First, your budget estimates. Every year, you present these for several items of expenditure, receipts, and deficits. Partly, these are based in turn on your estimates of GDP growth and inflation, and on your tax and other proposals. Many economists and commentators almost instantly find that far too many of these will be widely off the mark, and say so publicly. When the year is almost over, you present the revised estimates, which confirm their doubts (Reserve Bank of India calls this practice fiscal marksmanship). Worse, quite a few of these revised estimates also are widely off the mark. I for one, cannot believe that with the army of talent at your disposal, there could be such lapses. I have come to the conclusion that budget estimates can be made to order. Probably you as the finance minister, decide, for example, what figure of fiscal deficit will be politically optimum in the interest of your party and then ask your bureaucrats to fill in the blanks of the various components in some way so as to be compatible with this decided fiscal deficit figure. When over the year, some of these component figures go wrong, you try to escape by giving some pedestrian explanations in the following budget. Sir, we want you to restore some sanctity to these estimates. We want you to present estimates which may be unpleasant but are 100 per cent honest and with which you are willing to stake your reputation as a finance minister.
Second, you make political promises and announcements in your budget speech. I am told somebody drew up a list of 85 of your promises yet unfulfilled: Expenditure control, downsizing, disinvestment, abolishing administered price mechanism, labour reform, value-added tax and so on. Citizens are increasingly disillusioned by this widening divergence between promise and performance. As you are well aware, budget speeches of our finance ministers are looked upon, in India and abroad, as the single most important economic policy document. I respectfully wish to make a suggestion: Please dont make promises, dont announce any grand project or appoint any new committee this time. We do not need dream budgets. They usually turn into nightmares. We need a serious, boring budget, a budget that can deliver. Please do not downsize your budget to an election manifesto.
Third, trusting citizens are extremely perturbed, Mr Minister, when we see you and your predecessors guiding them to walk along an unknown road and then suddenly announce a hands-off policy and leave them to the wolves. This is exactly what you did last year to the over two crore unit holders in the Unit 64 scheme. Yes, there must have been mischief and misfortune in the management. But, that is certainly not the fault of the unit holders, whether large or small. Government is, for all practical purposes, the owner, the sponsor, and the promoter of the Unit Trust of India. It is therefore imperative that the government sees to it that the guilty are punished, and, more importantly, that unit holders are bailed out. As we all know, during the same year, Tata Finance, a finance company in the private sector, also faced heavy rough weather. This again, may be a combination of misfortune and mischief. But Tatas, as the promoters, set an example and offered full financial support for a bail-out operation. What a contrast!
Similarly, to restore the peoples confidence, the budget must bear the total cost of the bailout. Unfortunately, there have been countries in the world whose governments have refused to honour and repay their own sovereign debt. We have already heard enough about the critical position of the finances of our government too. Indias citizens should not be led to believe that this could happen in their homeland too.
Fourth, citizens are perplexed at some of your decisions. You increase the excise duty on petrol and diesel and produce a rabbit of lower prices at the pump! One navaratna public sectorIOCblocks Rs 1,165 crore of its resources to buy out from you anotherIBP. You glorify the exercise as privatisation, and, on top, unmindful of the mountain of internal debt, merrily use the proceeds to finance wasteful expenditure.
The citizens may not grasp all the nuances of such points. Yet the message to them is loud and clear: That something is terribly wrong in the fisc, and precious little is being done to correct it; and further that amusingly simple tricks are being played in the budgetary exercise to keep unpleasant truths from the citizens. Their confidence and trust is therefore shaken.
You, Sir, are never tired of extolling the virtues of a stable fiscal policy. If you really mean it, take seriously the advice repeatedly given by the dedicated and ailing N Palkhivala that the budget should be presented only on the 29th of February and ensure that no changes adverse to the tax payers and to the public will be made in the tax laws for at least four years. It will do wonders to the countrys economy, to the honest taxpayers and to the common man. It will also probably be the most deserved tribute to this shining son of India.
I am not certainly suggesting that you started the erosion of the budget. If citizens still see total inaction and a gay abandon on your part, they may totally lose faith and trust in the budget. Finance ministers are well advised to act decisively before that happens.
With my best wishes, and apologies for any words that may have sounded harsh,
Consulting economic adviser, Centre for Economic Policy Advice, Mumbai