Was the Interim Budget constrained by constitutional propriety or was it a huge opportunity irresponsibly wasted by the government? Montek Singh Ahluwalia, deputy chairman of the Planning Commission, spoke to Karan Thapar on CNBC-TV18’s India Tonight show.
This is an extraordinary situation and yet the response from the government was not just conventional but ordinary.
The crisis has been there since the middle of September and the government has been reacting through multiple channels and since September up to the second stimulus, a lot of action has been taken and fed into the Budget. The vote-on-account reflects this and, for the first four months of the new financial year, gives the government all the flexibility it needs. The name of the game now is to implement what it has said it will do.
Except that the measures already taken haven’t begun to percolate and produce the results you want. How do you know they will work?
Between announcing an expenditure policy and actually finding that orders have been placed on the ground, there is inevitably a lag of three-four months.
Instead of distracting attention by announcing new schemes, real focus should be on making sure that what has already been done gets properly implemented and built into the next four months. The first two stimulus packages, which are continuing in terms of expenditure commitments into the next three-four months, do constitute an adequate effort (when) combined with the effort to get banks to keep lending.
Many believe what you have done is not sufficient. Why do you think your confidence is right?
This year (2008-09), we started off with a fiscal deficit which we thought should be 2.5 per cent (of GDP) and then another half a per cent for the pay commission. The Budget shows the number is going to be 6 per cent and this does not include (another) 1.7 per cent, which is the bonds, etc, which are not counted.
You’re saying we cannot do more because we already have a ballooning deficit and to have kicked it even higher by doing more would have been to take the country into a position of near-bankruptcy?
What I am telling you is we have done a lot. I don’t believe it is dangerous, I believe it will be difficult to make sure that the expenditures we have announced actually take place and therefore we should concentrate on making sure that it happens.
Second and importantly, it is a fallacy to think that when you are faced with a major global downturn, you can counter that only through government expenditure. You have to do a lot of other things and we have done that. I also believe there are capacity limits to undertaking expenditure.
You are saying the fiscal deficit for the current year is 7.8 per cent. And if you add the states’ deficit, then you are hitting 11-12 per cent?
You probably will get to around 11 per cent if you add the states’ deficit, but that has always been a factor.
So you are saying the deficit is already too high and the capacity to absorb is limited. So, to have spent more money at this stage would have risked a higher deficit without any guarantee of absorption?
Look at the next year. We have built on a very high level of expenditure. The finance minister has very categorically said we will need to do more. He has indicated we need to expand Plan expenditure — in my view, it should be (another) 1 per cent of GDP, I have been arguing that. In the commission, we are working on what should be the sectoral distribution of that.
By the end of last year, you had allocated Rs 30,000 crore for the National Rural Employment Guarantee Scheme (NREGS) but only Rs 18,000 crore has been spent; you allocated something like Rs 31,000 crore for highways and only Rs 20,000 crore got spent. How are you going to be able to spend not just what you have already put in but the additional amount you want to put in when the Budget happens?
NREGS figures probably relate to what has been spent up to end-December. I don’t believe you will have such a big shortfall when the numbers are finally out. We are working on making sure the allocations at the time of the full Budget are made in areas where the constraints have been addressed.
I wrote to all the chief ministers in December, saying we really want to make sure that whatever is allocated is spent. I have invited them to make suggestions on what changes in flexibility in the guidelines of centrally sponsored schemes they want and they have started replying. We are making a very serious effort to overcome the constraints in the system.
