Diagnose the Budget

It’s not just mice an’ men whose best-laid schemes go awry. Sometimes that misfortune afflicts mighty finance ministers of wannabe economic superpowers as well. P. Chidambaram returned to Budget-making much refreshed from his road-shows in financial capitals of the world where he did what he thought was a stand-out job of selling India.

But the Central Statistical Organisation poured a bucket of cold water over his enthusiasm by coming out with a forecast of the current year’s GDP growth more dismal than expected. No wonder the economic policy mavens got into a rather unedifying methodological battle with the government’s own chief statistician.
This is the last Budget the UPA-2 government will present. Even if the general election is held on schedule after March 2014, the exercise next February would be merely a vote-on-account for carrying on routine business. Under normal circumstances, this should be a time of reflection and stock-taking, with the government patting itself on the back for its achievements and offering various concessions to the electorate as inducements for continued support at the ballot.
But the situation of the Indian economy circa 2013 is far from normal, with unwieldy Budget and current-account deficits adding to unabated inflation. Columnist Paranjoy Guha Thakurta recently discussed (Budget: Left, right, left, February 12) Mr Chidambaram’s dilemma of meeting the populist demands of large sections of his party and allies, and considerations of fiscal prudence to meet the expectations of both domestic and international investors. Without their active support, it will be difficult to maintain even the current anaemic growth performance.
Mr Chidambaram has been quite firm in asserting that he will adhere to the 5.3 per cent target for the budgetary deficit this year. If the growth is lower than the expected number on which this target was based, the actual deficit as percentage of the GDP would be higher, which would be embarrassing to the finance minister. Actually, the impact of the 0.5 percentage point reduction in growth from the earlier expectation of 5.5 per cent would be only in the second decimal and not very damaging.
The real cause of red faces is that for two years in a row, the actual growth falls well short of the respective Budget expectations. This year’s slippage to five per cent from the March 2011 figure of 7.5 per cent comes on top of the previous decline from the expected nine per cent to 6.2 per cent. These departures are not at the margin, but are rather substantial. To compound the misery, they are accompanied by similar deterioration of other parameters of economic performance, notably the twin deficits. That cannot speak highly of the once-vaunted skills of the managers of Indian economy.
To blame this entirely on Pranab Mukherjee, who presented all the earlier UPA-2 Budgets, would be disingenuous. Mr Mukherjee did not resist populist demands on the scarce government resources. He believed that the conjured-up growth scenarios and targets for disinvestments would actually materialise and provide the needed means, much the way a financially strapped pater familias does in the face of irresistible demands from his children. Finance ministers of major countries are supposed to be made of sterner stuff, but that kind of disciplined sense of purpose has been found wanting in UPA-2.
The UPA is a contradiction of sorts: while the Gandhi family reigns supreme, the satraps are power centres unto themselves, and motley ones at that. Our politicians and bureaucrats have imbibed well Macaulay’s wisdom. They have grasped that exercising power is never a zero-sum game: your gain is someone else’s loss. One’s position in the pecking order does not always go with the formal title. It depends on how well one is endowed with the power that constricts others.
The much-in-evidence policy paralysis is the most obvious, but not the only, indicator of internecine struggles. They are seen when a rogue telecom minister defies with impunity the collective wisdom of his colleagues and the law of the land. It is the same thing when former environment minister Jairam Ramesh (and now Jayanthi Natarajan) took on all and sundry, or minister of urban development Kamal Nath joined with Montek Singh Ahluwalia.
The UPA calls it coalition dharma and employs means such as coordination committees, groups of ministers, empowered or otherwise, and Cabinet committees to achieve cohesion. All that it has achieved is placing Mr Mukherjee in Rashtrapati Bhavan. C. Northcote Parkinson called this the coefficient of inefficiency!
Growth and development, inclusive or otherwise, require the pursuit of win-win strategies and simultaneous abandonment of zero-sum games as preconditions. We need to look not to the next election, but to the next generation and, perhaps, the one thereafter, putting aside concerns of who comes out at the top. That seems to be beyond the UPA’s grasp.
The Indian Budget is not a mere compilation of tax proposals and spending programmes. It is a fundamental statement of policy. That needs a proper discussion and analysis by the lawmakers. This used to happen in the bad old pre-liberalisation days. The economic survey came out a week, not two days, before the Budget, and was debated. MPs bothered to understand what the Budget said. They consulted experts before speaking on it. The government cared to listen and note serious concerns.
The Budget is the ultimate example of opacity in government. We worried about the new taxes and before the Budget, tried to stock up on things likely to be taxed. Sometimes, we even succeeded. We didn’t quite understand the Budget technicalities, so we listened avidly to gurus such as Nani Palkhivala. Now we don’t quite worry about such consequences of the Budget. We, the citizenry that otherwise increasingly demand transparent governance tempered with moderation, take the Budget as yet another TV reality show in the age of 24x7 media exposure, and it is history one week after it is presented. Paralysed Parliaments have passed Budgets without debate too often for comfort. A meaningful discussion is now as rare as good parliamentary etiquette.