It is astonishing that in analysing and presenting a critique of the central government's budget, most analysts and critiques focus on those nuts and bolts and washers -- and small ones at that -- which evoke a populist response. Attention, thus, comes to be concentrated on the small benefits and petty losses incurred by this or that group of people. But the basics of the budget, so to say, which are relevant for dealing with fundamentals of the analysis is thus journalistic in character at best and micro-partisan at worst.
A good example in the budget presented by the FM, Yashwant Sinha, for the year 1998-99 is the almost total focus by newspapers and the general public on the imposition of a Rs 4.57 per litre tax on petrol and a quick withdrawal to rupee one per litre; as also the amazingly naive leg-pulling of the FM on charging rupee one increase in the price of urea per kilogram and a quick reduction overnight to fifty paise. How dare the finance minister respond to the sentiments of parliamentariansand the public and correct the misunderstanding between two ministries and put the record right? How dare the FM take into account the slightly unfavourable response to the increase in urea price, according to his own understanding of the situation, reduce the price by a huge amount of fifty paise per kg! The previous FM had made such adjustments in response to public emotions but how dare Sinha do it even if it be a pittance?
It is true that in one post-budget day, the buyers of petrol did pay a little more than Rs 3 a litre -- but that was only for one day and not 365 days. But that one day cannot be swallowed. On balance, it appears that far more than the petrol buying public, it was the press that felt the pinch of the one-day loss and highlighted if for three days.
Coming to the fundamentals, the basic questions to be asked in approving or disapproving the 1998-99 budget are whether the FM has faced squarely the problems of the economy and made significant proposal for correcting the decline,lessening the imbalances, eliminating the recession and finding adequate resources for a depleted economy in very difficult days. Did he or did he not adopt a fiscal policy which does not deflect the economy from the path of liberalisation? Did he provide a necessary inflow into the country which needed huge domestic and foreign resources. The budget is really to be tested on whether it has done the right things to redress the depleted economic situation and put the economy back on the rails of better industrial performance and augmented agricultural and general growth.
In the present context, there were at least three basic questions which the FM had to address. Since last year, in fact in the last two years, the economy has slided down from a 7 to 7.5 per cent growth path to only 5 per cent in 1997-98. Industrial growth, which has often registered an 8 per cent and 10 per cent and, occasionally, even a 12 per cent growth, has come down in the last financial year to only 4.2 per cent. The agriculturaleconomy, judging by the foodgrains output, had moved downwards from 199 million tonnes to 194 million tonnes. Agricultural capital formation had slowed down. There is hardly any sector or sub-sector in industry which has not joined the recessionary phase in the last two years. The demand for consumer goods and durable consumer goods has been sagging and underlines a decline in buying power of the consumers. The capital goods industry has been in a bad shape, as has been the stock market. The housing market has been depressed in terms of residential and office construction, house sales and purchases and housing rentals in all the cities as well as elsewhere. The export market has petered out from a 20 per cent growth, only about three years ago, to as low as 3 per cent growth in 1997-98. Barring an occasional exception, perhaps, as in the software export area, it is difficult to know which industry in the country has not either tapered off in growth or actually declined in terms of market demand. Thus, themost important thing to do in this year's budget was to reflate the economy and pull it out of the recession. If the economy cannot be taken out of the recession, nothing else really matters much. With a depressed production and sale, neither the export market can perform better nor the domestic demand and employment increase, nor the tax collection register a rise nor the fiscal deficit contained, nor the housing market, the land market and the stock market can be expected to rise. As international recognition basically waits on continued and improving performance, if the FM did not undertake measures to lift up the economy, he might as well not do anything else, that would commend his budget.
Luckily for the country, the FM seems to have addressed this basic question of reflating the economy. It was, however, a presentational fault that he did not bring together in one place all the measures for an economic uplift but defused them in on different parts of the budget. It was for this reason, one would liketo think, that the intelligent public and discerning critics could not identify immediately the reflationary measures. Sinha has provided a very substantial 35 per cent increase in the budgetary allocations for infrastructure. Far from demoting the public sector, he has given that sector the wherewithal and the capital goods that would lead to the much needed investment in roads, ports, communication and the social sector. He has also tilted the balance of allocations in favour of planned rather than non-planned expenditures. He has seen the merit of giving first priority to enhanced government expenditures to fight the reflation rather than bother too much about a reduction of the fiscal deficit.
In the current fiscal year, it was important for the FM to fight the recession and to leave the containment of the fiscal deficit to a future date, so long as the economy did not go into a serious inflation. If, through a large increase in worthwhile infrastructure and capital goods in the public sector, thesagging market gets uplifted, the government expenditure flow into the pockets of the currently and additionally employed workers, builders, engineers, contractors and the general public, then the private sector, both corporate and non-corporate, will quickly notice the improvement in demand and will come forward to place large orders for new equipment and start new ventures to get the benefit of the rising market.
When the public and the private sector join together in the additional investment and production, the inflation is bound to be contained, not through a reduction in money supply or the fiscal deficit but with a major increase, if not an outburst, of output. Sinha's budget thus does not seem to be an inflationary budget notwithstanding the increase in the excise duties, as it seeks to control inflation from the supply side by eliminating the recession and putting the output in the hands of buyers.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.