The budget speech, with hope

Budget 2004 will shortly be revealed to us. The UPA government8217;s CMP did not exactly set the Yamuna on fire; the Presidential address w...

Budget 2004 will shortly be revealed to us. The UPA government8217;s CMP did not exactly set the Yamuna on fire; the Presidential address was a damp squib; the PM8217;s address to the nation, though sincere, did not reveal any specific gameplan. So will the FM8217;s budget speech receive a standing ovation?

The state of the fiscal deficit being what it is, the FM has very little room for manoeuvre. He will be told that some items 8212; interest payments, food, fertiliser, gas and kerosene subsidies, defence allocation and gross budgetary support GBS for the annual Plan 8212; are not amenable to reduction. The fact is that, barring interest payments, there is considerable scope for lowering allocation to the others. For instance, the whole procurement system could be decentralised to the states, Food Corporation of India dismantled and subsidy given directly through the budget. Fertiliser prices should be market-driven, as should kerosene and cooking gas prices. Free import should take care of shortages and subsidy. Likewise, wasteful expenditure in the defence sector is huge. Archaic activities, such as canteen supplies, which tie up funds and personnel, need to end. Indigenous development of weapon systems by DRDO runs parallel to imports; both show rising expenditure. One of these should decline surely!

Gross budgetary support GBS for the annual Plan takes away more that 30 per cent of government revenue. Every year there is a tussle between the finance ministry and Planning Commission for higher allocation. Initially the finance ministry resists but, under political pressure, gives way. The government doesn8217;t want to be seen as starving the Plan of funds, although there never has been a year in which there has been full utilisation of allocated funds.

Also the quality of Plan expenditure has become non-productive.Plan projects started in the First Plan continue, albeit under a different nomenclature. More than 80 per cent of plan funds go for salaries. This expenditure should normally be transferred to the revenue side of the budget but this is not done. There is also the overall question of the relevance of the Planning Commission in a deregulated economy. The allocation of over Rs 1 lakh crore every year as GBS, has no impact whatsoever on GDP growth rate. The Plan does not cater to the service sector 50 per cent of GDP, or to industry 25 per cent, and only peripherally to the agriculture sector. In the social sector, funds have clearly not been effectively targeted and India continues to be ranked among the world8217;s lowest, in terms of the human development index.

Another area crying out for curbs on non-productive expenditure is the government sector. There is the perception that here the hedge is eating up the lawn. Part implementation of the Fifth Pay Commission Report in one stroke wrecked the financial stability at the Centre and states. Almost 90 per cent of the revenue of the states is going to paying salaries. Will the FM have the courage to roll back some decisions and implement recommendations sidestepped by earlier governments? Restructuring of age old administrative arrangements is urgently needed. Times have changed, a generalist civil service with a colonial mindset cannot cope, nor can old institutions. New regulatory authorities are being set up but the subject ministry also continues to exist side-by-side, becoming an obstacle in the functioning of the regulatory authority. Ministries have to be abolished in such cases.

Recapitalisation of public sector banks and financial institutions since 8217;86, over Rs 20,000 crore has been spent has to stop; so has the payment of idle wages and maintenance to closed PSUs. Similarly, numerous commissions and tribunals have mushroomed around each ministry primarily to provide post-retirement sinecures to favoured bureaucrats.

Apart from these major items of expenditure, there are certain basic flaws in budget formulation. A simple example suffices. After the budget is passed, the ministries have to again obtain approvals in file to start spending the funds. This may take anywhere between four to six months. Some of the file work is done through the high sounding posts of 8216;financial advisers8217; in each ministry; the rest comes once again through 8216;financial advisers8217; a post which can be abolished forthwith to the Department of Expenditure. These time consuming delays which exasperate the ministries are an intentional tool of the Department of Expenditure which then can show savings!

Story continues below this ad

The secrecy surrounding the budget is designed to imbue a fairly mundane exercise with an aura of mystery, suspense, and importance. Locking up officials in North Block for a fortnight to guard the printing of revised estimates, is really taking things too far. Even the announcement of tax rates in Part B of the speech is of little consequence as we are committed to a sliding tax regime. We have matured as an economy. There is no need for these gimmicks. Part A of the FM8217;s budget speech is a statement of government policies. If this year, too, it is going to be a compendium of pious intentions requiring thousands of crores with no strategy on how the money is to be raised and no review of the fate of earlier pronouncements, it is unlikely that the FM will get a standing ovation.

One is confident that the super team in charge of the country is aware of the implications of rising expectations being belied. But one wonders whether it realises that what is needed today is a government that gets out of the way and let people8217;s energies, skills and entrepreneurship blossom in a conducive environment. In every area of a citizen8217;s life there are archaic laws, labyrinthine procedures, made worse by a corrupt babus. Foreign investors shy away because of these complexities and even big domestic investors are seeking new pastures in China and Malaysia. One MNC had to wind up its operations in an Indian city because the local police station demanded 200 burgers a day supplied free!

Reducing the size and functions of government is an imperative necessity. Mere tinkering will not do; major surgery is required. Will the super team have the courage to preside over the liquidation of at least a part of its vast empire? One will listen to the budget speech with hope and expectation.

The writer is former finance secretary, defence secretary and secretary, Planning Commission