Neither credible nor significant
Over the years, especially with the arrival of 24-hour TV news channels and the desperate hunger for bytes, the run-up to the Union Budget as well as the Budget itself has acquired all the trappings of a mega event. With some budgets, at the end of the day, one has often wondered if the event was “full of sound and fury, but signifying nothing” as the old Bard of Stratford-upon-Avon might have put it. But there are also budgets that do not even evoke a sound, let alone fury.
The incumbent finance minister is known primarily as the Congress pointsman in the beleaguered and scam-ridden UPA-2. He can make noise when it is felt that the occasion demands it, but he can also deliver “silent” budgets. Both types may of course be equally non-descript. How does the Union Budget for 2012-13 fare in this context?
First, the Economic Survey tabled in Parliament by the finance minister a day prior to the tabling of the Finance Bill tells us that things are presently bad, but assures us, Micawber-like, that better times are just round the corner. Thus, we may grow only by 6.9 per cent in 2011-12, but we will grow at 7.6 per cent in 2012-13 and by 8.4 per cent in 2013-14, the survey cheerfully assures us. Unfortunately for the government, one arm does not seem to be know what the other is doing, since the Union commerce secretary has declared in an interview to the media that for 2012-13, a growth rate between 6 and 6.5 per cent would be a far more realistic figure than the one touted by the finance ministry mandarins. This may, of course, also be an instance of coalition dharma across the departments of government!
Given the likelihood of a double-dip recession in the global economy and the continuing uncertainties related to oil prices, the Commerce secretary may well be closer to the mark than the erudite author of the Economic Survey. But the growth rate is not the most significant thing about an economy, though it is of some relevance. We have had 6 per cent plus growth rates of GDP in India for over two decades and more now, but a recent study notes that in rural areas at a radial distance greater than five kilometers from any urban territory, per capita income has, in most instances, gone down, and the proportion of people below the poverty line increased.Clearly, growth by itself is no panacea, and does not automatically lead to reduction in poverty. Successive budgets during the two or more decades of “economic reforms” have tended to frame the issue primarily in terms of growth, though the rhetoric of inclusive growth is also regularly invoked in official documents, including budget speeches.
The present Budget is no exception. In terms of resource mobilisation, it levies in the net `46,000 crore by way of indirect taxes, but gives away `4,500 crore in terms of direct tax revenue, continuing a trend of greater reliance on regressive indirect taxation that burdens the poor. Plan outlays have hardly increased in real terms, when one takes inflation into account, so no great thrust on growth can be claimed either. The point about indirect taxes in our country is that when the rates are raised, prices will most certainly rise, but when they are lowered, as they were in the stimulus Budget of 2008-09, there is no guarantee that the consumers will benefit in terms of any reduction in final prices. The levying of additional indirect taxes in this Budget will not help in moderating inflation, but will obviously worsen it.
Despite the rhetoric in the Budget speech that agriculture will continue to be a priority for the government, the fact is that agriculture has not been a priority at all for successive governments during the reform period. This year is no different. Nor, of course, does the Budget even bother with the issue of rising unemployment and the danger of the putative demographic dividend turning into a demographic nightmare. Briefly put, the Budget does not at all seriously address the critical issues of rural and agricultural renewal, unemployment and price rise. The suggestion that the inflation we are facing is because people’s incomes have risen and we are therefore having a demand-led inflation is patently untenable, concealing as this does the impact of futures trading and trade deregulation.
Of course, the Budget is merely one instrument in the hands of the government, though an important one, considering that the Union Budget expenditure is around one-seventh of the country’s GDP. The Budget is part of a broader policy framework, which is influenced strongly by powerful business interests, both domestic and foreign. It is also the case that, with the Indian economy increasingly integrated with the global economy, budgets are further constrained by the international context and global developments, including global shocks. But at the end of the day, despite universal adult franchise, the Indian state is far more in the hands of powerful private economic interests, domestic and foreign, rural and urban, than it is in the hands of the people who vote governments in or out. Budget 2012-23 is no exception to this generalisation.
The writer is an adviser, M.S. Swaminathan Foundation, and retired professor of economics