Home > Archives (2006 on) > 2009 > February 2009 > Interim Budget: An Ordinary Exercise in Extraordinary Times

Mainstream, Vol XLVII No 10, February 21, 2009

Interim Budget: An Ordinary Exercise in Extraordinary Times

Monday 23 February 2009, by Kamal Nayan Kabra

An Interim Budget that expressly avoids making big policy choices except presenting projections over the likely values of the main budgetary variables for the coming fiscal year in the form of a Vote on Account may stand on sound footing in terms of parliamentary convention and a measure of political morality (a rare entity in these tumultuous times). Generally no new initiatives extending over the entire year or beyond would have democratic legitimacy as the mandate of the ruling political outfit expires in a few months time. It may well be on par with the propriety and rationale of the moratorium on new policy or programme-related initiatives once the poll notification is issued and a moral code of conduct comes into operation.

However, the temptation to extend this consideration too much could well be a ploy to avoid taking difficult decisions and may often turn out to be counter-productive, making parliamentary practices stand in the way of effective and responsive governance. The Interim Budget 2009-10 seems to abound in many such respects. Thus some pressing current challenges, despite acceptance of their existence, remain non-responded. This is on top of the long-term challenges like providing adequate and guaranteed livelihood opportunities to the ordinary Indian; these seem to form no part of the agenda of the ruling dispensation. Thus it is shocking indeed that even after attaining an over 26 times jump in the per capita income at current prices over the past 32 years, even now the annual target of creating 125 million income earning opportunities falls short of the annual addition of over 150 million new entrants in the labour market, not to speak of the huge backlog of past ‘unemployment’ and the poor quality of most of the available work opportunities. The day when the targets and policies would deal separately with the pucca and decent income earning opportunities rather than taking credit for numerous make-do ones, devised largely by the people themselves in order to manage to survive, seems light miles away from the values and social commitments of the present ruling dispensation.

Futile Nitpicking: Ploy to Avoid
Difficult Decisions

After all, when the elections or election notifications are due happen to be matters of public knowledge and action, if called for or considered appropriate according to the understanding or commitments of the ruling party; these can be initiated and so timed as not to coincide with these so-called avoidable or questionable occasions. In fact, most often any alert, clear headed and efficient government would do it. One may recall that the present UPA Government has done so when it announced two packages for dealing with some unwelcome repercussions of the recent blow from the crisis of global neo-liberalism felt over most parts of the world, including India. In fact a government cannot go into deep slumber months prior to elections simply because the decisions may have budgetary implications. It would be a specious plea that a government whose mandate is to expire in a few months time cannot or should not take decisions with fiscal or long term implications. After all, the electorate and the new elected government always have the option of reversing such decisions. One may also refer to emergency situations that too can and must dictate the need for prompt decisions and no election schedule can be cited to prevent the government of the day from its mandate of governance.

In fact, lately one has seen almost every Cabinet meeting quite legitimately taking more than routine administrative as well as policy decisions with serious and long-term fiscal implications and also with an eye on the impending elections. Actually some decisions, for instance, like for location of projects, may either be irreversible or very costly to tamper with. In one word, the process of governance cannot be insulated from politics but is in reality another name for the former. One cannot see any reason or basis to question the legitimacy of the timing of these decisions, the decisions that reflect the social and political commitments or the urge to serve some particular, and often influential, political consti-tuency! The politics of opposition to any decision must base itself on real substantive grounds and better avoid such formal and moralistic or legalistic nitpicking. After all, every Budget speech covers matters which are at best remotely connected with the fiscal system, but given the popularity of the occasion as also the need to achieve better co-ordination between various policies Budget presentation is often used for the purpose of announcing the major thrusts to be pursued by the government in the days ahead. Hence the excuse that no new or needed initiatives can be taken during the last few months or weeks prior to the appointed day for the Budget especially when the elections are a few months away does not appear to be convincing.

