People's Democracy

EDITORIAL

2014-15 INTERIM BUDGET

Widening Hiatus between the Two Indias

USING the excuse that two of his predecessors – BJP’s Jaswant Singh in 2004 and Congress’s Pranab Mukherjee in 2009 – used the occasion of seeking a vote on account on the eve of general elections to make a political declaration on the so-called economic achievements of their supportive governments, P Chidambaram let loose a string of expletives claiming miraculous economic achievements during the last ten years of the UPA government.

Such an eventuality of needing to seek a vote on account arouse in the first place when the Vajpayee led NDA government following the victory in the assembly elections in Rajasthan, Madhya Pradesh, Chattisgarh in 2003 had pre-poned the general elections with the hope of riding on the wave of the slogans – ‘Shining India’ and ‘Feel good factor’. (The BJP seems to be nurturing such illusions once again.) The whole country knows what happened in the 2004 general elections.

On this occasion, the finance minister concluded his speech, presenting the interim budget for 2014-15, by invoking sage Thiruvalluvar once again, which has, by now, become a routine. Instead of seeking the parliament’s approval for a four month vote on account required in view of the forthcoming general elections, he made a straight forward electoral pitch by saying, “I am sure, the people of India will entrust the responsibility to a hand that will hold the `sceptre swayed with equity’”. 

The most famous invocation of the sceptre continues to remain the opening lines of the Communist Manifesto which speaks of the sceptre of communism haunting Europe. It is indeed ominous that Chidambaram chose to invoke this sceptre in the name of equity. All the policies pursued by them during the last decade have only consolidated the further divide between the two Indias – the haves and the have nots. This sceptre will continue to haunt the Congress and the neo-liberal policies pursued by the ruling classes. The consequent rising discontent among the people is bound to get crystallised into a powerful popular movement for an alternative policy direction that will result in the creation of a better India and a much better quality of life for our people. 

The picture the finance minister painted in his speech regarding the challenges faced by the Indian economy shows that as far as the people are concerned, far from moving towards equity, there is a further movement away from equity. The economic slowdown continues implying a severe shrinkage of employment opportunities.  Of the estimated 4.8 per cent GDP growth rate, agriculture growth rate is estimated at 4.6 per cent.  Thus, the non-agricultural economy has stagnated at best with manufacturing on the decline (both manufacturing and the index of industrial production have registered negative growth rates during the last two years). Food inflation, he said, “is still the main worry”.  The twin assault of inflation and employment contraction has created a more iniquitous society.

The claim that there has been a fiscal consolidation with the fiscal deficit pegged at 4.6 per cent of the GDP below the targeted 4.8 per cent is untenable. The gross tax revenue is less by Rs 76,964 crores from the 2013-14 budget estimates.  There has been an across the board decline in all heads of tax revenues (corporate, income, excise duties and service tax). The reining in of the fiscal deficit has, thus, been achieved by a gross reduction in budgeted expenditures, particularly in social sectors.  The revised estimates show the total central plan outlay is Rs 66,000 crores less than the budgetary estimates. The budgetary support for the central plan was Rs 63,575 crores less. Likewise the central assistance for plan expenditure for states and union territories was Rs 17,215 crores less. Thus, the fiscal deficit has been contained through a severe squeeze in expenditures. In other words, this fiscal consolidation was achieved through a budgetary contraction of the economy. 

The announced nominal increase in major subsidies is actually less in real terms if the inflation rate is taken into account. It is at the same proportion of 12 per cent as in 2013-14 budget. All these mean that over 2013-14, job opportunities have shrunk significantly with no increased financial support to the beleaguered people.

The finance minister had chosen not to provide the annual statement on tax foregone, which has been the practice introduced by Pranab Mukherjee, for the last three years.  However, in reply to a question in the Rajya Sabha (February 11, 2014), we are informed that the tax foregone on corporate and income tax alone stood at Rs 4.82 lakh crores in December 2012 which went up to Rs 5.10 lakh crores in December 2013.  These subsidies for the rich and India Inc. are, however, given the respectable term `incentives’ for growth!  Such `incentives’ amount to more than double the total subsidies on all categories given to the poor and the marginal people of our country.  These have not resulted in any additional investments leading to growth, because the people simply do not have sufficient purchasing power to buy what can be produced. Hence, these monies find their way into speculative investments.  This explains the huge rise in prices of real estate, gold and foreign currency leading to the free fall of the rupee.  Thus, true to its class character, this UPA-2 government follows the dictum of tax concessions for the rich, greater burdens for the people: this is the story of claims for `greater equity’. 

The cut in excise duties in order to give a boost to the manufacturing sector, particularly the automobile sector, can only be very transient unless the domestic demand rises significantly. On the contrary, the efforts of fiscal consolidation have led to sharp contraction of domestic demand. The announcement of further reduction of tariff protection will affect the domestic manufacturing sector adversely.

The emphasis on containing the current account deficit (CAD) through attracting greater foreign investments and not through restricting unnecessary luxury imports is bound to make the Indian economy further vulnerable to international speculative capital flows. In fact the marginal success in containing the burgeoning CAD has been mainly through hike in the import duties on gold. Overall, instead of expanding public investment thus expanding employment generation leading to a growth in domestic demand which in turn would provide the required impetus to revive the manufacturing sector and propel industry growth, this interim budget only compounds the crisis by contracting the economy and imposing greater burdens on the people.

In the global situation of continued economic slowdown, the anticipation of further foreign capital inflows is not merely unrealistic but would mean a slew of measures for further appeasing foreign finance capital and FDI. This would make India more vulnerable to global financial speculation and also undermine domestic manufacturing.   

In fact, the crisis in the Indian economy is destined to further aggravate. The current unsustainable CAD and a debt service burden of 36.93 per cent of total revenue receipts makes our economy chillingly similar to the 1991 (as shown in these columns earlier) situation that heralded the era of economic reforms of liberalisation - Manmohanomics.  We seem to have come back to square one.

This is not due to any `policy paralysis’ as the BJP would like to portray. This is precisely due to the policy of neo-liberal reforms itself – a reform process that contracts the Indian economy rather than boldly expanding it through public investments, which is the only way of reviving the economy.  Instead, both the ruling and principal opposition parties follow a path of appeasing international finance capital at the expense of undermining India’s domestic economic fundamentals and imposing greater burdens on the people.

What the Indian economy needs to kick start a revival with equity is an alternative policy trajectory that will sharply expand our domestic market through a high dose of public investments. It is such an alternative policy trajectory that the Indian people are eagerly looking forward to. This will have to be ensured through the forthcoming 2014 general elections.

(February 19, 2014)