Subir Roy: Bury the Budget as we know it

VALUE FOR MONEY

This Union Budget was awaited eagerly for an overriding reason. Would it signal the throwing out of the reform agenda because of the perceived electoral mandate to up public spending for rural uplift, aided and abetted by the Left whose support is crucial for the Congress-led government's survival?

So P Chidambaram has performed a major task by reassuring everyone about the government's commitment to reforms. He has done this by moving squarely in the face of Leftist opposition and announcing major steps in opening the doors further for foreign direct investment in insurance, aviation and telecommunications.

And for good measure, he has affirmed his commitment to taking the disinvestment process forward by announcing the government's plan to offload 5 per cent of its own stake in NTPC.

In doing the foregoing he has helped consolidate what has been called the Delhi consensus. Its substance is that whoever has come to power after 1991 on whatever electoral platform has, on actually taking over the reins, had to swear allegiance to taking the reform process forward.

No political formation can afford the luxury of putting the clock back. Any radical departure from this can only come from the RSS-SJM Right or the established Left. It is doubtful if even the Left will turn things upside down if it actually seizes power at the Centre, going by the clear support that the Left Front chief minister of West Bengal has given to foreign direct investment.

The result of this consensus is that a growth rate of 6 per cent is taken for granted, considered pedestrian, and success or failure, brilliance or dullness, is judged by a person or group's ability to achieve 7-8 per cent growth.

Some have seen further traits of a traditional Budget in the present one. A Budget, typically, is full of hot air in its first part, paying obeisance to the affirmative rhetoric that has marked politics in independent India.

In the second part it tries to window dress as much as possible the bad news of fresh taxes or the sorry state of the fisc. And the last part is what is left unsaid, the true implication of the measures that become apparent only after going through the fine print.

This budget is high on rhetoric, low on additional financial allocation to support the rhetoric, and very very heavy on hiding things in the fine print. Not the least of what is sought to be glossed over is a poor fisc by making unduly optimistic assumptions of sharply rising tax revenues.

If it is any comfort to anybody, Jaswant Singh's last interim Budget was considered guilty of the same lapse of assuming an unduly optimistic outcome on tax collection. It is for this reason that many have called this a second interim Budget, something which is as tentative and as unfinished an assignment as the first.

Those who credit Mr Chidambaram with high personal capabilities say: Wait for the next Budget which is only eight months away for an exceptional knock. They draw a parallel between Mr Chidambaram's first mid-year budget in 1996, which was roundly criticised, and the second one in 1997 which was widely praised.

From this emerges a somewhat negative way of looking at the country's economic management prospects: God's in his heaven, the Congress is in the gaddi, and be sure that the economy will stumble along from one second best solution to another.

It is logical, therefore, to ask: As independent India's Budgets have come to be riddled with so much of hypocrisy, when will someone have the courage to stop the way the Budget is put together in secrecy and presented with a big bang as almost a finality?

It would be far more honest and efficient to put a set of Budget proposal, on taxes and spending, on the table of the house months before the Budget is passed into law, as is done by US administrations before Congress.

The final outcome, after extensive debate, expert scrutiny and any amount of horse trading (the stuff of democracy!) will not only be so much more considered but also be spared boo-boos like the transaction tax which has so spoilt the image of this budget.

Since there was so much of hesitation in just shifting the timing of Budget presentation from the anachronistic 5 pm to a sensible 11 am, the change proposed will be a difficult decision to take.

But if even professionals like Manmohan Singh and Chidambaram, who are not unduly burdened with political baggage, cannot take such a decision, who can?

What they can surely do, to begin with, is end the charade which is the railway Budget. This should ideally coincide with the corporatisation of the railways, the way DoT has been rechristened BSNL.

But even without that it is necessary, as a preliminary move, to stop wasting public time by allowing the railway minister to play to the gallery which is what Budget presentation has come to represent.

It is not just the transaction tax but also the abolition of excise duty on tractors and computes which have been faulted for not having been carefully thought out.

Both the measures have been termed populist, which is legitimate in itself but the important issue is whether they will introduce distortions and have unintended consequences. The relief to tractor buyers will be closer to 12 per cent than 16 per cent, it is argued.

But more seriously, it is argued that with components and finished computers attracting the same import duty, it will be preferable for global companies to import whole computers instead of assembling them in the country.

This is because the cost of assembly, which is labour intensive and in which India has a wage advantage, is no more than 1.5 per cent. All this does not clinch the argument but the point is that the argument is best conducted before the proposal is presented as a fait accompli.

sub@business-standard.com