Coming down to earth

After the diversions of political marriages and divorces, it is back to earth with a hard bump. From the estimates presented to Parliament b...

After the diversions of political marriages and divorces, it is back to earth with a hard bump. From the estimates presented to Parliament by the Finance Minister during his interim budget speech it is evident that putting new life into the economy must get the government8217;s undivided attention. The picture shows unrealised potential and an economy in need of a powerful morale booster. With a GDP growth rate of 5 per cent, the lowest in five years, industry struggling to keep its head above water, exports in a dismal state and agricultural growth showing a sharp decline, Yashwant Sinha has his work cut out for him. Beneath the sluggishness revealed by poor growth rates are a variety of structural and psychological problems which will have to be addressed systematically. Even at the risk of stating the obvious, it should be said that the need of the hour is a business-like approach in government departments and in Parliament. That would work like a shot of adrenalin after the uncertainties of the last twoyears.

The state of Union government finances is close to alarming. Sinha, under no obligation to try and improve the look of the current year8217;s accounts, has chosen to fortify relations with cash-strapped state governments by transferring their whole share of the VDIS windfall at one go. But, so huge is the shortfall in revenue collection, even holding back part of the VDIS temporarily would not have altered the picture much. It is a case of the dream budget turning into a nightmare as a result of a cyclical slowdown combined with policy paralysis. Revenue from excise is estimated to be down by Rs 4,500 crore and from customs by more than Rs 11,000 crore. The fall in income tax collections, an astonishing Rs 3,000 crore, must leave past and present Finance Ministers with uneasy feelings since it cannot be explained only in terms of slow growth or the large reductions in the last budget. No doubt Sinha will have to return to this mystery by and by. Expenditure under each of three major heads, defence,interest payments and subsidies, is 12 per cent or more over target. These are areas that will not yield to expenditure cutting in the near future. The fiscal deficit for 1997-98 is estimated at 6 per cent and the same figure is assumed for the next year. Thus, with limited fiscal flexibility and the government continuing to live beyond its means, increased government borrowing and pressure on interest rates seem inevitable. This is not a happy scenario.

The President8217;s address has put the right emphasis on the social sectors, on removing poverty, ignorance and disease. Making better provision here is essential despite budgetary constraints and will be one of the new government8217;s major challenges. It is reassuring to find the BJP government committing itself to widening and deepening reforms. Without accelerated growth few of its promises can be kept. But without fiscal discipline, there can be little hope of meeting the expectations of the people or putting the economy on the path to higher growth. No oneshould underestimate the difficulties ahead.