For a sound budget

Rumour has it that a sign on the finance minister8217;s desk reads: what is good for the economy is bad politics and vice versa. Not that Yashwant Sinha needs more reminders of the crippling power of coalition politics. The pile of prudent proposals on his table is constantly mocked by the pile of withdrawn measures in his waste-paper basket. The demand for a robust growth strategy is undercut by the widening budget deficit and determinedly populist politicians. Having seen his first budget start to unravel ignominiously within a few days, Sinha is going to be careful about giving hostages to politics again. But it is not as though many useful openings have been created for a reforming finance minister by the BJP8217;s management of politics in the last year. Meanwhile, after another year of slow growth and shrinking revenues, his tasks have become harder and the country less tolerant of excuses.

In these circumstances, can there be much hope of fiscal restraint and the tough measures required to bring thegovernment8217;s finances into some semblance of good order? What miracles are wrought within budgetary constraints and despite political limitations will have to be seen. But there is one thing Sinha can do to prevent a recurrence of the same dismal scenario in future. Finance ministers need to be shielded behind legislation from spending and borrowing binges. Various ideas have been tossed around over the years. It is now high time they were examined and concrete shape given to a statutory expenditure commission and statutory cap on government borrowing as a means of compelling central and state governments to live within their means. Governments have rarely had the will to do the hard reckoning. The problem is postponed for the next budget and the next government to deal with. Today the combined debt of central and state governments is in the region of 70 per cent of GDP and the country is on the edge of a debt trap if not already caught in one. It is estimated that central government borrowing for 1999-2000will exceed Rs 100,000 crore and a large part will come from printing money. The country cannot afford such recklessness. Legislated ceilings on loans will prevent finance ministers from printing money to pay current bills. A statutory commission on expenditure will provide the alibi they desperately need when demands for increased expenditure arise from ministries, political allies, profligate state governments and special interest groups.

It will of course be an essential part of the exercise to prevent further diversion of budgetary funds from capital expenditure and the social sector to current expenditure. Only legal restraints are left to compel governments to take the hard decisions they have been avoiding. Among them will be cutting subsidies to all but the really deserving and shaking out public sector enterprises which consume over a third of domestic savings. Unable to borrow at will, governments will have no choice but to collect taxes efficiently and widen the tax base. Sinha should definitelygive it a try and make sure he can carry the opposition with him.