(Weekly Organ of the Communist Party of India (Marxist)
February 22, 2009
Interim Budget: Govt In A State Of Denial
THE interim budget presented by the UPA government, once again, highlights the urgent need for an alternative policy trajectory for the country. This is all the more necessary if the livelihood of the people needs to be protected, leave alone improved, given the worsening global capitalist economic recession. This underscores the need for the Indian people to bring into existence a political alternative that can undertake such a decisive shift in the country’s policy trajectory. This, therefore, remains the central task in the coming general elections.
Notwithstanding the Constitutional limitations of an interim budget and a vote on account, the UPA government appears to remain in a state of total denial about the gravity of the impact of the global recession on India. An interim budget can be an expression of the government’s declaration of intent and a balance sheet of its achievements during the last five years – an election pamphlet. It can also give expression to the government’s reasoning on how to tackle this impact of the global crisis through increased public expenditures. This is particularly true when it is universally acknowledged that the way out of the present crisis is through a massive fiscal stimulus. The future government can well decide on how to account for these expenditures, either through monetisation of the deficit or through tax proposals for additional revenue mobilisation. Remember, the Bush administration had left behind a budgetary deficit of over a trillion dollars for Obama, who has now gone further for greater fiscal expenditures. It is a different matter that much of this expenditure, given the class nature, goes in for corporate bailouts rather than strengthening the purchasing power of the people besides providing them relief.
Unfortunately, the UPA government has chosen the first of these two options. Thus, by not rising to the occasion, it will only contribute to compounding the misery on the people. Much of the tom-tomed fiscal stimulus packages, like the Rs 70,000 crore infrastructure projects, come from allocations previously made in the last budget. The fine-print of the budget figures tells us that over the allocations made last year, close to Rs 40,000 crore extra, has been spent. This is less than one per cent of India’s GDP. What is worse is that for the next fiscal, the capital plan expenditure is slated to decline by Rs 4,500 crore. Clearly, the government is relying on private investment through PPP projects for infrastructural development, which, in the context of a recession, is a dangerously erroneous strategy, as this inevitably comes with the levying of `user charges’. The burdens will eventually fall on the people further depressing their purchasing power like it is happening with the private airports today where user development charges are being levied to meet the revenue shortfalls.
Much is being made of the resurrection of Indian agriculture. The fact remains that, according to the budget figures last year, less was spent than what was allocated. So is the case with the social services sector. Not only have allocations not been fully spent, but it is a matter of serious concern that the allocations for the coming fiscal in crucial areas is lower than what is being spent this year. Rural employment sees a reduction of Rs 6650 crore, rural development Rs 5176.59 crore, urban development (notwithstanding the JNNURM) Rs 1734.95 crore.
In other words, far from envisaging any quantum leap in public expenditure, we see the government continue to remain trapped in the neo-liberal framework of fiscal fundamentalism. This is reflected in the fact that the current fiscal deficit of 6 per cent is projected to decline to 5.5 per cent next year. Clearly, the UPA government is talking in terms of a contraction and not expansion of public investment in the coming year.
It needs to be repeated that the only way to meet the disastrous impact of the global recession is to enlarge domestic demand through employment generated by public investments in a big way. Already the impact of the recession has seen large-scale job cuts – reportedly more than 5 lakh in the organised sector itself. The situation is, naturally, much worse in the unorganised sector. Insecurity stalks millions of workers in export sectors like textiles, garments etc. Seventy one diamond polishers have already committed suicide in Gujarat. Textile workers in Namakkal, Tamilnadu are selling one of their kidneys in order to survive. Other areas like construction, commercial crops like cotton, rubber, coffee etc are seeing an alarming drop in activity.
Under these circumstances, no amount of bailout packages can redeem the situation. These may improve corporate balance sheets but they cannot generate greater domestic demand. This can be done only through a massive dose of public investment. Only the naïve would feel satisfied with the fact that we are the second fastest growing economy in the world. The projected 7.1 per cent GDP growth is bound to be significantly scaled down once the actual figures come in.
With the fiscal deficit rising to 6 per cent of the GDP as against the projected 2.5, many neo-liberals would argue as to how the government can spend any more. It makes neither economic sense nor common sense to be pre-occupied with fiscal deficit concerns under recessionary conditions. After a five-year run of over 20 per cent annual growth of revenue surpluses, this year has seen a shortfall of an alarming Rs 60,000 crore tax revenue. This is precisely because of the global recession.
Further, despite a record foodgrains output of 230 million, the government has reduced the allocation of foodgrains to the states, in some cases, like Kerala, to the tune of a massive 73 per cent. This means, the government is stocking these foodgrains in its godowns paying a very heavy carrying cost which contributes to the burgeoning fiscal deficit. Thus, the fiscal deficit is not going to finance productive investment and generating consequent employment and expansion of domestic demand.
It is this neo-liberal mindset of fiscal fundamentalism that needs to be jettisoned and a courageous `new deal’ of massive public investments must be undertaken. These are times for Keynesian fundamentalism.
As we go to press, the former US Federal Reserve chairman, Alan Greenspan, who for decades presided over international finance capital-led globalisation as its high priest, told the Financial Times, London, “It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring. I understand that once in a hundred years this is what you do.” Such nationalisation is to “allow the government to transfer toxic assets to a bad bank without the problem of how to price them”. A classic capitalist recipe of transferring the losses to the people and, in the bargain, creating new opportunities for super profit generation. Instead of penalising those who created these `toxic assets’, the people are to be burdened for creating new profit making avenues. Instead, funds must be utilised for enlarging public investment rather than bailing out these financial giants, who, in the first place, championed and led to this systemic crisis of capitalism.
It is precisely to protect people and prevent the imposition of extra burdens by such prescriptions like that of Alan Greenspan that an alternative policy trajectory is required in India. This can only be possible by strengthening the political alternative which can affect such a shift in policy direction.