A tale of missed opportunities

SL Rao

Budget 2013 is a tale of missed opportunities. The vision was correct. But the actions did not match the vision. The vision was to restore growth, cut the deficit, reduce inflation, improve the current account deficit, and raise savings and investments. The arithmetic shows the deficit reduction as achieved. Other actions will not much achieve their purpose. Assumptions about the disinvestment targets are very high and have never been achieved in past years, even in a strong market and growing Indian economy. Spectrum sales do not give optimism on expected revenues. These revenues were a major factor in bringing the fiscal deficit down to 4.8% in 2014. Deficit reduction is dependent on these non-tax revenues from sales of assets. That does not augur well for continuing deficit reduction.

Tax receipts appear exaggerated, without much by way of new taxes or measures to improve coverage and catch black money. Social welfare schemes that have leaked 40%, even over 50% of large funding?MGNREGA, PDS, subsidised kerosene, sanitation projects?remain untouched or with more funds. There are no measures to improve effectiveness and plug leakages. The cash transfer scheme could help. But it is well into the future and will not help in the coming year.

Clearly, the First Family?s preference for social schemes with no concept of how to make them effective has overcome Mr Chidambaram?s natural instincts as a manager to look for efficiency and effectiveness. The First Family?s instinct (and hence the Congress party) inherited from Indira Gandhi is to redistribute the cake, not enlarge it. Despite noble words, Mr Chidambaram?s Budget also gives priority to social inclusion over growth.

The corporate tax surcharge had been reduced in 2011. In the present time of declining investment, he has increased it. The investment allowance is for investments over R100 crore, to be claimed in two years. It will be infructuous because such investments have long paybacks before they are in profit. It should have been related to commencement of production. The ?Azim Premji? surcharge on the super-rich is said to be for one year. Past experience shows it will stay for long. The company law amendment adds a 2% charge on companies making over R5 crore net profit for CSR. This is another tax. So the corporate cake will not enlarge, but some of it will be appropriated.

The real Mr Chidambaram and not the ?mukhota? who spoke as finance minister would never have, by himself, introduced such measures if stimulating investment was the highest priority. Nor would he have announced a huge additional and rising major burden on the fisc in coming years through the food security scheme. With food inflation as the root cause of high inflation for over three years, the real Mr Chidambaram would have introduced drastic measures to bring prices down. These would have included releasing government-held grains into the market in a substantial way. He would not have agreed to the continuing rise in minimum support prices that have added to inflation and also over-stimulated production of foodgrains. He might have capped wage increases for a while as Mrs Gandhi did when she combated inflation successfully in the early 1970s. The enormous challenge of the mounting CAD (5% of GDP last quarter versus 2% or less over the last decade) would not have been left to the forthcoming trade policy. There are items like iron ore that have been major contributors to export decline, which could have been stimulated by tax incentives. Similarly, we must use the maximum measures available without violating WTO commitments, to discourage imports. I cannot see an unimaginative commerce ministry having the gumption to do this. Mr Chidambaram was well-placed to indicate the directions.

Investment is on a decline. Infrastructure investment is the worst hit. Government agencies (NHAI, CIL, oil & gas companies including Reliance) have let the country down. So have the various agencies giving clearances for land acquisition, environmental clearance, etc. This was the time to cut dead wood out of procedures and policies. Thus, there should be a floor price worked out for road quotations to avoid mindless quotations. Any company backing out of an awarded contract should be penalised. So should the government agencies that cause delays because of lack of clearances.

Trading exchanges for imported coal and for gas should be allowed to determine prices of imported coal and gas. This should not be left to pooling of prices, a sure way for manipulation and corruption. Oil and gas exploration in India is notoriously inefficient. The private sector has used the vast resources available from the sector to exploit the owner-government. Radical surgery is required. Instead, small changes with government ownership, ineffective regulation, and opaque rules, continue.

Breast-beating about the state of electricity distribution enterprises is fated to be with us forever, along with severe shortages of electricity. State government-owned distribution has been under populist pricing, i.e. below cost, along with poor management and poor efficiencies. Large losses and debts of SEBs are written off using the euphemism that they are securitised. This is provided for again. No attempt to improve performance will work under government ownership. The Budget gives no directions. Social schemes have become a major source of corruption and generation of black money. The poor, who are meant to be beneficiaries, lose out. No change in the administration and delivery of these schemes is proposed. More funds are poured into them to add to government expenditure.

Mr Chidambaram?s natural preference for efficiency and effectiveness has been neutralised by his party. One could speculate whether anybody else could have done better. There is no one in the Congress party of today. It is a party of sycophancy and does not reward imagination and effectiveness. The BJP has Narendra Modi, with his administrative skills, aggressiveness, imagination and proven ability to deliver results. Perhaps Nitish Kumar, with his low profile and proven capability might take the necessary and speedy actions.

This Budget does not move the country ahead.

Author is former director general, NCAER, and was the first chairman of CERC