Towards the budget on very weak legs

Written by Saumitra Chaudhury | Updated: Feb 4 2002, 05:30am hrs
For the first nine months of the year, shortfalls in revenue receipts from the budgeted numbers have been large. Even with some improvement in the last quarter, the total net revenue receipts of the centre are unlikely to go much beyond Rs 2,00,000 crore, which means Rs 30,000 crore less than budgeted. Non-plan revenue expenditure has expanded at a pace somewhat less than budgeted, but has been largely offset by big increases in plan revenue expenditure. Capex and net lending have been compressed partly by much higher loan recovery and modest capex growth of around 10 per cent lower than budgeted. Total expenditure for the year might thus be Rs 10,000 to 15,000 crore less than the budgeted Rs 3,60,000 crore. It is unlikely that disinvestment proceeds will be anywhere near Rs 12,000 crore. Which means a fiscal deficit in the region of Rs 1,40,000 crore, that is whoops 6.1 per cent of Gross Domestic Product!

For the denominator, GDP at current market prices has just received a severe haircut at the Central Statistical Organisation by as much as Rs 1,00,000 crore. Which brings us to the heaving and shaking of the ground. On 31 January, CSO issued a press note where it slashed 2000-01 GDP growth estimates from 5.2 down to 4 per cent. Banking and insurance collapsed from 10.4 to -2.2 per cent. All part of the slowdown, the press note informs us. That is, however, far from being the case. Large changes have been made not only in the 2000-01 estimates but those for 1999-2000 and, it would appear, even for earlier years. For individual heads, the figures at current and constant prices have been altered by very different amounts. Which means that the deflators have been changed. Following up on the disclosure by the CSO that the problem was with non-banking financial institutions, it seems there is indeed a rather large problem here, with possibly very large systematic over-estimates for all previous years. But why some correction only for 2000-01

The changes have thrown up their own strange menagerie. The savings rate has risen to 24 per cent. For 1999-2000 and 2000-01, the investment rates (at constant prices) have shot up to 26.7 and 26.3 per cent, the highest levels in modern Indian history. Just so to deliver 2000-01 with the lowest GDP growth rate since 1991-92! Some while ago, in respect of the poverty measures, very learned discourses hammered away on how 7-day and 30-day recall were of singularly great moment. Looks like a case of fighting about mice-like errors while jumbo-sized ones stroll around quite invisible to the statistical eye. Who knows perhaps the bizarre has indeed become the real in some malevolent Kafkaesque transformation. It may not be just coincidence that the guardians of the countrys economic statistics have also become, amongst other things, the department of Animal Welfare! With a runaway fiscal deficit, confusion on national economic accounts, and a Report on Currency and Finance that has deftly reversed the common and plebeian perceptions of causality, the budget could perhaps proceed to further develop the programme of confusion, or anarchy, if words have not lost all meaning. It is therefore imperative for the finance minister to try and cut through the fog and come up with a budget that sets out clear and simple initiatives which address the principal public policy failure that of managing public finances.

Much has been talked and written about debt trap and the like but that is not really the point. The country today faces a crisis of public services electricity, water, municipal services, health, education and basic government. In power and urban water and municipal services, the state agencies have mostly become dysfunctional in either levying charges or in collecting them. So they have become dependent on the state exchequers along with the non-commercial public services. But state governments are up against the wall, as is the central government.

Things have come to such a pass that there is the very real likelihood that the future of the country will become thoroughly compromised due to a massive failure of public services in the near term. It is always a temptation to look at a revenue solution to a fiscal problem. For that would not hurt all the interests who have got used to feeding off the public treasury. But as the finances of the present year will reveal at the centre and in the states, there is no other way but the hard way bring expenditures down to match realistic revenue expectations. It is the same stiffening of political will that is needed to reform the commercial public services. And in this, the centre has to lead the states. Else, with the political arrangement we have today different parties in power in Delhi and in the states competitive populism will kill any resolve.

Saumitra Chaudhuri is economic advisor to ICRA (Investment Information and Credit Rating Agency) and editor of Money and Finance, the ICRA bulletin