EDITORIAL

A Missed Opportunity?

THE UPA government has presented its first budget. The CPI(M) Polit Bureau’s assessment and reaction to the budget proposals is published in this very issue. These are, hence, needless to repeat.

Since this is the first budget of the UPA government, it should have reflected the essence of the people’s mandate which, in the first place, put this government in office.  We have, through these columns in the past, analysed amongst other things that there were three main features of the people’s mandate. First, the desire to safeguard and strengthen the secular democratic character of the Indian republic. The second was to restore to Indian politics its morality and credibility that was significantly eroded by the Vajpayee government. The third was the compelling desire of the people seeking relief from the economic onslaughts mounted by the Vajpayee government. 

The budget was the opportunity to reflect this third feature. Unfortunately, however, the budget fell short of the expectations both as reflected in the people’s mandate and as contained in the Common Minimum Programme.  As a declaration of intent, the budget expressed its concern on all major areas relating to the people’s welfare. Many measures in the right direction have been taken. However, there are some others which, as the Polit Bureau statement points out, run contrary to the spirit of the CMP. These aspects, as we stated earlier, need not be repeated here.

The question that needs to be addressed is whether there was a better alternative before the government. The answer to this is, yes. The surest way to improve the people’s livelihood and to meet their needs was to embark on a massive public investment programme. This would have generated the much-needed employment which, in turn, would have enhanced the purchasing power of the people, expanding the aggregate domestic demand.  This in turn would have provided the required impetus for industrial activities and production of goods to meet this demand. The cycle of improving people’s welfare leading to economic development and so on would have been put in motion. 

While the budget increased the support to the central plan by Rs 10,000 crore, which is welcome, it is not sufficient. The levels of public investment should have been atleast to the tune of Rs 30,000 crore that could have generated economic activity, alleviating people’s miseries in a meaningful way.

The question often asked is: where can the government raise such resources from? In the first place, instead of pegging the fiscal deficit at 4.4 per cent of the GDP, the budget could have raised it to 5 per cent.  This, in itself, would have given the extra Rs 20,000 crore.

Fiscal fundamentalists, however, would argue that increasing fiscal deficit is unhealthy for our economy. The levels of fiscal deficit become dangerous only under what economists call “supply constraints.” That is, when the availability of goods is less, increasing money supply in the economy would lead to inflation, thus upsetting other economic calculations. However, in India today, we have a buffer food stock much above the minimum requirement. We have a massive foreign exchange reserve. Under these circumstances, supply constraints simply do not exist. Increasing fiscal deficit, therefore, is not so alarming as to cause concern, as the fiscal fundamentalists make it out.

Further, the finance minister has expressed confidence that a handsome amount can be recovered from tax arrears. As pointed out earlier in these columns, outstanding tax arrears in the last fiscal year were huge, over  Rs one lakh crore. A similar amount is locked up as non-performing assets (NPAs) in the nationalised banks. Even if a mere 10 per cent of these were to be recovered, the required additional resources for public investment this year could have been raised. 

This is the opportunity this budget has missed. It is hoped that during the course of the discussions in parliament and outside, the government will reconsider its approach in the interests of both the Indian  people and the Indian economy.