It would be impossible to deny that Mr Chidambaram has presented a dynamic, growth oriented Budget. In one stroke he has recaptured the flavour of reforms that had turned sour in the last three years, and has done almost everything he could to fiscally reorient the economy towards growth. Mr Chidambaram has bet on growth. Quite frankly, he didn't have much of a choice. He couldn't possibly have presented yet another business as usual budget and hoped to maintain any credibility as a serious reformer. The economy "" particularly industry "" was crying out loud for a fillip to growth; and he had to create the ambience to facilitate growth via rapid fiscal reforms.
The flip side is that if this growth does not materialise, he will get unstuck. So, after the initial praises "" and Mr Chidambaram deserves all the kudos and more "" it is time to carefully look at the numbers and examine the kind of growth he needs to ensure that the 1997-98 Budget gets an A+ in history. Let us begin on the expenditure side. The data are in crores of rupees.
Mr Chidambaram has budgeted for a 14.9 per cent growth in total expenditure: 14.5 per cent under plan outlay and 15.1 per cent under non-plan. There are expenditure areas which are beyond his control, particularly interest payment and the pay hike that will come into being thanks to the Fifth Pay Commission. But he could have put a lid on subsidies. Last year, the subsidies had already swollen by almost Rs 3,400 crores (more than 25 per cent higher than 1995-96). To hike this increased base by another Rs 1,557 crores was unavoidable. Moreover, his promise to put more into food subsidy if the targeted public distribution scheme works out holds the seeds of danger. Even if it does not work out well, Mr Chidambaram will be hard pressed to say so to the Cabinet; and the caveat may become the second volume of Margaret Mitchell's Gone with the Wind.
I am also concerned about the 18.3 per cent growth in total fertiliser subsidy (which includes supply of decontrolled fertiliser to farmers). Assuming an inflation rate of over 10 per cent in the course of 1997-98, this translates to a huge 8.3 per cent growth in real subsidy. What does this do, other than keep wealthy farmers happy? It gives a solid rate of return to unviable domestic fertiliser plants, and distorts fertiliser use resulting in the long run detriment of the soil. Yet, it continues unquestioned.
After interest, the largest chunk of the addition to non-plan expenditure comes on account of defence. The defence budget has gone up by Rs 6,122 crores, which is almost 21 per cent higher than the provision for 1996-97. There is a hoary tradition in India not to question increases in defence expenditure "" as if it were an act of anti-nationalist traitors. I believe that time has come for us to give up this holy of holies view about defence expenditure, and ask Mr Mulayam Singh Yadav what he proposes to do with such funds, and why? Moreover, Mr Chidambaram's solemn carte blanche to finance any additional capital expenditure for defence is like allowing a bunch of children to enter Hamley's toy shop in London. Who could ask for anything more?
How does the finance minister propose to cover the incremental expenditure? And, given the fall in direct as well as indirect tax rates, what kind of growth does this entail?
Basically, he hopes to generate a 17 per cent growth in receipts, consisting of an 18 per cent growth in non-tax revenue and a 16.3 per cent growth in nominal GDP between 1996-97 and 1997-98. Assuming an inflation rate of 9 per cent, this translates to a real GDP growth rate of 7.3 per cent. What does this mean for sector specific growth rates?
Economists would perish without accessing used envelopes. I am no exception. My back of the envelope calculations show that a 7 per cent plus GDP growth rate requires: (i) a 10 per cent to 11 per cent rate of growth in the industrial sector, (ii) a 15 per cent rate of growth of manufacturing, and, most importantly, (iii) a 3 per cent to 3.3 per cent rate of growth of agriculture. My gut feeling is that the first two growth rates can be achieved for one more year despite the pathetic state of infrastructure, particularly power supply. However, one year is the outer limit. Unless the supply of electricity increases dramatically through better transmission and distribution (let aside higher generation), we cannot sustain this growth beyond 1997-98.
So, it is finally reduced to the growth rate in agriculture "" the most neglected sector of the Indian economy. Since agriculture hardly has any proper infrastructure to speak of, it is really up to the Rain God. If He loves Mr Chidambaram, then the finance minister will meet his 4.5 per cent fiscal deficit target, and we shall see him dance the jig while presenting his next budget. Given Mr Chidambaram's bold reforms of 28 February, let's all pray that Mr R G above showers His blessings on him.
In the meanwhile, the finance minister may wish to practice singing compositions in various forms of the raga, Malhar. Garajata barsat saawan ayo re is a good starting point.
