After 25 years, Pranab scores a double first

He’s the first finance minister to present Budgets on either side of an election and the first to do so after a quarter-century gap

When Finance Minister Pranab Mukherjee rises in the Lok Sabha tomorrow to present the Union Budget for 2009-10, he would have earned a unique distinction. No other finance minister in independent India has presented an interim Budget before the elections and then followed that up with a regular Budget for the same year after being voted back to power.

His prime minister, Manmohan Singh (finance minister from 1991 to 1996), presented the Interim Budget for 1996-97 before the polls, but the Congress lost the general elections held in April-May 1996. Palaniappan Chidambaram became the finance minister under the United Front government and presented the regular Budget in July 1996.
 

PRANAB'S LAST BUDGETS
	1982-83	1983-84	1984-85	2009-10*
Fiscal deficit	5.64	5.94	7.09	5.50
Direct taxes	2.06	1.97	1.88	6.28
Indirect taxes	7.32	7.46	7.66	4.81
Total receipts	15.48	15.54	16.25	15.75
Capital spend	6.40	6.05	6.49	1.74
Revenue spend	9.96	10.14	11.28	14.01
Total spend	16.36	16.19	17.77	15.75
All figures in per cent of GDP. *2009-10 refers to the Interim Budget

Yashwant Sinha faced a similar fate. As finance minister in the Chandra Shekhar government, he presented the Interim Budget for 1991-92, but his party lost the elections, paving the way for the P V Narasimha Rao government. Jaswant Singh also presented the Interim Budget for 2004-05, but the National Democratic Alliance did not return to power after the elections. It was Chidambaram, this time under the United Progressive Alliance, who presented the regular Budget for 2004-05.

There have been nine more Interim Budgets since independence. However, none of these was presented before the elections. In fact, the timing of the elections was such that there was no need for an interim Budget before the country went to the polls. After the formation of the new government in each of these cases, the finance minister first presented an interim Budget because he needed more time to prepare a regular Budget a few weeks later.

Mukherjee’s other distinction tomorrow will be that no other finance minister has presented two Budgets with as large a gap between them as 25 years. His last three Budgets were presented between 1982 and 1984. Apart from the tinkering with tax rates through exemptions and concessions and placing greater reliance on indirect taxes to raise resources (see table), those Budgets will also be remembered for the economic policy mindset that prevailed during the 1980s.

His first Budget referred to the government’s rationale for seeking recourse to an SDR 5 billion loan from the International Monetary Fund under its extended fund facility. The Indira Gandhi government was under attack for seeking the IMF loan that its opponents feared would jeopardise India’s economic sovereignty. In a bid to assuage such sentiments, Mukherjee said in his Budget speech that the loan “will help us implement our own policies, which have been sanctioned and approved by our people and Parliament”.

In his third Budget in 1984, Mukherjee referred to the IMF loan again. But this time he talked about the government’s decision to return the last tranche of the loan.

In a triumphant tone, Mukherjee said, “Belying the prophecies of doom by many a self-styled Cassandra, the economy has emerged stronger as a result of the adjustment effort mounted by us. None of the dire consequences that we were being warned about has occurred. We have not cut subsidies. We have not cut wages. We have not compromised on planning. We have not been trapped in a debt crisis...We have come out of it with our heads high.”

Corporate India will remember Mukherjee’s first Budget for a different reason. In a bid to attract investments from Indians living abroad, Mukherjee allowed non-resident Indians (NRIs) to buy shares of companies quoted on the stock exchanges subject to specified limits, among many other incentives. This policy change led to the controversial takeover bid by London-based Swraj Paul of the Caparo group on DCM and Escorts in 1983. The bids finally did not succeed, but India Inc can hardly forget how Mukherjee’s first Budget shook its leaders out of their complacence.

Mukherjee had also extended the scheme for investment allowance for another five years till 1987. Investment allowance permitted companies to claim deduction for tax purposes on their capital expenditure according to prescribed rates. This was abolished in April 1990. The big question he is likely to answer tomorrow is whether investment allowance will be reintroduced in some form.