Just as decision-making is the prerogative of the government, so is its timing. The reason this issue is taken up here is that both the critics as well as the supporters of the Interim Budget 2009-10 have taken recourse to this position to defend or oppose what is done or has not been done. In our view, the Budget should be looked at as it stands without entering any caveats on this ground because there are numerous ways in which the government can do what it is keen on. Similarly, this high pedestal could also be used as an excuse for skirting certain difficult choices. For example, tax cuts to boost demand, as one of the measures oft suggested as required in the face of a severe actual and unpredictable impending downturn, are a difficult choice for the present regime for many reasons in the present situation. For one, its benefits are not often passed on to the consumers to stimulate demand. Thus a tax cut may become a net addition to profits, either for maintaining their level and rate of growth or to add to them. Moreover in the face of a declined level of tax revenue, it is not a good option for the managers of the fisc. To increase the taxes to compensate for lower tax collection or for financing extra public spending or investment would invite hostile response from the corporate giants who are the chosen leaders of the growth process with which the government seems to be infatuated. Thus one can see why the fiscal conventions and political morality can conveniently be invoked to avoid certain difficult choices. In neither case it helps to ward off the threat of a down turn as that is caused either by toxic assets or by demand compression and the resulting prolific savings moving over to the financial sector for quick and large returns.

True, there could always be some hue and cry on the timing of such decisions, but where are the decisions that would not invite criticism, real or spurious? Take one real case and the position would be clear. There were news reports that it has been permitted to give more than 100 days work even outside the rural areas as well to those who have been retrenched as a result of the effects of the global economic crisis. Obviously this is an extension—and one may add a desirable one too, but highly limited extension—of the path-breaking rural employment guarantee programme. It would have clear budgetary implications as well and exert some influence on the economy in many ways. If one were to criticise it on the grounds of its timing it would be pointless. This instance also indicates that it would be naïve to defend or attack the government’s inaction on many issues and their not getting incorporated in the Interim Budget on account of the limitations arising out of impending end of the term of the government. After all, the much-hyped announcements regarding enhanced outlays on many schemes meant for the welfare of rural India (and in some cases the Budget allocations fall short of the revised estimate for the current fiscal as, for example, the much-trumpeted rural development programmes in which case the current Budget provision at Rs 42,774 crores is less than the revised estimate for 2008-09 by over Rs 6000 crores!) are scattered around in the Budget. Not only that, but even a hefty programme of disinvestment of pubic enterprises has been incorporated in the Budget without any fresh mandate. These too represent a series of substantive decisions that bind the new government or may involve it in an embarrassing position should it decide to curtail or economise on such outlays. Hence the Interim Budget exercise should be taken as a complete package insofar as it goes and the length it travels and the direction and speed it adopts. The merits of the moves alone should matter and not the procedural aspects.

Basic Limitation: Unflinching Neo-liberal Ideological Moorings

And in this position lies the rub. The Budget speech explicitly recognises the extraordinary character of the difficult times facing the country and its economy. The reference is not to the near–permanent plight of the poor masses who are subsisting outside or on the margins of the formal economy by means of their survival and coping strategies centred in or around the informal sector, providing shelter and livelihood to over 92 per cent of our nearly 450 million strong work force; for them even at the level of inclusion, the threshold, in terms of the above poverty line level of living, has remained fixed since the mid-seventies of the last century in real terms. This is a fact that the Eleventh Plan formally acknowledges probably for the first time but without introducing any corrective measure. The Eleventh Plan, expressing dissatisfaction over the extent of poverty reduction, (a good index of inclusion at the threshold) says:”This performance is all the more disappointing since the poverty line on which the estimate of the poor is based is the same as it was in 1973-74.” (page 1) Thus it is clear that the persistent domestic crisis is not what has been taken to cause the present extraordinary situation. This seems to have been accepted by the establishment as the normal state of affairs and the resolve to deal with it has become a permanent fixture of each annual Budget and the Five Year Plans.

