Exercise in sophistry

WITH his usual aplomb, Pranab Mukherjee has presented an Interim Budget that is a remarkable exercise in sophistry. For the most part, the Budget speech is about the achievements of the United Progressive Alliance government over the period 2004-2008, and of how it has managed the deepening economic crisis so far in 2008-2009. There is little in the speech on the most pressing problems facing the Indian people in the wake of the global and national economic crisis.

Consider the fact that job losses over the past six months or so probably exceed 20 lakhs. Recall the enormous crisis in agriculture and the rural economy of which farmers suicides on a large scale are only the most extreme manifestation hardly offset by a somewhat more respectable increase in foodgrain output over the past three years after several years of stagnation from 1999-2000.

Factor in the crash in the prices of important agricultural commodities such as rubber and other plantation crops. Ponder the fact that the textile, engineering, leather, and gems and jewellery industries all of which are important export earners with small and medium industries being key players are facing bleak export markets, and closures and layoffs have become the norm.

Take a look at the burgeoning trade and current account deficit. Surely, the Interim Budget should have been an occasion for a serious discussion of these problems and what they mean for the much-cited aam aadmi, not for delivering an election speech.

The Finance Minister has cited constitutional propriety for not making changes in tax rates for the coming financial year, leaving that task to the new government to be constituted following the parliamentary elections due shortly. The highly articulate and politically influential business community (often misleadingly called Industry as if trade and finance did not figure) has made its displeasure known through the print and electronic media, which it controls to a large extent, at not being given further sops by way of tax reductions and otherwise. But is the real issue one of tweaking tax rates, as it is being made out? One would like to believe that the key issue is one of how, in a democratic framework, the government responds to the impact of the crisis on the majority of people, who are mainly peasants and unorganised workers with little access to any kind of social security, and workers and employees in both the formal and informal sectors of the economy who are facing massive job losses. In this context, let us look at some of the Budget numbers.

At a time when greater stimulus to the economy has to be provided by the government in a productive manner, the revised estimate for 2008-2009 of the governments capital expenditure is Rs.97,507 crore as against Rs.1,18,238 crore (actuals) in 2007-2008. Grants to State and Union Territories, which are bearing the brunt of the economic crisis, were lower by nearly Rs.5,000 crore according to revised estimates for 2008-2009 at Rs.38,421 crore as against the budget estimate of Rs.43,294 crore. The States share of taxes and duties fell by a massive Rs.17,586 crore in the revised estimate from the budget estimate for 2008-2009 of Rs.1,78,765 crore.

The Finance Ministers claim in his Budget speech that the government ...took prompt action by providing substantial fiscal stimulus to counter the negative fallout of the global slowdown does not seem credible. The revised estimate of total Plan expenditure for 2008-2009 at Rs.2.83 lakh crore is hardly 5 per cent of our GDP. The addition to Plan expenditure in 2008-2009 over the budget estimate is hardly Rs.40,000 crore, and this constitutes less than 1 per cent of the GDP. An instructive contrast is provided by China where the government is imparting a stimulus of 14 per cent of its GDP spread over two years.

A look at the Central Plan outlay for 2008-2009 by sector shows that the revised estimates of Plan outlay for agriculture and allied activities and for social services are actually lower than the corresponding budget estimates. But for the allocation under the National Rural Employment Guarantee Scheme (NREGS), the same seems to be the case for rural development, while that for irrigation has declined. The claim of proactive intervention against the negative impact of the deepening crisis through sizeable fiscal stimulus thus seems hard to sustain.

The fact of the matter is that initially the government was trying to deal with the crisis primarily through monetary policy aimed at lowering interest rates and providing greater liquidity to the banking sector. Later, there was what can be characterised as a feeble fiscal stimulus. But the main thrust seems to be to further liberalise the financial sector and open it up to inflows of foreign funds in a desperate attempt to stem the flight of portfolio capital.

The unseemly hurry with which Bills for specific measures for financial sector liberalisation have been brought before Parliament and the expansion by stealth of caps on foreign investment in sectors across the board through executive notification while Parliament is in session reflect the state of panic in the government over the balance-of-payments scenario and the impact of decline in domestic investment on growth.

The obsession with global financial and economic integration characteristic of neoliberalism seems to have made it difficult for the UPA government to think out of the box in dealing with the economic crisis and its fallout on working people. For the record, it needs to be said that the few pro-poor schemes under the UPA (which has generally not been too bothered about fulfilling the pro-poor commitments in the National Common Minimum Programme like spending 6 per cent of the GDP on education) such as the NREGS owe a lot to the pressure brought upon it by the Left parties when they were providing outside support and by a number of social movements.

In a word, the Interim Budget is more of an election manifesto than a serious effort to address the current economic crisis. What was needed was a massive increase in rural development spending, focussing on agriculture, rural infrastructure and irrigation, a universal public distribution system and expansion of the NREGS to urban India to provide some relief to the swelling ranks of the jobless.

This would, of course, have meant a rise in the fiscal deficit, but unless one is deeply wedded to neoliberal orthodoxy about the fiscal deficit, this is no cause for alarm. Alas, while what Keynes called the humbug of finance may be in retreat, the retreat seems only partial.