THE most remarkable feature of economic policies in India since 1991 has been that regime changes have had no impact on them. The fact that people voted out regimes on account, among other things, of dissatisfaction with the economic policies pursued, did not lead to changes in economic policy. It is therefore no surprise that a change of Finance Ministers within the same government - from Yashwant Sinha to Jaswant Singh - has not led to any change of course. The Union Budget of 2003-04 presented by Jaswant Singh faithfully pursues the policies of liberalisation, privatisation and globalisation (LPG, for short) under way since 1991, and implemented with even greater vigour by a government whose leading player proclaims `swadeshi' ever more loudly even as it pursues thoroughly `videshi' policies. In a world characterised by the dominance of footloose global finance capital, governments are compelled to pursue deflationary policies for fear of alienating finance capital and causing consequent capital flight. In India too, successive Finance Ministers during the period since 1991 have had as their main goal `winning the confidence of the foreign investor' rather than retaining the confidence of the electorate, which voted them into office.
Jaswant Singh's Budget proposals display the same concerns of pleasing foreign capital and the domestic corporate sector in particular, and the rich in general, while imposing burdens on the less well-to-do. Throughout the 1990s, Union Budgets have been characterised by reductions in direct taxes and customs duties, with the resulting revenue losses sought to be made up through increases in excise duties on articles of mass consumption. Pre- and extra-budgetary imposts through the raising of administered prices of goods and services have also continued. In this year's Budget, the Finance Minister's proposals are expected to result in a loss of Rs.2,955 crores on account of changes in direct taxes and Rs.2,100 crores on account of reductions in the peak rate of customs duties from 30 per cent to 25 per cent. The reduction in excise duties on cars, air-conditioners, tyres and polyester filament yarn will lead to a revenue loss of Rs.3200 crores. Yet, the Finance Minister expects to garner Rs.3,294 crores of additional tax revenue, after allowing for all these losses, on account of excise duty hikes on other items, including cement, the hike in the cess on petroleum and diesel, the higher rate of service tax and its extension to cover more services, and the hike in fertilizer prices. The major beneficiaries of Jaswant Singh's munificence with regard to direct taxes, including the reduction in the surcharge on corporate tax, the elimination of dividend tax and the abolition of tax on `long term' capital gains, are the corporates and the very well-to-do. The corporates have received other benefits - some sectoral and some general - such as those with respect to depreciation norms. Foreign capital will be pleased with the enhanced Foreign Direct Investment (FDI) cap in the private banking sector. The rise in the share of indirect tax revenue to total tax revenue that the Budget proposals will result in is clearly regressive and anti-poor. The levies and price hikes occasioned by the Budget are bound to hurt farmers and agriculture, as well as the mass of working people. Political factors - especially the need, with general elections not all that far away, to win over sections of the so-called `middle classes', alienated by the BJP-led National Democratic Alliance government's policies that have hurt this section - have led to some relief being provided to the salaried strata. Given the nature of the Budget as a whole and its likely impact on growth, however, this relief is largely illusory.
The expenditure proposals of the Budget are unlikely to provide any growth impetus to the economy. The Central Plan outlay is set to rise only marginally from Rs.1,44,038 crores in Budgetary Expenditure (BE) 2002-03 to Rs.1,47,893 crores in BE 2003-04, an increase of less than 2.5 per cent, lower than the current rate of inflation. Given that the Revenue Expenditure (RE) for 2002-03 shows a shortfall in the Central Plan expenditure of Rs.7,171 crores, it is anybody's guess what the final outcome will be this year. For all the hype in the Budget speech about agriculture and rural development, the increase in central plan outlay for agriculture, rural development and irrigation and flood control taken together will exceed the BE for 2002-03 by only 2.9 per cent in nominal terms, implying a decline in real terms. Outlays on information technology, transport and communications sectors have been substantially reduced in BE 2003-04 as compared to BE 2002-03, and have been set marginally above the revised estimates for 2002-03. As far as non-plan expenditure is concerned, while it has become fashionable to decry the so-called `hefty' food subsidy, budgeted at Rs.27,800 crores, interest payments at Rs.123, 223 crores account for nearly half of the government's revenue receipts. It must be noted that the rise in the interest burden arises both from excessive recourse to debt-financed rather than tax-financed expenditure, and a high interest rate regime maintained in the interests of finance capital.
The hike in fertilizer, diesel and petrol prices in a drought year may well be the last straw on the camel's back as far as agriculture is concerned. The Minister himself noted in his Budget speech that agricultural output had actually declined by 3.1 per cent in 2002-03. Agriculture has borne the brunt of LPG policies, and the rate of growth of foodgrains output has fallen below the rate of growth of population for the first time since Independence during the decade of the 1990s. Farmers have had to face rising input prices, and falling output prices arising from the removal of quantitative restrictions on imports. There has been little public investment in agriculture, and anti-poverty and rural development expenditures have declined in the 1990s. Rural employment has grown much more slowly between 1993-94 and 1999-2000 as compared to the period 1987-88 to 1993-94. Reduction in formal credit has led to the re-emergence of usurious moneylending. The peasantry in general, and rural labour in particular, have suffered a great deal. Yet, despite a large stock of foodgrains with the Food Corporation of India (FCI), $75 billion of foreign exchange reserves and considerable unutilised capacity in industry, there has been no serious attempt to step up productive expenditure and thus stimulate economic growth. The Budget of Jaswant Singh has nothing to offer the peasantry and the rural poor. Nor do the industrial working class and small and medium industry have anything to cheer about in the Budget.
Even within the constraints of the prevailing macro-economy, an opportunity to promote growth and employment has been missed. That is of course no surprise, given that economic policy in India is hostage to speculative international finance capital and to the discredited Washington Consensus.