The reference in the Budget speech is obviously to the shock waves coming to our shores from the economies of the global hegemons with whose apron strings the present regime has tied the Indian economy with a lot of hope and enthusiasm, asserting time and again the inevitability as well as the irreversibility of this kind of globalisation—a globalisation that has been adopted as the panacea having no alternative. Now the chickens have come home to roost and the price of the major and unpardonable sins of commission and omission of the hyper fianancialsed, centralised, globalised and disequalising players at the centre of the global economic, financial, technological and military fields have started hurting people beyond their own borders, including the rich tip strata of the poor countries such as India. Hence the ruling groups have woken up to insulate themselves or ward off these externally originating troubles. The Indian policy establishment too has moved in this direction and after unfolding two big benefit packages for the top echelons, the Interim Budget speech makes a pointed mention of the gathering storm clouds. It is also worth noting that those who were excluded from the ‘benefits’ of over 35 per cent direct integration of the Indian economy with the global economy are also no less exposed to the ill-winds coming from the rich countries—a situation that is worrisome because the capability to withstand adversity is the least among these excluded masses.

Thus one has to be prepared to face the critiques that point to the partisan, selective and misleading character of the packages meant to avert recession or its primary and secondary adverse effects (basically by reversing the slump in the profits rather than by protecting the jobs directly by at least making the relief to the companies conditional on adopting a policy of no retrenchment) without offering little support to the workers who are facing the axing of their jobs. Having recognised the extraordinary global situation and its essential adverse effects, what is the response? The most obvious lesson is that the highly over-expanded project, diversified with a bewildering variety of fancy financial products that are given a free hand on the basis of a belief in its capability of self-regulation, has not only met its Waterloo but has engulfed the real economy and every other socio-economic sphere by its contagion. The unregulated financial sector has, after a series of disasters in different parts of the world occurring every third or fourth year, hit the economy of the big brother in a really hard and unprecedented manner. Then the issue is not just that of how to save our skin and get out of the mess that originated elsewhere and as a result of our enthusiastic link-up with them has reached our shores. The most obvious, sharp and unmistakable lesson is about the nature of the economy and its policy regime and it is loud and clear: no more hobnobbing with the so-called free markets proclaiming faith in self-regulation. The neo-liberal blind faith in the market forces has betrayed its believers and instead of rolling back the state, the attempts in most parts of the world are in the direction of bringing the state back not just to facilitate the corporate games but in the driver’s seat. No doubt it would be a folly to go back to the past and leave a lot of scope for subjective, undemocratic and discretionary decision-making. But what we read in the Budget speech is the commitment to the corporate giants that the process of economic reforms would be accelerated once the economy crosses the hump. What is notable is that the disastrous Washington Consensus is still called economic reforms (a sure sign of heavy ideological baggage) irrespective of what life has shown so clearly. This mindset sits ill at ease with the report that the Budget speech makes to the nation regarding the sterling performance of the central public sector undertakings in the face of a hostile policy environment as the Damocles’ sword of dis-investment and crypto-privatisation hangs on their heads.

