Priorities For The Coming Budget

Both the revenue and fiscal deficits have increased and are projected to rise further. At a hefty Rs 43,686 crore, the revenue deficit is unsustainable. Failure to take timely and effective measures, e.g. increase tax receipts and curtail expenditure, can plunge the country into another crisis.

By definition, plan expenditure is supposed to be beneficial, and hence to be encouraged. Yet the trends belie this assumption. Since 1990-91 (taken as the base year) till 1997-98 (revised estimate), non-plan expenditure has increased faster than plan expenditure, suggesting lax control. The ratio of capital to revenue expenditure has altered, with revenue expenditure now exceeding capital expenditure. This indicates the predominance of staff salaries and perks in the pattern of expenditure. This trend may be accentuated by the massive hand-out following the Fifth Pay Commissions report.

With the dismantling of many controls, staff reductions should have followed, but did not. The role of the Planning Commission and its size should also have changed. These reforms should be pushed through now, and fresh recruitment stopped completely. Staff for new plan schemes will have to be met by re-deployment.

Some other items have displayed trend increases significantly higher than that of the overall non-plan expenditure. Noteworthy is expenditure on the police, which is higher than defence expenditure. Both these services are manpower-intensive, and in todays context, both our external and internal security may be better assured with modern equipment efficiently handled, rather than by raw manpower.

Food and fertiliser subsidies have displayed similar rising trends. While no one should cavil at subsidised food going to the poor, the present system subsidises food going also to the affluent in the cities. There is scope for economy by targeting subsidised foodgrains solely to the poor. Fertiliser subsidies amounted to Rs 10,026 crore in the revised extimates (RE). A drain of this magnitude is hard to justify, especially since the beneficiaries are mostly affluent farmers, and fertiliser companies, some of which are inefficient.

Interest payments at Rs 65,700 crore in the RE are projected to rise to Rs 76,000 crore in the budgetary estimates (BE) and call for comment. These charges alone gobble up 66 per cent of tax revenues. If we add staff salaries etc, there is little left for development and meeting essential needs. Perhaps, this expl-ains the typical Third World syndrome of hospitals without medical and surgical supplies, of schools without teaching materials, of roads, canals and tubewells which are unservicable because of lack of maintenance. Thus, even though the capital expenditure has been incurred, the country is deprived of the corresponding benefits.

The policy implication is clear. More borrowings, which would increase interest and repayment charges, are fraught with grave risk, and indebtedness has to be drastically curtailed. Also, the government should be careful to ensure that the capital needs of the private sector are not crowded out.

Plan expenditure (which ex hypothesi deserves priority) shows some interesting features. Against the overall RE plan expenditure of 2.13 times the base years figure, agriculture and rural development plan expenditure shows a smaller increase of 2.03 times, and energy a meagre 1.04 times. These are sectors which are vital for poverty alleviation and employment generation. The figures of central plan outlay disclosed are remarkable in showing a shortfall in the RE, as compared with the BE for 1997-98, for every sector. The total shows a shortfall of 11.76 per cent. Clearly, budgetary constraints are not the reasons for poor performance.

Some of the plan allocations lack rationale. The education budget illustrates this. Some 55 items are shown with a sizeable provision of Rs 5,231 crore. The contours of these schemes appear blurred, and it is not surprising that 50 years after Independence, our illiteracy rate hovers around 50 per cent.

The policy implication is that the government must focus on essential activities, accord these priority, and drive them forward vigorously. Priorities need to be decided carefully, taking a long-term view, and sectors which exert a powerful influence on the efficient pursuit of other worthwhile activities e.g power, telecommunications, ports and transport, should be nurtured in the overall interest.

The economy is in the doldrums, and unless galvanised soon, a severe recession may develop. Government expenditure on worthwhile schemes should be augmented. Foreign direct investment should be attracted and encouraged to take up all activities which create jobs and add to our wealth. The governments own resources are under such severe strain that any relief from FDI would be welcome.

Restructuring of public sector enterprises (PSEs) requires immediate attention. It would be considered farcical, were it not so tragic, that the government borrows at around 12 per cent interest and invests in the PSEs which yield a pitiful 3 to 4 per cent on an average. The PSEs should be required to earn much higher profits.

Loss-making PSEs are an albatross round the governments neck. Under the rubric Non-plan loans to public enterprises, a euphemism for making good losses, the government will fork out Rs 1,565, crore. The NTC alone walks away with Rs 499 crore to make good its losses. It is far from clear that public interest is served by the government running PSEs manufacturing textiles, tyres and scooters, when efficient private sector companies are fully meeting these needs of the public. These units should be sold off promptly.

Undoubtedly, the present government is faced with hard choices. There is a crisis of management. But if it is to survive, these problems will have to be tackled head on.

(The author is former finance secretary and former ED, World Bank.)