The Hindu Business Line : Budget strategy for 2006-07

The Finance Minister, Mr P. Chidambaram, would do well to devote the 2006-07 Budget to the improvement and consolidation of the outcome of the initiatives and schemes already taken up and the restoration of the fiscal health, instead of including any new or ambitious programmes. The Budget would, in this sense, be minimalist, allowing the Finance Minister and his colleagues to bend their energies wholly to get the maximum bang for minimum buck, says B. S. Raghavan.

The Finance Minister, Mr P Chidambaram, with the Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia... Consultations on the Budget?

ALREADY the corridors of the Finance Ministry must be abuzz with preparations for the 2006-07 Budget. In daily brainstorming between the Finance Minister and the senior officials and among the latter themselves, all kinds of ideas must be getting an once-over, and either noted down for further examination or shot down on the spot. The Council of Economic Advisers, the Planning Commission and the various Ministries too will pitch in with their own proposals.

Think-tanks, media, civil society groups, and federations of industry, business and commerce must have happily got cracking on the contours of the coming Budget and geared themselves for the hardy annual of interactive sessions with the Finance Minister. The Budget is fair game for foreign know-alls as well who would be coming up with their instant fixes on the dictum that the same size fits all!

Critical mass

Over the years, Budget-making has followed a standardised routine: Extrapolate a few figures under various categories of taxes and duties, notch up the outlays under various heads, throw in a few grandiloquent schemes with fancy (and preferably unpronounceable Hindi) titles, pay mandatory obeisance to poverty eradication, rural development, agriculture and full employment, tote up the totals, work out the deficits, and serve with a few quotes from poems, digs at the Opposition and forays at supposed humour.

With a buoyant economy and a spirit of confidence and optimism in the air, having recourse to the above conventional approach in framing the Budget for 2006-07 would be the easiest part of the task before the Finance Minister.

But there are some special features of the economic landscape that make a reality check necessary. The United Progressive Alliance (UPA) Coalition is exactly midway in its term, with the economy reaching a critical mass. This is just the juncture at which it becomes imperative to chart the future course with a clear-eyed SWOT (strengths, weaknesses, opportunities and threats) analysis. In short, it is a time for stock-taking and mid-course correction.

The need to reconcile the compulsions of coalition politics with a credible economic reforms process has had the effect of forcing the Finance Ministers in the recent past to put off what is desirable in favour of what is feasible, whether it is a matter of propitiating foreign direct investors and inducting private firms for capital projects, or a question of paring subsidies, levying user fees, revving up disinvestment, attuning labour laws to globalisation, or opening up of new sectors of the economy.

There is no denying the fact of the Government being driven to a messy corner on these accounts. Letting such contretemps without evolving antidotal measures is bound to detract from the unerring focus the economic players and government agencies should have on the challenges ahead.

There are some rays of hope, though. The present brains trust of Dr Manmohan Singh — Mr P. Chidambaram, Mr Montek Singh Ahluwalia, Mr Kamal Nath and Dr Y. V. Reddy — ably assisted by the supporting cast, comprising the likes of Dr C. Rangarajan, Dr V. Krishnamurthy and Dr Jairam Ramesh, have been showing themselves adept in performing a balancing act amidst all the pulls and pressures and shoring up the gains so far made nationally and internationally, while still maintaining a well-calibrated pace towards the ultimate objective of making India assume the status of an economic giant and a global power in all respects..

The vigorous steps being taken in West Bengal under the forward-looking leadership of the Chief Minister, Mr Buddhadeb Bhattacharjee, as well as his outspoken chidings of the CPI(M)'s cadres whenever they hark back to the days of gheraos labour intransigence, obstruction and intimidation of captains of business and industry, are indicative of the Left also being in tune with the spirit of the times.

The problem arises only when one does not make allowances for their susceptibilities, makes light of their insistence on reforms with a human face, job-led growth and safeguards against economic imperialism under another name, and unfairly doubts their genuine concern for national interest when they advocate caution.

Black holes

Most often, the discord between the Left and the ruling coalition is the result of inept political management and abrupt announcements of fait accompli without prior consultation. Since the Left has been in consonance with the approach and strategy adopted in West Bengal, making the State's Chief Minister a permanent invitee to the meetings of UPA-Left Coordination Committee, profiting from his advice may work wonders in forging a consensus on all the elements of the New Economy and accelerating the progress of implementation of the reforms.