In the arena of our highly sectarian public discourse, one can see a great deal of over- enthusiasm about discussing the numbers concerning the revenue and expenditure sides of the Budget, the real size of the fiscal and revenue deficit (whether 4.5 or 7.8 per cent or hitting once again the pre-1990 level), what is to be stimulated, how and when, and, of course, whether the tribe of speculators in our over-extended and highly volatile stock markets would give a thumb up or thumb down to the budgetary policies, and so on. But what is rarely taken up are questions such as the socio-democratic nature, qualitative aspects of the growth process, the direction of the flow of the benefits and associated sharing of the costs and the relative shares of the excluded sections vis-à-vis the shares going to the coffers of those who have always been served better and out of turn, that is, the real, democratic socio-economic aspects of the policy regime. It is an open question what the world would become like after the process of overcoming this momentous and historic crisis becomes a success (a big unsettled question, whether and when and in what form etc., that still keeps hanging fire) and whether the fond hope of the market fundamentalists, that let there be a few big bailouts and everything would be back to square one, is realistic. We in India too have to make our choices. A ruling combination that asks no such questions and assumes ostrich-like that after the growth rate, stock markets and other financial and labour markets move out of their present predicament, everything would be hunky-dory as before can hardly be expected to deal with the historical challenges facing the country and its excluded majority of people. It seems obsessed, not too unnaturally, with the challenge of garnering support for the Hand that has supposed to have helped the people, but the real national tasks go nearly unrecognised or have been given a perverse identity, let alone taken head on. If one were to analyse the policy processes, including most prominently the processes of fiscal decision- making, both on the revenue and expenditure sides, and the larger national ask of giving direction and speed to the processes of normatively and democratically determined development, it is likely to appear that elements of social balancing of costs and benefits and appraising alternatives, including throwing up such alternatives, have remained prisoners of borrowed and inappro-priate ideological fixations, especially beginning from the early 1990s. Even after the mid-1980s and during mid-1990s there were indications that some rethinking, some urge to apply brakes to the single-minded pursuit of the Washington Consensus- based policies and a desire to adopt a middle course and go in for a course corretion were visible, though unfortunately these attempts could not go far as unexpected forces intervened. But the NDA and UPA have moved nearly blindfolded in the neo-liberal direction. Now a cataclysmic shock, comparable to that delivered to the Soviet system no so long ago, has become the fate of the Western market democracies. This seems to have been a result of embracing a model of marketisation and globalisation that is so completely devoted to the narrow interests of a tiny minority of trans-nationalising big capital in the G-7 countries (with weakened national commitment of the kind that was seen in the aftermath of the Great Depression of the 1930s), and hence the Third World countries such as India have to do their own rethinking. The time for going to the people for seeking and renewing the mandate, even if so far not available to any single party, is an appropriate time to do some such introspection. It is a measure of the times and the state of the political class that no such introspection is visible. The debate over the numbers placed before the people in the Budget exercise in any case has little meaning insofar as random departures from them have all along been the reality and any number of devious practices are adopted to window-dress the numbers which in any case have little bearing on the outcomes seen on the ground and made available to the people.

An Extraordinarily Ordinary Exercise

However, there is one big and significant specific colour and character given to this lack of co-relation between budgetary allocations, formal provisions on then one hand, and the actual socio-economic outcomes or tax revenue collection on the other. As far as the corporate and personal taxations go, there are any number of items of tax expenditures (lately listed explicitly in the Budget documents) that make the formal tax rates merely a talking point since as much as fifty or more per cent of the formally levied tax amount is given up by means of a bewildering variety of exemptions (the exemptions that have been ex cathedra attributed largely to the efficacy of various hyper-active and powerful lobbies) and either remain uncollected or are returned (in addition to the amounts that get locked up in interminable litigation). Moreover the tax liabilities are calculated on the basis of generally doctored or ‘Satyamed’ accounts. Such accounts presented to the tax authorities are a big factor in the genesis of our massive trust in and commitment to the corporate sector as the main agency of develop-ment; and the sector itself is on an overdrive to show that Satyam is an one-off episode and the rest of them are pure as crystal and overflowing with a strong commitment to the nationally shared prosperity. This is something that both on a priori and empirical grounds seem to be so much of a hogwash.

Insofar as any real inclusive development is not simply possible without chipping off the top and reducing its clout while the corporate sector is not willing to perform anything without extracting its pound of flesh, there is a real need for fresh thinking on the content and agency of development. It is true that even any regular Budget so far has done little positive interventions on these long term and basic issues, but if the attainments of the last five years can be a part of the process of Budget presentation, why not raise the long term missing and messed out factors in the course of or as a prelude to a substantive discussion on the Budget provisions? One can treat such issues as the real ones and use them as the overarching ones for making the Budgets capable of being debated on the criteria of the degree of progressive elements reflected in the tax proposals and in the expenditure allocations (processes that would inevitably ask questions regarding the compati-bility of the criteria with the nationally accepted objectives of public policy). Surely such social criteria do not sit well with the mindset of the kind reflected in the restrictive laws as the Fiscal Responsibility and Budget Management Act. Luckily the Interim Budget reflects that this anti-people‘s sovereignty law has met its premature and well deserved death in the face of the national and international political economic developments and this has happened even before its full implementation.

In sum, the failure of the Interim Budget to draw lessons from the recent international events even in the face of their admitted and announced extraordinary character makes the interim fiscal exercise an extremely pedestrian one, thus giving meaning to the oxymoron epitaph of being an extraordinarily ordinary budget!

A prominent economist, Dr Kabra is a former Professor (now retired), Indian Institute of Public Administration, New Delhi.

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