Starter Budget on the cards?

PRE-BUDGET SPECIAL

Relationships and fiscal planning make for strange bedfellows, more specifically when the comparison is between a starter marriage and a starter Budget.

The concept of a starter marriage, could be attributed as yet another of the so-called evil influences of the west.

Although it is yet to make inroads into our shores, there are a few fascinating points of comparison with the starter Budget- the first Budget that a party which has just entered power comes out with- where the twain meet.

So where is the connection with the Union Budget might as well be the next question.

First things first, a starter marriage, by definition, involves a childless union between people under 35, lasting less than five years.

The notion essentially, is that, although these marriages are entered into with the best of intentions, they are doomed from the start, due to unrealistic expectations from the marriage and a casual attitude toward divorce.

Ultimately, these unions end up as little more than costly reality checks, mere dress rehearsals for more stable marriages down the road.

The similarities between a starter marriage and a starter Budget are not frivolous. Firstly, like starter marriages, starter Budgets are made with the best of intentions.

However, intentions are not everything, which could be proven by the Union Budgets of 1991, 1996 and 1999, which were starter Budgets. While all these Budgets could not be described as failures, it must be remembered that it is usually the subsequent Budgets that walk away with all the accolades and - similar to starter marriages- end up as little more than a costly reality check, and a mere dress rehearsal for more stable Budgets down the road.

Notable Hollywood celebrities have been hailed as trendsetters for starter marriages as a stepping stone for more stable relationships. Back home, great finance ministers like Manmohan Singh, P Chidambaram and Yashwant Sinha were not exactly known for their first Budgets which, however, were stepping stones for iconic Budgets in 1994, 1997 and 2001, respectively.

The best of intentions
If there is one sure fire way to identify a classic starter Budget, one needs to just check out the populist measures that the Budgets spill forth, in tune with the best intentions of the government.

In the Union Budget for 1991-92, Singh was forced to undertake some drastic measures on account of the dire situation that the economy was in.

In those dark days of 1991, the nation was facing bankruptcy with the forex reserves only sufficient to buy dollars for only two weeks to keep the engine of the Indian economy running.

To survive, Manmohan Singh introduced a clutch of economic reforms within the first two weeks of assuming office. Budget 91 unleashed popular measures like having an outlay for rural employment amounting to Rs 2,100 crore.

The priority of tackling the fiscal deficit saw Singh keep a tight control on populist measures as is evident in the outlay for rural employment remaining flat at Rs 2,046 crore in 1992-93. The same was the case with a lot of social sector expenses and anti poverty programmes which were largely repressed in the early 90s.

However, the relative comfortable fiscal position later saw the starter Budgets of 1996 and 1999 play the populist card to the hilt. Check out the following excerpts from the Union Budgets of 1996 and 1999: An over 73 per cent increase in plan allocation for anti-poverty programmes from Rs 1,263 crore to Rs 2,195 crore in the Union Budget 1996.

Along with this, there had been an allocation for department of rural employment and poverty alleviation of Rs 6,437 crore. Income tax rate on first slab was also reduced to 15 per cent.

In the Union Budget of 1999, there were schemes with huge mass appeal like "Swaran Jayanti Gram Swarozgar Yojana" with integrated self-employment programmes for the rural poor and 'Annapurna' scheme for indigent senior citizens to be provided 10 kg of foodgrain per month free of cost through the Gram Panchayats.

The corpus of rural infrastructure development fund was enhanced from Rs 3000 crore to Rs 3500 crore. The repayment period was also extended from five to seven years.

Reality check
The telling point is that the incumbent government is on the verge of coming out with a starter Budget, which may be loaded with a plethora of populist measures.

While finance minister P Chidambaram is at the helm, it would be deja vu for the incumbent PM - Dr Manmohan Singh with one fundamental difference. Unlike a sick economy that Singh had to nurse back to health thirteen years ago, the United Progressive Alliance (UPA) Government has inherited a healthy economy which is on a firm growth path.

According to the 'revised estimates' of national income for 2003-04, released by the Central Statistical Organisation (CSO), India's GDP grew by 8.2 per cent per year in real terms, compared to 4 per cent in 2002-03. In his present mandate, Singh has maintained that the aim of reforms is to remove poverty, increase employment through relief to decentralised sectors.

However, there are roadblocks in the form of the fiscal deficit situation, which is no different from the early 1990s situation. With the combined deficit of centre and states close to 10 per cent of the GDP like it was 13 years ago, it would not be an easy task finding the resources to fund these schemes.

With the masses expecting Chidambaram to weave yet another dream Budget, realistically speaking, he may save the big bang proposals for next year as whatever measures he announces will only have an impact for half the year.

Ironically Chidambaram was in the same situation while presenting his 'starter' Budget for the United Front government in 1996 which was panned by the markets as well as corporates. But that starter Budget was the precursor to the 1997 'dream Budget'. Can he get it right first time this time around? Keep your fingers crossed.