The Budget should have shown this belief up for the myth-making it is. In some ways it appears a competent bit of lawmaking - certainly the way that government expenditure has been crunched shows that having a bit of a bully as finance minister has its advantages. On the other hand, its assumptions have gaps wide enough to drive a VIP motorcade through; and the mindset it reveals is troubling.
First, the assumptions. Remember that every single forecast, especially the crucial number for the fiscal deficit in the coming year - 4.8 per cent of the gross domestic product (GDP) - depends upon how much growth is expected next year. The Budget's drafters assume 13.4 per cent nominal growth - real GDP growth plus inflation. Wholesale inflation is at around seven per cent; the appropriate number for this calculation, the GDP deflator, has been even lower in the past. So that means that real GDP growth is assumed to be at least 6.4 per cent, perhaps more. This came on the same day that third-quarter estimates were released for Indian GDP that suggest it grew at a catastrophic 4.5 percent year-on-year. The Central Statistical Office's estimate for growth in all of 2012-13, five per cent, looks increasingly difficult to attain. In other words, Chidambaram expects a bump of between 1.5 and two per cent in growth next year, even as new investment has fallen off a cliff and the entire manufacturing sector has shown no growth whatsoever for almost two years.
That unrealistic assumption underlines not just the percentages, but also what we are expected to believe for government revenue. The Budget says it will go up to 10.9 per cent of GDP in the coming year. In 2008-09, government revenue was 10.8 per cent of GDP, and growth was well over 6.4 per cent. If Chidambaram does not exceed his growth target, revenue won't meet his expectations.
Meanwhile, the expenditure forecasts are, charitably, unbelievable. (You don't want to hear what I'd call them if I were not a charitable man.) Food subsidies in a year when the food security Bill is to be implemented are almost the same as last year, without the Bill, and in which there was a drought that reduced government procurement. Fuel subsidies are supposedly Rs 65,000 crore - a fraction of the Rs 96,000 crore they are this year. Sure, diesel prices are being increased. But if you put together how slowly the gap between pump prices and real prices are being closed, that kerosene and LPG will still be subsidised, and that the state-controlled oil marketing companies under-recovered Rs 1,50,000 crore or so last year, a third of which is the Centre's responsibility, you realise just how unbelievable the fuel subsidy bill is. I'm not even going into the possibility that oil prices will go up further this year. Chidambaram has not just lived up to the UPA's reputation for unbelievable promises, but exceeded them.
Now for the second part of my concern with this Budget, about the mindset it reveals. I'm not worried that Chidambaram hasn't dismantled entitlements or gone after the super-rich. All that's fine, and expected. I'm concerned about how, for example, he expects investment to rebound. For the next two years, news investment over Rs 100 crore will be given a 15 per cent tax credit. Now, given that investment has rolled over and died, you might think that's a good idea. But is it? In effect, Chidambaram is telling everyone who already has that much money lying around to get out there and spend it.
Two things are problematic with this idea: first, that this is hopelessly biased towards the biggest of investors, and those who have cash piles lying around. I won't name them, but you can look it up, and the biggest rhymes with Sheliance. The fact is that most of India's biggest infrastructure firms are bywords for inefficiency and corruption, and no longer have the confidence of banks or investors; Chidambaram should be helping others enter this space, not bailing out those who are already in it with giant concessions.
Second, this method assumes that it is the profitability of such investments that is holding people back. Nonsense. It is, in fact, delays and unpredictability. Whoever could have made money in this climate would have invested anyway; this investment credit is just a windfall gain for India's biggest companies.
But then, I suppose, why should companies with giant investible surpluses be treated with less adoration than, say, the capital markets and mutual funds? Chidambaram's bailout for mutual funds - for that's what tax-free status for investments made in them through the Rajiv Gandhi Equity Savings Scheme amounts to - will do incalculable long-term damage to trust in the equity market by first-time investors. They'll all lose money. And then, they'll go back to buying gold.
The truth is that, in all these respects, this finance minister has not set himself apart from UPA-II, he has exemplified all the ways that it has failed - weakness towards the worst parts of the private sector, short-term compromises, over-optimism.
mihir.sharma@bsmail.in