THEREwas much uncalled for excitement in the media, especially the visual media, about the interim budget presented on Monday. Most people failed to recognise the difference between a regular budget and an interim budget. All kinds of speculations were made about what the interim budget may contain. Some of us who were aware of the limitations of an interim budget and the conventions which have evolved under the constitution knew that these speculations and expectations were misplaced. An interim budget is nothing more than an arithmetical exercise in order to secure parliamentary approval for a certain sum of money for the functioning of the government for a few months. According to Kaul and Shakdher, a vote-on-account, which is the main purpose of an interim budget, need not even be debated in Parliament. It could be passed without debate, so routine it is in nature. The disappointment with this interim budget and the market crash were, therefore, eminently avoidable.
Like the interim budget presented by Dr Manmohan Singh on February 28, 1996, this interim budget also is a saga of the achievements of the UPA government. Again, like the 1996 interim budget, it contains a list of priorities this government would follow if returned to power. But unlike the 1996 interim budget, the Finance Minister this time had to devote at least three paragraphs of his budget speech to the global crisis impacting on the Indian economy. It is another matter the he ended up doing nothing about it.
If I were to pick up the single most important aspect of the interim budget, it is the manner in which it exposes the fraud of the budget presented by P Chidambaram on February 28 last year. Pranab Mukherjee, no doubt, has tried to soften the blow by understating facts about the deficits in the budget. But the facts are so well known that they cannot be concealed any more. Chidambaram had pegged the fiscal deficit for the current year at 2.5% of the GDP on February 28, 2008 and the revenue deficit at 1% of the GDP. He not only tried to hoodwink the people by massively underestimating the deficit, but kept claiming that he had a head room of 0.5% of the GDP (considering that he could have shown a fiscal deficit of 3%) to provide for all kinds and manner of expenditure. Pranab Mukherjee has now raised the fiscal deficit to 6% and revenue deficit to 4.4% of the GDP. Even this is a gross underestimation. The Prime Minister’s Economic Advisory Council in a report presented in January, 2009 has said that the fiscal deficit of the Union Government will be 8% of the GDP. My own calculation will show that it will be nothing less than 10% of the GDP taking into account the massive shortfall on the revenue side. Direct tax realisations have already fallen short by Rs. 1,00,000 crore compared to the target by the end of January this year. The industrial slow down and the dramatic decline in the price of petroleum crude is bound to have an impact on central excise and custom duty collections. Both together would account for at least 3% of the GDP and not 1% as estimated by the Prime Minister’s Economic Advisory Council. The Council has also stated that the combined deficit of the states would be of the order of 3.5% of the GDP. Thus, we are looking at a horrendous figure of 13% to 14% of the GDP as the national fiscal deficit. Even after the liberties which Rajiv Gandhi had taken with the fisc, fiscal deficit at the end of the 1980s had not exceeded 10% of the GDP. The crisis that we faced in 1990 and 1991 as a result of this is now part of history.
Add to this, the global economic crisis and you have the surest recipe for disaster. To add to our woes, most of it is unproductive revenue deficit. Quite frankly, if the Finance Minister had come out with a worthwhile package to meet the challenge of the current economic crisis, we would not have protested, given the uncertain times we live in. He obviously thought otherwise. Thus, for the next four months, when the country goes through the polls and a new government is formed, we shall have to grapple with a worsening crisis on a daily basis without the tools to do so.
The greatest failure of the UPA government has been the opportunity it wasted to build the hurricane shelters when the sun was shining. It had a dream run of four years with an economy on a high growth trajectory, unprecedented increase in government revenues and bountiful monsoon rains. It was a time like never before to make the Indian economy completely secure. Unfortunately, those golden years were wasted. The UPA government will leave behind an economy in dire distress. “After me the deluge” has been the philosophy which has guided the economic policy of this government.
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