Proclaiming, “…we must
unhesitatingly embrace growth as the highest goal … without growth there will
be neither development nor inclusiveness,” Union Finance Minister Chidambaram presented
his budget for 2013-14, well resisting the political compulsions of his
government that is going to face the elections in a little over a year.
He went on to prove his
known stance for fiscal contraction, even when the growth of the economy is today
on a downward trend, by containing the fiscal deficit for 2012-13 at an
acceptable level of 5.2 percent of GDP and proposing to reduce it to 4.8
percent of GDP in 2013-14. But if one looks at how he achieved this fiscal
consolidation for 2012-13, one feels quite disturbed, for it was achieved more
by reductions in the much-needed plan expenditure—plan spending during 2012-13
was 20 percent lesser than the budget estimates for the current fiscal. And
these cuts are across the board, including important sectors such as industry
and minerals, science and technology, and even agriculture and rural
development. But that being history, nothing much can be done except to watch
for the unintended consequences, if any, and ensure their effective management.
Coming to the proposed
budget for 2013-14 and the fiscal deficit reduction therein, it must be said
that the proposed consolidation is again a bit enigmatic: the FM aims to shrink the
fiscal deficit through an increased tax collection, that too, by about 19 percent
in a growth scenario that is hardly pegged at around 13 percent over the growth
in GDP in 2012-13. Nor does he propose any new taxes, except for a surcharge of
10 percent on high-income individuals and the corporate. Secondly, the budget
also proposes to increase the Plan spending by about 29 percent. Now, the
obvious question is: Are there sufficient resources to meet the twin objects?
Of course, there would be lesser demand for funds under the head fuel subsidy,
for he proposes to eliminate fuel subsidies. Even then, mobilizing additional
resources to contain fiscal deficit at the proposed 4.8 percent of GDP will be a
tall order: If the GDP under-performs (from the projected @ 6.1-6.7 per cent), or the global oil prices shoot up further or, rupee devalues further owing to sharp fall in FII's investment or widening CAD deficit for whatever reason, everything becomes topsy-turvy.
That said, knowing Chidambaram’s
commitment and his will to restore fiscal sustainability and macroeconomic
balance, one can be sure of his achieving the objective of containing fiscal
deficit at 4.2 per cent of GDP during 2013-14. But its unintended consequences, if any—such as
cut in governmental investment under Plan spending, the resulting fall in
employment creation, and rise in international fuel prices fanning domestic
inflation—should not undermine the welfare of common man, particularly in the
year preceding the elections, for, should that happen, there is a danger of his
own party men calling for tinkering with the objectives. So, it’s going to be a
big task for Chidambaram to steer the budget implementation with more
dexterity—the task of execution assumes a great challenge than even his
drafting the budget.
Chidambaram, by succeeding
in containing fiscal deficit through reduction in unproductive expenditure such
as subsidies rather than increase in tax income alone, is more likely to create
confidence in the Indian economy among the international investors and thereby
might pave the way for more Forex inflows that are badly needed in today’s
context of alarmingly widening current account deficit. But for this to happen
in a sustained way, he should not rest complacent with budget execution alone but
also aim, as mentioned in his budget speech, to take up pending bills such as
Direct Taxes Code Bill, Pensions and Insurance sector regulations/reforms, etc., for
that alone can create a better investment climate. It is to be stressed here
that the opposition parties must show political maturity in supporting the
government in doing the right thing for the good of national economy rather
than opposing everything merely because they are in opposition.
Now coming to what in
the budget is not appealing to a rational mind is his proposal to set up
India’s first women’s bank as a public sector bank by providing Rs 1000 crore
as initial capital. This does not sound rational because: one, the exchequer is
already saddled with enough headaches from the existing PSBs — as against the
estimated requirement of Rs. 90,000 crore as additional capital to be infused
into PSBs for making them Basel III-compliant, the finance minister could hardly
provide for Rs 14,000 crore in the current budget; two, creation of additional infrastructure only eats
into investable capital by way wages and administrative costs, as is the
experienced with Gramin Banks; and three, what is needed in a mature economy is
an integrative approach but not segregation to cater to the needs of its citizens. It is an irony that we are
attempting inclusiveness through exclusiveness. Over and above it, once
established it would become a permanent drag on the budget as are the Gramin
banks today doing nothing to gloat about. The rest of the budget proposals are,
of course, neither better nor worse, for they are almost like in any other ‘conventional
budget’, warranting little or no comment.
Interestingly,
Chidambaram commended his budget to the nation quoting Vivekananda: “All the
strength and succor is within yourself. Therefore make your own future.” Now it
is for leaders like Chidambaram to fulfill that wish—the wish of sustaining
macroeconomic balance for a better growth so that more employment can be offered to the youth to realize the benefits of the so called demographic dividend as also reduce poverty to tolerable levels “with steadfast will and mind
unslumbering.”
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Keywords- Union Budget- 2013-14, India's Fiscal Deficit , Mr. Chidambaram, Finance Minister
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