Budget: Abstinence better than action

Presumably, the surpluses would be reinvested into strengthening and upgrading railway tracks and accelerated production of aluminium-based wagons — reducing its weight is necessary to make increased freight volume sustainable with safety standards.

While Lalu’s example of productivity improvement should be replicated in other public undertakings and improved technology will allow room to do so on a continuing basis, there are limits beyond which improved productivity alone may not prove adequate. While enhancing competitiveness with alternative modes of transport is important, rising fuel costs will make fare corrections inevitable. The need to de-politicise railway tariffs through an independent regulator, achieving greater transparency in many hidden subsidies and a roadmap on progressive engagement of private sector are inescapable medium-term objectives. Quite a few of these have been outlined in successive reports on Railway reforms.

The factors underpinning the current economic buoyancy are brought out well in the Economic Survey. The document also highlights the key reforms and priority action needed to sustain the present growth momentum. While it says all the right things, over the years these sanguine truths have not got reflected in actual policies! Is the Economic Survey, apart from its rich statistical content, becoming a basis to generate reasoned debate, hoping for a sensible consensus?

The Budget is to be commended as much for what it achieved as for what it abstained from attempting. At a time when expenditure pressures following new initiatives on Employment Guarantee, Bharat Nirman and enhanced public outlays for infrastructure continue unabated, the temptation to raise revenue either by raising tax rates or clever financing engineering is difficult to resist. Chidambaram resisted the temptation. He left the basic rates of income and corporation tax untouched, accelerated the convergence towards a single CENVAT rate and marginally brought down the peak customs duty.

The roadmap for Tax on Goods and Services (GST) is long but both technical work and consensus building will take time. Adherence to fiscal consolidation targets while accommodating new expenditures entirely on projected revenue buoyancy needs more than financial ingenuity.

There are a few other features which deserve comment: First, the Budget is an honest recognition that the days of reforms ‘by stealth’ or big bang announcements are over. In this sense, the more irrelevant Budget becomes the better it is for predictable long-term planning. Lowering expectations and assurance of stability, particularly after tax reforms are substantially completed, is quite appropriate.

Second, given coalition compulsions it is best to avoid major policy announcements which become contentious and elude implementation. The announcement on insurance made two years ago is still doing the rounds. So is the case with pensions. Action on these as well as rationalising subsidies is unlikely before the forthcoming state elections. This would be equally applicable to the recommendations of the Rangarajan Committee report on petroleum. However, policy making is a continuing exercise and need not wait for the annual Budget.

Third, the Budget cannot become just an accounting exercise without any articulation of the Government’s overall economic vision. At the same time, announcement of new schemes with outlays which are subsumed in the Gross Budgetary Support for Plan Expenditure is an exercise which the Planning Commission undertakes with concerned ministries. These outlays are no doubt settled in consultation with the Finance Ministry. Expenditure management reforms and the hiatus in the respective roles of the Finance and Planning Commissions are larger issues and there is no appetite to address them. The ritual however of announcing populist schemes every year must also be progressively phased out just as the Budget ceases to be an instrument for big policy announcements.

While the Outcome Budget, along with Performance Budgeting, accords greater attention to expenditure management, the quality of public expenditure is not easy to monitor. For instance thousands of teacher posts have been vacant for long. De-politicising teacher appointments (many of whom are viewed as potential polling agents) and giving attention to teaching quality have not received priority. In a larger context, reform of HRD remains neglected and enhanced outlays are no substitute for overdue policy changes.

Chidambaram would come under increasing scrutiny not merely for ensuring expenditure from financial outlay or achieving stipulated physical activity but analysing whether improvements are sustainable and expenditure quality acceptable. A marked deterioration in the efficacy and reliability of public delivery systems is worrisome at a time when outlays are being enhanced significantly.

Finally, infrastructure and agriculture have rightly received sharp attention. On infrastructure, progress is varied but power reforms must look beyond coal reforms, important as these might be. The Chief Ministers’ Group has been tried earlier with mixed results. While there is no substitute for political will and consensus building, a speedier implementation of the Electricity Act, 2003, particularly Open Access, Unbundling and sunset provision for cross-subsidy, will hasten the pace of change.

On the whole, Chidambaram can credibly plead that there is no need to tamper with policies when nothing needs repair and the economy continues to be buoyant. As I said in an earlier column, unpleasant surprises are always less acceptable than muted outcomes. When winds are unfavourable, remaining stationary is wiser than seeking new heights. Sometimes abstinence may be the preferred mode of action.

write to nk.singh@expressindia.com