The merging of DA with basic pay or raising the exemption limit of income taxes are not the only two examples of this practice. Even if some arguments are found to support these proposals to satisfy the interest of some special groups, how can a finance minister sponsor them without spelling out the full implications, in terms of their immediate and subsequent cost, and how they are supposed to be met? He is sadly mistaken if he thinks that the middle-class tax payers and government employees would take these measures as signs of the government’s commitments to the genuine cause of their welfare and not to using them just as electoral gimmicks, when such proposals could have been easily brought one or two years back and not just before the election. Similar is the situation with a number of new proposals the Budget has announced, especially in the development of agriculture, the island economy and desert areas. Ambitious projects have been announced without telling us what their implications are for the exchequer. Surely, these programmes cannot be implemented by the existing financial institutions, banks or infrastructure funds, without the government providing substantial financial support. If the government does not do that and forces the financial institutions to meet their requirements at concessional terms, we shall severely jeopardise the health of their institutions and we shall also reverse the process of economic reforms that was started with so much care in our financial sector. Moreover, the programmes once started cannot and should not be withdrawn, and successive finance ministers will have to bear the burden of providing for them.

The finance minister has also taken the credit for having lowered the fiscal deficit this year compared to the budget estimate. The RBI’s January 24 Report, which has analysed the development between April-November 2003, says that the central government’s finances are under severe pressure “as the growth in aggregate expenditure over the corresponding period of the preceding year, outpaced the growth in revenue receipt”. It admitted that the fiscal deficit ratio might be lower than the budget estimate because of a higher-than-expected GDP growth. But the numerator is far more important than the denominator as indicators of performance. The quality of fiscal adjustment of the numerator had definitely worsened, especially because, as the RBI put it, the revenue deficit increased, substantially indicating that a larger share of borrowed funds is pre-empted by consumption expenditure. Now, what has happened in the last three months to change this situation, to become complacent about our performance?

The finance minister has claimed that there has been a net decrease in expenditure of more than Rs 11,000 crore, despite additional expenditure on programmes introduced after the Budget. It will be very difficult for the public to accept this as a genuine claim and not just statistical jugglery, such as passing on some of the expenditures to public enterprises — a practice that the government has often resorted to in the past — or a committed expenditure being postponed for the time being to shift the burden to next year’s budget. I am afraid this is a dangerous game. It shows the government’s very little commitment to fiscal discipline. This was evident in the railway budget last week when sops were doled out without being financed, when new rail lines were sanctioned which are unviable and uneconomic by all accounts, even according to the judgements of the Planning Commission and finance ministry. They were allowed in the name of pursuing the so-called “feel good factor”, ignoring all norms of fiscal propriety. This is happening just when the country needs a substantial growth of private investment for which the most important determinant is the country’s projected future, for which, again, the most crucial requirement is the country’s ability to maintain fiscal discipline.

The finance minister has tom-tommed a GDP growth rate this year of 7.5-8 per cent, ignoring the fact that for the previous five years under the same government GDP growth hovered around only 5 per cent, while GDP grew at 6.7 per cent during the 8th Plan period of 1992-97. Indeed, in the three years between 1994-95 and 1996-97, GDP grew at 7.3 to 7.8 per cent a year. The very high rates of growth in the post-reform period were caused mainly by a phenomenal rate of growth of private investment, reaching almost 17 per cent a year. In the 9th Plan period, private investment rate decelerated, becoming almost negative or zero during the last two years. The reason for that simply was that the investors lost confidence in the prospects of growth in the economy, largely caused by the instability of public policy. The current year’s spurt in growth was caused by two quarters’ good performance in monsoon-led agriculture which, in turn, boosted the demand and growth of manufactures. To sustain this growth over a longer period, investment must pick up, without investors adopting the policy of wait and see, which many do in a bad policy environment. The substantial foreign exchange reserves and the buoyancy in the stock market would go some distance in building up business confidence. But that can very easily evaporate at the first sign of fiscal imprudence.

No finance minister can afford to indulge in policies that encourage such imprudence and indiscipline.

The author is former Member, Planning Commission