A K Bhattacharya: A tale of two state Budgets

RAISINA HILL

What VS Achuthanandan could learn from Buddhadeb Bhattacharjee.

Two states, both ruled by the Left, presented their Budgets for 2006-07 last Friday. West Bengal and Kerala. For West Bengal, the significance lay in the fact that the Budget was presented after the Left Front registered a massive victory in the Assembly elections two months ago, returning it to Writer's Buildings in Kolkata for the sixth time in a row. For Kerala, too, the 2006-07 Budget was an important exercise as the Left Democratic Front (LDF), also led by the CPI(M), had won a massive victory in the Assembly elections at around the same time.

And yet, what a difference between the overall approach and the nature of the fiscal proposals in the two Budgets! The Bengal Budget reduced duties on a host of consumer durable items, removed farm income-tax on tea and jute companies registered in the state and slashed stamp duty on transfer of property by 16-25 per cent in the hope that lower taxes will boost economic activity, plug revenue leakage and improve tax collection. These proposals will remind anyone of the many Budgets presented by Manmohan Singh in the 1990s and by P Chidambaram in subsequent years.

The Kerala Budget, in sharp contrast, raised duties on several items. Most significantly, it brought soft drinks, mineral water, health drinks and home appliances under a higher tax rate of 20 per cent. The total additional resource mobilisation proposed through new taxes was over Rs 105 crore (out of a total state tax revenue of Rs 11,600 crore). It allocated Rs 40 crore to revive public sector units owned by the state government, Rs 77 crore to promote tourism and Rs 20 crore to set up a technology park.

What did the Bengal Budget do to promote investment in the state? Its finance minister Asim Dasgupta announced his government's alternative approach to economic policy. And this is what he said: "The main thrust of this alternative approach is that the basic social objective of economic policy should not be only an increase in the gross domestic product, but it should be an increase in generation of employment and income of the common people....In order to cause this employment-oriented increase in production, there has to be, within the market structure, a lessening of monopolistic powers and a move towards more equal competition, so that larger number of common working people can participate in production and services."

In a tone that further endorsed his reformist credentials, Dasgupta said: "And, in the spheres where markets are nonfunctioning or imperfect (such as, primary education, primary health and specific areas of infrastructure), there has to be the presence of a social welfare role of the government. While performing this role, there has to be, for similar reasons, a lessening of monopolistic powers within every sphere of the government and involvement of the common people in this decentralised functioning of the government. In addition, there can be specific areas where the joint functioning of the government and the private initiative would be necessary in consistence with the main social objective of employment generation and decentralisation."

It would be interesting to see what view the Kerala finance minister or, for that matter, the CPI(M) Politburo would have of this alternative economic policy enunciated by Dasgupta. If you read between the lines, Dasgupta's address gives a clear hint of participation of private enterprise either on its own or in joint venture with the government in economic activities aimed at creating more jobs. For the record, the Bengal Budget had left a fiscal deficit of Rs 6 crore while Kerala had envisaged a higher deficit of Rs 717 crore for the current financial year.

The two Budgets should also make the United Progressive Alliance government at the Centre rethink how it should approach the periodic noises the Left makes over its proposals on disinvestment or increase in petroleum product prices. It is clear that the Left in Bengal, after remaining in administration for close to 30 years, has recognised the importance of economic growth through competition, decentralisation and the participation of private enterprise in economic activities. It also sees merit in the logic of lower taxes to ensure greater compliance and higher revenue collection.

But the Left in Kerala is a different lot. It is this segment of the Left that is proving to be a bigger headache for the UPA government. It might be a good idea for Manmohan Singh to convene a joint meeting with VS Achuthanandan and Buddhadeb Bhattacharjee and expect the latter to explain to his Marxist colleague from Kerala the many benefits of reforms and competition.