Budget documents released by the finance ministry have one long-standing flourish. Where the rupee comes from and where the rupee goes to! I could not find a date in our budget history from where the rhetorical flourish developed, but the shape of the rupee and the pie chart formats have become budget lore.
Between the two of them it is where the rupee comes from, basically the tax and non-tax receipts that occupy the budget analysis. Parliament, media and the financial markets have always responded with alacrity on the diagram. But it is the second of the two pie charts, where the rupee goes to?the expenditure shuffle that will determine how well finance minister Pranab Mukherjee has responded to the economic crisis.
Taxes will hog the limelight, for the impact they have on everyone?s purse. Yet this time, it is very difficult to think of any reason for which Mukherjee can offer any substantial give away to any sector, despite the clear analysis made by the Economic Survey of how private consumption has declined in the economy as a result of people basically becoming poorer.
It is therefore the expenditure plan made by the budget that will carry more import. Here too there is an important distinction. There will be two varieties of spending. There will be those made by the government departments and those made by the public sector companies. Since the public sector is cumulatively sitting on a cash balance of approximately Rs 2,50,000 crore, one can surmise that they will have little to contribute as additional investment in the economy this year.
The shape of our economic recovery, as a U or W, ie a brief downturn followed by a consistent upturn, or phases of successive ups and downs will therefore be guided by how well the expenditure plans of the government departments are etched in the budget.
There is a problem here. The government puts in a decent amount of economic analysis to judge the impact of tax plans, but spends just nothing on the economic logic of any of the expenditure pattern. Every time I have pored over the ministry files explaining the rationale for these plans, it has been a very disappointing experience.
This, I suspect is because the Indian state has never looked at the expenditure plan as an a priori plan. Instead the emphasis is on collecting every possible piece of revenue and then trying to make the purse stretch over as many schemes that can be covered.
To its credit, the Planning Commission, especially in the past few years under Montek Singh Ahluwalia has halted the proliferation of plans and even more notably led the rethink in the government to make each paisa of expenditure count.
So there is little possibility of judging how effective the spending pattern will be for the economy from the budget. But on that the government has little clue. This happens because the departments are unwilling to recognise consciously that their expenditure will translate into income for specific sectors of the economy, which means companies. That is how corporate India has now begun reading the budget. But the demand for grants of the respective ministries only reads out how much of the sum will translate into salaries of employees of government and autonomous bodies. The investment and the consequent leverage on those sums are never tracked by the budget papers or any of the estimates churned out by the ministries. No financial advisor is ever asked by the finance ministry or Yojana Bhawan to give even a rudimentary sketch of the leveraging impact of the projected expenditure on the relevant sectors.
Accordingly, to quote the Economic Survey again, while the debt write off will have limited spin off benefit for the economy, compared to an irrigation programme, the budget process has no way to account for those differences. These discussions just do not take place in the government and so no input is ever assembled.
This is unnerving. Since the finance minister has little leeway to adjust tax rates, direct or indirect to guide the economy on to a recovery path, he must look at prudent expenditure plans to do so. But the only set of plan where there is a clear linkage between investment made and the returns expected by the department concerned is the JNNURM. But the other plans, including NREGA, or PMGSY have no leverage built in. They are simply there because of the mind set of government?s social safety net.
For instance the rural health mission could have a massive potential if it is structured on the lines of JNNURM. It will ring in faster health delivery and generate business for companies in the health sector. What is needed is to make all the expenditure pass through similar crucibles if the government plans to make the spend translate into accurate income generating streams for the economy. Otherwise somewhat like the monsoons, we will just be a spectator once again to the game of distributing cash among assorted ministries and hoping that something good will come out at the end of the fiscal year.
?subhomoy.bhattacharjee@expressindia.com
