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'Not at all a swadeshi Budget'
How swadeshi is Finance Minister Yashwant Sinha's first Budget? How inflationary is it? How growth-oriented is it?
Bharatiya Janata Party national executive member Jagdish Shettigar and Communist Party of India-Marxist Politburo member Sitaram Yechuri debate the issues. Economic commentator Sanjaya Baru moderates the discussion.i
JS:First of all, we will try to diagnose the economic problems since the economic reforms were introduced. We ignored the agriculture and rural sectors. Public spending had been cut. As a result of this, there was a decline in industrial and economic growth in the last two years.
All this has been taken care of in our Budget. Another major distortion in the Dr Manmohan Singh/ Chidambaram Budgets was that domestic industry suffered due to the lowering of the customs duty. This has been rectified to some extent.
The social sector too had been ignored for the last 50 years. The problem of drinking water and primary education has been grossly ignored. I don't say we have been able to tackle the problem completely, but at least we have shown concern.
SY: First, this is neither a swadeshi nor growth-oriented Budget, considering Shettigar's diagnosis.
The recessionary trend over the last two to three years was basically due to the insufficient growth of domestic demand. Those who have the money don't need the goods and those who need the goods don't have the money.
So how do you correct this imbalance? It can only be corrected if you put purchasing power in the hands of the people. Instead, this Budget has taken measures that will promote inflation.
SB: Shettigar, would you like to react on that?
JS: Yechuri is referring to the people who already have the earning capacity. Initially, there might be some inflation due to the pump-priming but I am sure it will be offset by the supply management. But if you consider those who don't have an earning capacity, an increase in public spending will improve the public works programme. This will improve the workers's purchasing power.
SY: But Shettigar, take education, for instance. The bulk of the allocation goes for salaries.
The finance minister has allocated massive funds for education but most of it will go for infrastructural development or extra facilities for education. Nothing for primary education which is our main concern.
So much of the demand generation, which we have been talking about, won't happen. For, the government expenditure will be meeting only the incremental inflation. I suspect the finance minister's ploy is to have a higher inflation. This allows them to boost the GDP growth rate.
SB: Shettigar, before I return to Yechuri, would you like to comment on his view that the inflationary impact of the Budget will wipe out any positive impact on growth?
JS: No, as an economist, I feel that any pump-priming measure like increasing public spending and increasing the import duties may lead to inflation in the beginning. But since we have taken measures on the supply management side, it will definitely lead to growth in the agricultural sector as well in industry, which will more than offset by any inflationary presence in the beginning.
SY: No, I don't agree with that. Let us get one thing very clear. What we are discussing is the Budget as it stands. Already a lot of changes have been made which are unprecedented. They should have never happened. Not after 50 years of financial management... You have only reduced the administered price of petrol, whereby the deficit is going to accumulate in the oil pool accounts. You will be forced to increase that price within one year to bridge the gap. So it is a postponement.
JS: No, no! We have reduced the customs duty. In fact, you are also one of those who is arguing for a reduction...
SY: I want it abolished!
SB: Shettigar, on the petrol issue, Yechuri is saying that you have shifted the deficit to the oil pool account.
JS: No! There is no question of that. The rise in excise is only for infrastructure development.
SB: Yechuri, you have been criticising Sinha's Budget. How would you have done it differently?
SY: My strategy would have been two-fold. Firstly, no economy can grow without a sustainable capital goods expenditure in terms of investment undertaken by the state. Secondly, no economy is worthy of a strong industrialisation pace unless domestic demand is sufficiently generated.
So there would not be much emphasis on indirect taxes. Indirect tax erodes the real earnings of millions of people and contracts demand.
My other source of alternative mobilisation would be to tap a lot of the rich who have remained untouched till now, particularly the rural rich.
SB: You would also have a different policy on PSU disinvestment. What would that be?
SY: Definitely. Our policy would be to rationalise and reorganise the PSUs. But we will not be indiscriminate. Like what is happening right now. So far this has been geared to meet government expenditure.
SB: Shettigar, in the last few days you have put Somnath Chatterjee on the mat on the Communist Party of India-Marxist disinvestment programme. What is your complaint?
JS: Our approach is to professionalise the companies's management. For this, it is necessary to bring the PSUs out of parliamentary accountability.
Now, Yechuri's objection is why is the government reducing PSU equity? Well, when Indian Iron and Steel Company was facing problems, it was the West Bengal government which was strongly in favour of selling it. That, too, for a paltry amount of Rs 2 billion when its asset value was Rs 20 billion!
SY: No, no! This is very wrong! It is an extremely false allegation. Let the facts speak for themselves. IISCO has not been sold till now. Even now the files are pending. Steel Authority of India Limited has put in a proposal for modernisation of the company. And all this has been pending for want of a PSU privatisation policy.
JS: In fact, one of our own leaders, who has been a member of the BJP national executive committee at that time, would have been a beneficiary!
SY: Then you have given me another reason to oppose it!
SB: Let me ask both of you, one of the criticisms made against the disinvestment policy is that it was not a policy at all. We should privatise it selectively so that the government gets some money out of selling assets. Auction them, like the Pakistanis do it on television so that there is no underhand dealing.
JS: The main thing is that the people should have confidence in the company. So what you should do is improve the management of the company. Now there is an opportunity to professionalise the company since it will no longer be under the government control, as in the case of Maruti, which of course is 50:50. The government will hold 45 per cent of the equity in the case of strategic and 26 per cent in the case of non-strategic companies.
SY: You see, let us go back slightly into our own history. In many of these areas, the public sector had to step in because the private sector refused to enter....
The point is that no amount of privatisation is going to work unless the workers are taken care of and this will exactly be the first casualty in this Budget. Once the labour is taken care of, the assets can be sold, even for a song, to the private sector. These are the hard-earned assets of the Indian people! This is being eroded in the name of swadeshi. This is my complaint.
JS: No, no! The capital base of the corporate sector was weak and the capital equity cult was limited to a couple of cities like Bombay, Delhi, Calcutta. Today the equity cult has spread and people are willing to invest. The private sector is in a position to take up bigger projects.
SB: Do you think this is a swadeshi Budget or is it business as usual?
JS:It is a perfectly swadeshi Budget and it is a clear articulation of what we have been trying to achieve since the past so many years.
SY: I think it is not at all a swadeshi Budget. In fact, it is a betrayal of the swadeshislogan. And I think it is going to fuel inflation and retard growth. The only way the finance minister can later prove that his figures were right is through inflation.
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