Theres no easy way out after living beyond our means for so long. But the budget is good
Budgets are like elections. Everybody is an expert,apart from the poor NGO economists who study them. Its a time to tell the country my heart is in the right place,never mind the facts. In wasnt like that in the bad old days,when flights of fancy were in the Plans and budgets were serious business. So nirvana,everyone thought,would come from FDI in retail or insurance reform and what have you,but one was not quite clear how the budget would address it.
There is no easy path when you have lived so much beyond your means. You have to spend less on today,more on growth potential,which is what investment and PPPs are all about raise more resources for that. As I said,what to do is simple and the rest is cacophony. This is what reform means today. Easy to say it but how do you do it? One of Kaushik Basus best pieces of work on the Indian economy is to demonstrate more elegantly than many of us that the higher growth path journey started when you raised savings and investment rates in the mid-1970s. So you went from Hindu to 4.5,5,6 per cent growth paths and so on. The budget extols this virtue and Basu remains true to his calling. It makes a beginning in infrastructure,ECBs,tax concessions and financial instruments tweaked and special sops for power,fertiliser,roads and makes an honest effort at raising resources.
Kaushiks elegies on policy models in the Economic Surveys are great. So its true that when advising sarkars,the practical path is that of salvation. Otherwise,go back to your ideological party or academic niche and talk from ivory towers. Thats why the beginning on cutting subsidies is good. The fertiliser reform paper has the right instinct. Raise nitrogen prices slowly,while you reform that sector which,given the corporate lobbies,you probably never will,and align with world markets,protecting your efficient producer. All of that is known from the last decade and was in a report we wrote then but now we are doing it. Its not perfect but can save a few thousand crores. If you give a gas grid to the poor to cook,you can take on kerosene and the mafias who rule and kill. Again,not the perfect solution,but will save many more thousand crores. The budget says so and there is a map.
On agriculture itself there is not that much which is new. The tweaking of NABARD assistance,RIDF and agriculture credit are more of the same. Storage assistance for a single crop betrays neglect of others. Fertiliser and kerosene subsidy caps will in the short run increase costs and reduce demand,but lead to more rational resource use in the long run.
However,making irrigation dams a PPP is a googly. The Twelfth Plan in agriculture and rural development is yet to come. The larger impact of the budget in at least arresting the decline in the growth rate will revive agricultural demand and help the sector. So will the early impact of food security. If the macro strategy gets going,food prices will rise.
Also,FDI in retail,which I like,is designed only for metros,and not aimed at the smaller markets. Still the finance minister has done his bit for small towns.
The tax measures are wholly justified and it is only in India that some economists who hate money being utilised for social purposes give wholly misleading statistics to argue against. For example,South Korea,which is not really a socialist model,has much higher tax GDP rates than us. The China comparison is silly because China has a proportionately larger public sector than ours and government pricing and cross subsidisation are so obtuse that no one really knows,but we do know that the old Soviet way of taxing through prices is there in a big way. So we need to cushion the FM from the attacks he will face.
The big thing is to start by covering the infrastructure gaps. Thats the Twelfth Plan story. My favourite is building roads,sanitation,markets and storages in what are called Census Towns,where millions of Indian farmers,labourers and artisans have moved,chasing markets. It is the great movement in the Indian economy and Census 2011 confirmed that. The government still calls them large villages and doesnt even recognise them as towns. And so its political footsoldiers,when they face the hustings,get massacred,because the poorest Indian also wants support to make money and wont accept these deficiencies any more. They are in UP,Bihar,Punjab and Himachal Pradesh where the action is,as in Gujarat. The budget ignores them. But that can be remedied. I like the budget because the journey has begun. And,of course,thank you for giving Rs 25 crore to IRMA!
The writer,a former Union minister,is chairman,Institute of Rural Management,Anand