Apart from these factors, run-of-the-mill Budgets with more of the same have been having a number of black holes which had resulted in a chronically persisting and cumulatively widening gulf between outlays and outcomes, announcements and accomplishments, and expectations and entitlements. The first such black hole is poor project management resulting in unconscionable cost-cum-time overruns, investments going without return and people robbed of the intended benefits.

Mr Chidambaram himself, addressing the International Project Management Association on November 13, disclosed the shocking detail that 340 bigger projects with a total investment of Rs 18,000 crore and 620 projects, each with an investment of over Rs 20 crore were still dragging on, gobbling up resources many times more than envisaged. Whereas China, with "ruthless efficiency" and a current reserve of 6,000 project managers and a prospective total reserve of 6 lakhs of them (as against India's measly 450 certified project managers and that too at the D-level) has consistently demonstrated its ability to complete projects ahead of schedule. The multiplier effect of commissioning projects on time and making them work as per specifications will by itself be the equivalent of adding two percentage points to the GDP.

The second black hole is the scant attention paid to the sustained operation and maintenance of projects already completed. Maintenance is at its worst in precisely those sectors — utilities and infrastructure — where it needs to be at its best. In respect of power stations, for instance, by doubling the plant load factor and reducing transmission and distribution losses to half their present level will likewise be the equivalent of installing an additional 50,000 megawatts of generation capacity without spending a single rupee, and the multiplier effect of this one sectoral component alone functioning at its optimum efficiency will mean notching up the GDP by two more percentage points.

The third black hole is infructuous and wasteful expenditure and the drain of Rs 23,800 crore in bribes for various services, as estimated by the Transparency International.

The Prime Minister and the Finance Minister cannot put off any longer grasping the nettle of subsidies, user fees and the right sizing of Central and State Governments. By the strict targeting of beneficiaries of subsidies and adopting a graded scale and phased implementation, it should be possible to obviate the fears that any attempt at rationalisation will jack up the rate of inflation, make necessities unaffordable for the poor and add to the misery index of the middle-class.

The ploughing of resources liberated from these constraints into sectors starved of funds can have a multiplier effect tantamount to a rise of a couple of percentages in GDP.

Adding to GDP at no extra cost

Similarly, restructuring with a view to rightsizing can also be brought about without tears and this may, by enhancing productivity, even generate more jobs by attracting investments and setting up new industries and expanding the existing ones. In any case, these are not issues that lend themselves to resolution by a peremptory executive fiat.

But a beginning must be made by having the matter discussed in depth, based on a paper prepared by the Council of Economic Advisers and the Planning Commission, with all sections of opinion — political parties, trade unions, business and industry federations and representatives of interests having a stake in the fiscal health of the polity — at a National Conference chaired by the Prime Minister himself. Months of hard-headed consultations may have to go into it before an agreed plan of action is hammered out.

These do not exhaust the possibilities of getting the most out of the outlays through better financial management. At a pinch, and from the top of the head, one can have a shot at doing away with perks and privileges, tightening of tax administration, mopping up fresh funds by enlarging the catchment areas, and imparting to the Government a leaner look by effecting a reduction in the number of Ministries and departments.

The gigantic National Rural Employment Guarantee Scheme will need constant monitoring in order to guard against its becoming a black hole in its turn. Also, the stress being laid by Mr Chidambaram on relating outlay to outcome to instil accountability and efficiency all round is to be refined further before it can be expected to give a clear picture of the Government's performance.

The Finance Minister will do well to devote 2006-07 to the improvement and consolidation of the outcome of the initiatives and schemes already taken up and the restoration of the fiscal health in the overall, instead of including any new or ambitious programmes or going in for any extensive revamping of the tax regime.

The Budget would, in this sense, be a minimalist one, almost a mirror reflection of its predecessor, allowing the Finance Minister and his colleagues in the UPA Government to bend their energies wholly to get the maximum bang for minimum buck, and thereby add four or five more percentiles to the GDP at little or no cost.

The fiscal deficit too will dive South once productive assets yield commensurate return, and the leaks are plugged.

The upbeat state of the economy, the prevailing price stability of essential commodities and low inflation give a breathing space to all the economic players to have a go at economic management as a holistic exercise, instead of boxing themselves within the confines of a stereotypical Budget.

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