The budget: A stimulus for growth

"Things are not wot they seem", began a music hall ditty, popular in England between the wars. When something is offered for nothing, even those who should not look a gift horse in the mouth, will naturally look for the catch: the very idea flies in the face of Murphy's Law and so it cannot be true. In his budget presented to Parliament last month, Finance Minister Ramaswami Venkataraman has used the something-for-nothing formula with great panache. But it is all done apparently with mirrors and the images are already moving out of focus.For openers, the figures, at least on the income side, are not what they seem on closer scrutiny. The overall deficit for 1980-81 is stated as Rs 1,975 crore but this is after making an allowance for Rs 200 crore from black money bonds as well as a loan of Rs 534 crore from the International Monetary Fund. If these extraordinary sums are discounted, the deficit works out at Rs 2,709 crore which is more or less the same as in 1979-80. Why is Venkataraman so anxious to play down the deficit? He had said last year that he would give up his job if the deficit exceeded Rs 1,500 crore. It has, in actual practice, over-shot the mark by more than 80 percent and it is only through a sharp juggling of figures that it has been reduced, at least on paper, to the less daunting total of Rs 1,975 crore, or 30 per cent above the estimate.Hidden Deficit: Another obvious reason for underplaying the growing gap between income and expenditure is the need to assuage the feelings of the white-collar fraternity, now increasingly restive over inflation and squeezed between growing unemployment on one side and falling real incomes on the other. With the deficit held down, albeit notionally, to less than Rs 2,000 crore, the finance minister can afford to be generous with income tax reliefs to taxpayers at the lower end of the scale. Had the gap been shown nearer the true mark, his arguments for relief would have not only appeared imprudent but carried a hollow populist ring.The same type of jugglery with figures characterises the budget estimates for 1981-82. Here again, the figures are anything but what they are made out to be. The net additional taxation is not Rs 271 crore but possibly 10 times as much if the recent increases in petroleum prices (Rs 1,180 crore), steel and coal (Rs 850 crore), and railway fares and freight (Rs 356 crore) are taken into account. Even in computing the deficit for 1981-82 Venkataraman has been carried away by flights of fancy rather than financial prudence. He has assumed Rs 800 crore as possible income from black bonds and Rs 1,000 crore from external loans and assistance: he is likely to be wrong on both counts. He is also banking on public sector undertakings yielding a surplus of Rs 2,300 crore, which is most unlikely unless there is another price hike.Venkataraman has apparently overshot his mark by at least about Rs 1,000 crore and when the chips are down he will be hard pressed to order another round of price hikes - as he did this year-and reduce his gap. The hidden deficit is again possibly nearer Rs 2,700 crore- more or less the same as in 1980-81 and the year before. The total deficit in the first two years of the Congress(I) regime would thus amount to over Rs 5,000 crore, pre-empting in two strokes the entire allocation under this head for the whole of the Sixth Plan.Distinct Change: However, does this juggling with sums really matter? One reason why industrialists and businessmen have welcomed the budget - with minor reservations - is not only because they have been let off the hook but because the finance minister has more or less left them to their own devices. In fact, there is a definite method behind Venkataraman's madness and the businessmen who have seen through it think that the finance minister's thrust is in the right direction. This also explains the mini-boom in the stock exchange, with theEconomic Timesshare index reaching a new high. Within five days of the budget announcement, share prices have gone up by nearly 5 per cent - 1 per cent a day - and some shares like Tata Steel and Century Spinning by more than 10 per cent. The private sector has obviously read between the lines and found Venkataraman's scrawls more than agreeable.The 'soft' budget marks a distinct change in the Government's economic policy. First, the Government has apparently given up its attempt to regulate the economy through fiscal measures which are now to be replaced by the price mechanism. Second, it recognises that the so-called commanding heights enjoyed by the public sector have not only helped pre-empt all investible resources but weakened the will and ability of private enterprise to generate internal resources and mop up community savings for expansion and growth. Third, it is doing away with the distinction between core and non-core sectors which will now be decided, not through government fiat, but through the free play of market forces and profit motive, particularly in the private sector.New Perspective: The budget thus does away with the very basic principles on which the entire edifice of a planned but ill-growing economy had been raised in India, although the policy has not yet been spelt out in clear terms and will probably never be. The