Despite Finance Minister, P Chidambaram’s best efforts to showcase the achievements of his government over the last decade in his February 17 speech presenting the Interim Budget for 2014-15, the fact is that his successor will be inheriting an economy in shambles. Inflationary pressures remain high and job opportunities are hardly growing. Besides taming prices and creating employment, the equally daunting challenge for the next finance minister will be to tackle the consequences of his predecessor Mr Chidambaram’s obsessive attempt to keep the fiscal deficit low which has been achieved partly by window-dressing figures and partly by contracting the economy. The task to revive the economy will be indeed daunting. With manufacturing industry in a state of stagnation or decline and with the services sector growing at a sluggish pace, the saving grace for the Indian economy is the expectation that the agricultural sector (accounting for barely 18 per cent of the country’s gross domestic product) will grow by 4.6 per cent during the current financial year that will end on March 31.
Around this time a year ago, Mr Chidambaram had claimed that the Indian economy would grow by five per cent in 2012-13. It was pointed out to him then that a more realistic estimate would be 4.5 per cent. However, on the last day of January, the Central Statistics Office finally came out with the actual figure and it was indeed 4.5 per cent this rate of growth of the GDP during 2012-13 was the lowest in a decade.
The government has repeatedly sought to emphasise two aspects of economic policy: accelerating GDP growth and cutting the fiscal deficit. The fact is that although GDP growth has slowed down over the last two years, even in the earlier years when growth had peaked at nine per cent three years in a row between 2004 and 2008, growth did not result in “inclusive” development but instead widened inequalities.
Now the deficit is being sought to be slashed by juggling statistics: by over-estimating revenues, postponing payment of subsidies and slashing the Central government’s plan outlays. This may please international credit rating agencies, but will hardly contribute to the overall wellbeing of the economy, especially the health of the underprivileged at a time when the country has witnessed double-digit food inflation for the better part of the last six years — the longest in the history of Independent India.
How has the fiscal deficit been cut to a level below the “red line” of 4.8 per cent to 4.6 per cent of GDP? The revised plan expenditure is lower than the budget estimate by as much as Rs 80,000 crore or 0.7 per cent of GDP. The Central Plan outlay has been reduced by '66,000 crore and Central assistance to the plan expenditures of states and Union Territories is down by over Rs 17,000 crore. Payment of subsidies worth roughly one per cent of GDP, including subsidies for petroleum products worth Rs 30,000 crore, have been pushed to the next year. In fact, the government has implicitly budgeted for a lower outgo on subsidies if inflation is taken into account. This is one of the ways in which the economy has been sought to be contracted. The government has been lucky that non-tax revenues have exceeded the budget estimates by Rs 20,000 crore thanks to auctions of 2G telecom spectrum and special dividends by public sector undertakings. The total tax collections in the revised estimates for the current year are expected to rise by 13 per cent against the budget target of 19.4 per cent.
Mr Chidambaram has acknowledged that two of his big “disappointments” , some would prefer to describe these as “failures” has been his inability to arrive at a consensus with states on the minimum goods and services tax and to move ahead with a Direct Taxes Code. It can be contended that if he had paid more attention to these economic “reforms”, instead of the kind preferred by Prime Minister Manmo-han Singh and him, notably, rolling out the red carpet for foreign investors, the economy would not have been in the terrible shape it is in.
The government has rationalised 126 centrally-sponsored social welfare schemes into 66 schemes and, most importantly, routed the funds from the administrative ministries directly to the treasures of state governments to give the latter greater “ownership”, “accountability” and responsibility for implementing and monitoring these schemes. Why has Mr Chidambaram not publicised this measure as his government’s endeavour to bring about greater federalism in the country? Everyone concedes that a huge problem is the rising non-performing assets (a euphemism for loans not returned) of public sector banks. Yet Mr Chidam-baram has kept aside Rs 11,200 crore for capital infusion against Rs 14,000 crore in the current year.
Perhaps the most inexplicable aspect of the finance minister’s vote-on-account is the government’s decision to accept the principle of one-rank-one-pension for defence personnel (for which Congress vice-president Rahul Gandhi has taken credit) which has been hanging fire for decades. Mr Chidambaram has kept aside Rs 500 crore for this purpose for 2014-15. Was this decision kept pending for as long as it was for a such a piffling sum of money? Or has the finance minister under-estimated the amount involved?
