'This disappointing Budget ignores India's changed economic environment after the nuclear explosions'
Dr Arjun Sengupta
It is a very disappointing Budget. It is
bureaucratic, goes into many details
and shows little change in direction
and completely ignores the totally
changed economic environment of
India after the May 11 nuclear
explosions and the sanctions of some of
the major industrial nations.
The finance
minister should have shown
leadership and imagination and
should have introduced measures to
suggest that we are prepared to face
the new world.
I have never been a trenchant
critic of liberalisation. In fact, I have
been a member of the team which first
started the process of liberalisation in
India in the early 1980s. My only criticism
of the way the liberalisation process was
introduced in the 1990s was that it did
not recognise that in a democracy like
India, a simple process of market
deregulation is (a) not workable and
(b) not sustainable, unless
simultaneous measures of structural
adjustment and social development
are also implemented.
In any case, the
current Budget, to my mind, makes a
major mistake of raising import duties
giving a wrong signal to investors both
in India and abroad. We all support
strong development of indigenous
industries. But one thing we have
learnt is that indigenous development
does not depend on protectionism.
For
quite some time our industry would
need strong support from the
government because of our
underdeveloped infrastructure,
market imperfections or even absence
of markets and many other
incapacities resulting from
underdevelopment.
But solving that
does not mean we have to distort
the market prices of either the inputs
or the outputs and that exactly what
protectionism does. What is necessary
is to promote competition and help our
indigenous industries to develop their
capacity to compete. But, surely not to
nurture them behind a protective wall.
What he should have done is to go
out of his way to promote foreign
investment and prove to the world
that we are going to be a strong team
player in the international trade and
capital markets. These were necessary
even before but today, after the
imposition of the sanctions, they are
even more important. He took a bold
step by opening the insurance sector
to the domestic private sector. But why
did he stop at that and not allow
foreign investment?
But why did he limit PSU disinvestment only to Rs
5,000 crores? The stocks of many of our
major public enterprises can be sold
abroad and if there is a prospect of
their management being completely
free from government control, the
value of their shares will also go up
enormously. But then these shares
must be sold to foreigners because
domestic sales would only displace
private investment. The finance minister
should have taken the bold measure of
offering the shares of our public
enterprises to a much larger extent to
foreign investors.
I believe the
Planning Commission still has a major
role to play in India.
1. This is the
only institution that intermediates
between the Centre and the states. The
Finance Commission just looks into
the devolution of resources. The
Planning Commission looks into the
whole process of interaction. Even in a
completely market economy, so long as
the central government has command
over resources and engages in
expenditure affecting the whole
country, you would need an institution
like the Planning Commission to play
the role of intermediation.
2. The Planning
Commission now has to devote itself to
planning for policies and not just to
planning the investment allocation. In
a market economy, where the state has
still a role to achieve certain objectives
which market forces alone cannot
realise, it is the policies which matter.
The policies have to be set in a
medium-term context and in a
coordinated manner, affecting several
sectors simultaneously. That is where
we need planning.
3. There are
sectors like infrastructure, social
development, regional balance and
technological development where the
state still has some direct role to play
and planning commission must work
to design a rational approach to those
state policies.
There is nothing wrong in selling
some assets of public sector enterprises
and use the proceeds for financing
expenditures which only public sector
can do, namely -- social development,
education, health, women and child
development. Or even development of
technology. Although this expenditure is regarded as current
expenditure in the Budget, they are
in the nature of investment in human
capital and therefore they create
assets.
I was questioning Rs 5,000
crores because I believe that if we are
prepared to sell shares of some of our
very good companies and sell the
shares abroad we could get much more
than Rs 5,000 crores.
I consider Disinvestment Commission chairman G V Ramakrishna's prescriptions are
very much worth considering because
he is a very competent expert. But I
believe that the valuation, the timing
and extent of the sale of the shares should
be left to the management of
individual companies. And for that
reason, the management should be
given complete autonomy. And on Rs
5,000 crores, I suspect this amount has
been quoted because even now
disinvestment is targetted for domestic
markets. If foreign markets were taken
into account, we could get much more
provided we mean business.
It is true that this
Budget is a continuation of the Budget
process that was introduced by Dr
Manmohan Singh and followed by P
Chidambaram. The increase in import
duty has gone against the stream, but
disinvestment proposals are a step
forward. But my difficulty with this
Budget is that this would have been all
right, a bureaucratic and cautious
extension of the previous Budgets
provided we were living in the world of
pre-May 11...
I was one of the persons who argued
till the end of April that India has a
potential of 7 per cent growth and we
should correct the decelaration of
growth to 5 per cent last year by a
expansionary public investment policy
and more relaxed monetary policy
even if that meant a marginal
increase in fiscal deficit.
Unfortunately, fiscal deficit increased
to 6 per cent compared to the Budget
estimate of 4.5 per cent but without
any noticeable increase in public
investment. That was the failure of the
last government and the new
government could have corrected it
without much difficulty.
But after May
11, our whole environment has
changed. We must now be prepared
against a possible crisis created by
drying up of foreign flows if not a
reverse flight of that capital. I do not
think we can afford the luxury of a
higher fiscal deficit or relaxed
monetary policy. As a result, we may
suffer from a continued low rate of
growth. But we cannot relax on
government policies any more.
The only way we can promote growth
today is by doing everything to
promote exports and to invite foreign
capital. The concept of swadeshi has to
be given up in this situation. When
swadeshi means preventing foreign
competition.
If we do not have
substantial inflow of foreign savings,
the domestic rate of investment will
come close to equality with the
domestic rate of savings which is now
26 per cent. However we may try, it is
impossible for us to have a domestic
saving of 30 per cent as the BJP
agenda calls for.
With a lower rate of
investment, we shall have to settle for
a lower rate of growth than what we
had achieved during the 8th Plan.
This is not acceptable in our country,
with our problems of unemployment
and poverty, the eradication of both of
which requires higher rate of growth.
Absence of positive measures or even
signals for inviting foreign savings is
the crucial lacuna in this Budget. This
has been made even more critical
because of the sanctions that have
been imposed.
Let me share with you
another reason for my disappointment.
Very few people know that Yashwant
Sinha as finance minister of the
Chandra Shekhar government had
prepared a most revolutionary Budget
in 1991. In many ways, that Budget
was more radical than the Budget that
was presented later that year by Dr
Manmohan Singh when he introduced
the Narasimha Rao package of
economic reforms. For reasons quite
well known, Yashwant Sinha's Budget
could not be presented to Parliament.
If it were, it probably
would have been a major Indian
response to the 1991 crisis. I thought
that this time again, when we are
facing another major crisis, Yashwant
Sinha would rise to the occasion and
present an equally radical Budget. He
did not and that is why I was
disappointed.
Dr Arjun Sengupta, the wellknown economist and member of the Planning Commission, spoke on the Rediff Budget Chat.
Budget '98
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