public sector will no longer be the holy cow it used to be and its growth will depend on the resources it is able to raise either by increasing its profitability or prices, that is, without access to budgetary resources. The private sector will no more be used as a milch cow for transferring resources to the public sector which will now have to compete with the former for capital and other funds. And within the private sector itself, the dividing line between core and non-core as well as priority and non-priority will be a thin one and will slowly vanish as the various industries operating in a free market stake out their own territories for expansion.The budgetary policy seems to be in line with this new perspective and is geared not only to allow but encourage private enterprise to mobilise community savings for investment. This explains the cuts in direct taxes to the tune of Rs 140 crore in personal income tax and Rs 60 crore in company super-tax. These cuts will result in large disposable incomes being left with individuals and companies so that they can save more and invest more, while the increase in disposable incomes also expands the market for goods and services.Complex: This also explains why the finance minister or, for that matter, all other members of the Government, are totally unmoved by the criticism of black bonds. The line of argument seems to be that undeclared money is already an important segment of the economy, particularly in the private sector, and if this sector is now to be treated on par with the public sector, there is no reason why the Government should not lay claim to a portion of it, even if it is tainted money. As Venkataraman himself is reported to have said, the question of moraliy is secondary.The fact is that the Indian economy has grown far too complex to be managed by the babus in New Delhi and has to be allowed to go its own way and find its course. In fact, it is already going its own way, irrespective of what the Government does. One reason why Charan Singh's budget for 1979-80 wrought such havoc was that he tried to go against the grain by imposing on the economy his own pre-conceived and outdated notions, setting up one sector against another - small vs large industry, rural vs urban sector - while such distinctions are now largely imaginary.If there is to be a public sector, it is simply because the resources required for setting up, say, a million-tonne steel plant or a 1,000-megawatt power station are beyond the resources of private enterprise as currently organised, and not because of some notions about commanding heights. In time to come, the private sector should be able to garner sufficient strength and capacity to undertake such projects but not before the Government gives up its pre-emptive claim to all national resources.Increased Spending: In his budget speech, Venkataraman claimed that he was moving from crisis management in 1980-81 to engineering growth in the coming fiscal year. He also said - though, for some reason, his remarks seem to have gone largely unnoticed - that he did not have much faith in demand management (through fiscal and monetary measures) and preferred to regulate through supply management. What the finance minister is obviously hoping for is that the reliefs in taxes and the hikes in interest rates will provide sufficient incentives for investment and growth, and when that happens, there will be enough resources to go round for further economic expansion. He is rather vague about how exactly this is to be done, but then the entire budgetary exercise is beset with 'ifs' and 'buts', which is of course natural when an economy as big and as complex as India's is changing course midstream. The important thing is that New Delhi has recognised that it is changing course and is prepared to trim its sails accordingly.Industrialists have, however, lamented that for a man with what appears to be a clear sense of direction, Venkataraman should have not gone the whole hog and done what President Reagan has done in the United States, namely, slashed the budget and hacked "big government' to size. Jimmy Carter had proposed a budget with total spending of $ 728 billion (Rs 5 82,400 crore) against revenues of $ 702 billion (Rs 561.600 crore). Reagan has struck down total spending to $ 696 billion (Rs 556,800 crore) against revenues of $ 651 billion (Rs 520,800 crore). Venkataraman, on the other hand, has hiked total spending from Rs 22,808 crore last year to Rs 24,871 crore in the coming year, a hike of 9 percent. Given the general disposition many experts have felt that he could have at least tried to maintain the spending figure at last year's level and not make such a fuss about black bonds and similar tricky devices. Nonetheless, the budget on the whole has been greeted with two cheers, for its small mercies.Published By: AtMigration Published On: Nov 25, 2013 15:33 IST--- ENDS ---

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The budget: A stimulus for growth

In his budget presented to Parliament last month, Finance Minister Ramaswami Venkataraman has used the something-for-nothing formula with great panache. But it is all done apparently with mirrors and the images are already moving out of focus.

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