The Budget is again round the corner. The economy faces two obvious problems — low growth and high inflation. Everyone is looking to the finance minister to wave a magic wand and solve these two problems on February 28. There is great hope for two reasons. First, the current FM’s stint in the home ministry, immediately preceding his current job, has convinced everyone that he is a no-nonsense minister. He has already said that he will control the deficit and people believe he will give it an honest try. Second, last year’s Budget has had such disastrous consequences that it has become easier to know what should never be done. Investment has fallen and that needs to pick up. Nothing should be done, or announced, that encourages investors to wait till the next elections!
So what is it the finance minister can do? For one, he can control expenditure. Take out the waste, and the deficit is down. India is an interesting country. The movers of the MGNREGS were the first people to admit, in public, the rampant corruption and leakage in the programme. Yet, when this possibility was pointed out to them by some early critics of the implementation plan, the very same people bulldozed them out of the discussion by making passionate appeals in the name of the poor. The same thing is happening with the Food Security Bill. There are some people with pet theories about how things work. Their theories have been built up from years of experience and this non-transferable knowledge is something that others, notably the critics, do not have. And, hence, if the critics say that this will lead to wastage and graft, it must be because they are horrible people with deep vested interests against the poor, or plain stupid. After all, they have not worked with the poor as much as the supporters of the bill have. And so, like the MGNREGS, we will pass the Food Security Bill in Parliament, it will become an act, the implementation as envisaged in the bill will take place and the movers and shakers will go out into the field and do their wonderful research to show that there is corruption and leakage. The FM can short-circuit this process, with a little help from some people in Parliament.
The FM can go back to one of his earlier budget speeches and recall the concept of monitoring outcomes. Only, this time do not leave its implementation to in-house administrators. The monitoring of expenditure is restricted to tracking the cash-flow from one pocket of the government to the other. What is not monitored is where the money goes after it leaves the last government pocket. Why is it so difficult for us to monitor the specific outcome a programme was intended for? Why are there repeated examples of corruption in government programmes?
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These are all corrections that the finance minister can put in place. They would go a long way towards restoring confidence in the system — which is currently at an all-time low. In addition, the FM can increase allocations, from the monies saved, for the building of infrastructure and other public investments like health and education. The FM can say that instead of distributing doles we are going to empower the poor. We are going to skill the youth. Once again, the finance minister can recall his setting up of the National Skill Development Corporation in 2008 and galvanise it so that skills are, indeed, generated. Manufacturing has to grow to absorb labour. This requires investment and a steady supply of employable labour. It has the added bonus of generating growth which, in turn, goes a long way towards reducing inflation.
The government has announced a consolidated direct cash transfer programme in 43 districts. This is a very, very small step towards what should be done. The FM can take this up as a general policy. He can announce that all Central programmes that come with cash transfers for specific reasons will be combined into one total amount and transferred in one go. There are easy ways of doing this, ways that get rid of administrative costs, delays and leakages. Of course, it also makes intermediaries irrelevant and one needs a courageous political leader to acknowledge that and go forward. After all, the labyrinthine process of checks and counter-checks is what destroys transparency and that, in turn, encourages corruption and leads to waste.
The finance minister in his earlier stint in UPA-I showed great courage and determination in implementing the Kelkar Committee’s tax reform recommendations. He has also been instrumental in getting Dr Kelkar and his team to work on fiscal consolidation measures and the control of the deficit. He can implement these recommendations and maintain his reputation of being a no-nonsense minister.
One way to control the deficit is to raise revenues. Both tax and non-tax revenues have been falling (as proportions of GDP). The FM has to increase the tax base. He may also be tempted to raise taxes on the rich and the super-rich. However, this will go down very badly with investors if there is nothing done on the expenditure side. Given the economic context, this budget will have to target investors. They need to feel confident enough to invest. Investment will lead to employment generation and growth. This will also make inflation bearable if not come down. Anything that smells of business as usual in an election year will frighten investors away from India. That is the challenge the finance minister faces.
The writer is research director at IDF and director of the School of Humanities and Social Sciences at SNU
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
