The Hindu Business Line : Goodies galore; dilution of fiscal standards may prove costly

At a time when the banking industry is bracing itself for conforming to Basel II norms, it is but a travesty that the banking system is asked to waive off humongous amount of advances to farmers.

G. Srinivasan

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New Delhi, Feb. 29 The Union Finance Minister’s fifth Budget for 2008-09 of the UPA Government and the two earlier Budgets he had authored for the United Front Government in 1996-98 unmistakably could not be a patch on the path-breaking Budget Dr Manmohan Singh made unveiling the reform agenda of the early 1990s when he was the Finance Minister. This is despite Mr Chidambaram’s opening remarks in his long speech where he alluded to a feat of sharing “the rare honour and the privilege” with Dr Singh in presenting all five Budgets on behalf of a Government.

With the UPA Government in election-mode, the Budget 2008-09 was on expected lines with goodies and giveaways to farmers, income-tax payers and a whole host of small sops to a few players, both industry and services segment. But the reform measures about which he was waxing eloquent in the run-up to the Union Budget were conspicuous by their absence, unlike Dr Singh who presided over India’s decisive break with the inward-looking and closed economy, thanks to the immense support the late Narashima Rao as Prime Minister extended to him.

But in an irony of sorts, this time Dr Singh is the Prime Minister with Mr Chidambaram on the finance saddle and both of them were bound by the constraints of the Common Minimum Programme (CMP) which limited their elbow-room to declare serious second-generation of reforms particularly in the financial sector.

It is facile to argue that due stimulus has been given to effect a rebound in demand, particularly when exporters face serious losses in terms of competitiveness by the appreciating rupee and rising transaction cost. None of the major demands of exporters, including export-oriented units for extension of sunset clause by a year, has been heeded to. Manufacturing sector and corporates as also high-income earning people do not feel buoyed up because of the failure of the Budget to lift the surcharge which remains a kill-joy for entrepreneurship and earnest endeavour to accumulate wealth even as India has been globalised.

Waiving of loan

At a time when the banking industry is bracing itself for conforming to the Basel II norms in terms of adequacy of provisioning against non-performing assets, it is but a travesty that the banking system is asked to waive off humongous amount of advances to farmers. Though the banking system would get equivalent amount of liquidity spread over a span of three years through ingenious instruments or other fiscal sleight of hand such as issue of bonds, this is also at variance with the avowed commitment of the Finance Minister to the Fiscal Responsibility and Budget Management Act.

Because of an onrush of committed expenditure such as massive transfer of resources to States, Mr Chidambaram pressed the pause button on FRBM Act in the beginning of his present tenure. Now at the end of his tenure, he has again said that he would need one more year to eliminate the revenue deficit and not in 2008-09 as scheduled. Generous grants, compassion, righteous rule and succour to the downtrodden are the hallmarks of good governance as he rightly cited the savant Tiruvalluvar.

But the real question is whether fiscal prudence and shifting the burden to the next generation by piling up debts and living beyond one’s means are a mark of good governance? If out of Rs 525,098 crore revenue receipts, interest payments amount to 171,971 crore in the current fiscal as is borne out by the Budget at-a-glance document, how can a development plan carry conviction, leave aside, ensuring inclusive growth of the downtrodden and the vulnerable? It is time the UPA Government realised that its dilution of fiscal standards to accommodate off-Budget expenditure would not only constrain the current generation but also lead to progressive immiserisation of future generation under heavy debt servicing obligation. The Budget has laid a firm foundation for such a slippery slope.

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