that for investment in joint ventures abroad have been doubled. Sectoral caps on foreign institutional investment have been lifted, and legislation to alter banking laws to enable foreign banks to have controlling shares in Indian banks has been proposed, albeit implicitly. Again, as in earlier budgets of the 1990s, market borrowing at high rates of interest rather than direct taxes on the rich remains the preferred mode of resource mobilisation, with interest payments which accounted for over 50 per cent of revenue receipts in 2001-02 as per revised estimates set to take away 47.9 per cent of such receipts in 2002-03.

In a nutshell, the Budget provides more of the same policies of the 1990s which have failed to deliver higher growth or employment or make any dent on poverty (notwithstanding the false claim made by the government that the head-count ratio of poverty is now at an all-time low of 26 per cent): tax the poor and the middle classes, favour foreign capital and large domestic capital, and open up India without let or hindrance to the transnational corporations. It is a pity that an opportunity to use the food stocks imaginatively has been missed again. Instead, the government appears all set to hand over the foodgrains to private trade at low prices, in much the same way it has been selling public sector companies at ridiculously low prices. With this Budget, there will be no reprieve from the stagnation that characterises our economy for nearly five years now.