coup, writes N S Jagannathan
The pun is irresistible, especially to a Tamil. In popular idiom, Chidambara rahasiyam means a secret that is no secret at all. It is derived at one remove from the temple lore associated with the Nataraja temple at Chidambaram, where one of the sanctums is screened off most of the time, making people wonder about the hidden deity. And, when the screen is drawn, there is only emptiness or shoonya behind.
The finance minister, P Chidambaram, has kept his pre-Budget secret well, falsifying most predictions by the simple expedient of flooring everyone by giving away more than what even the wildly optimistic had dared to hope for. But unlike the shrine at Chidambaram, the eponymous town that gave him his name, the package he has unveiled was far from being a nothingness.
It might, therefore, be more accurate to talk not of the Chidambara rahasya but of the Chidambara rasaayana, the chemistry or alchemy that he has courageously put the economy through. In fairness, he was merely carrying forward Manmohan Singhs decisive break with the past. Perhaps more, for Dr Singh was breaking decades-old moulds of economic management and Mr Chidambaram is only clearing the debris. The fact is, it is really Manmohanomics that Mr Chidambaram is taking to its logical conclusion, as he would be the first to acknowledge. But Mr Chidambaram has proved himself a better tactician, even while his strategic thinking is no different from Dr Singhs.
Nowhere is this better illustrated then in the way the two approached the question of subsidies. Dr Singh made a tactical mistake in mounting a frontal attack on fertiliser subsidy calling for its abolition at one stroke. As a consequence, he unleashed on himself a ferocious political storm before which he has to beat an ignominious retreat. Dr Singh was in many ways a financial puritan and paid the price for it, making implacable enemies of fiscal profligates and political pork-barrel rollers. In the process, he put in jeopardy the other arms of his reform programme. Mr Chidambaram, on the other hand, has been savvier - because he did not have a doctorate in economics? He banked the fires of his coalition partners opposition to his major enterprise of a root and branch reform of the tax system by the simple expedient of actually increasing subsidies by a hefty Rs 10, 624 crore, of which Rs 9,190 crore is accounted for by the increase in fertiliser subsidy. It is true that with a prime minister who wears
his farmer( read rich farmer) status on his sleeves, he could not have acted otherwise. Mr Chidambaram might not have been able to get away with it with a more financially literate prime minister, such as, for example, Narasimha Rao. It is also true that the food subsidy is under-provided even with the increased allocation, because of the differential subsidisation of the poor and the very poor.
What then is the Chidambara rahasiyam of this most extraordinary feat that even his critics have acknowledged, however grudgingly. Politically, he realised that he has to pay his obeisance to the CMP to which he referred every third sentence of his speech. But he was pushing to its extremity every reform-oriented dictum therein, even while conceding the social programme. He was also being cannily content with a mere toe-hold entry into controversial areas like privatisation of insurance, choosing innocuous things like health insurance in which government-owned agencies have shown little or no interest. For the rest, it is a little cheating in numbers, large drafts on hope, macro-economic assumptions, including Laffer Curve miracles that might, with luck, prove right.
There is no mystery about the current years fiscal deficit being on target at 5 per cent of GDP, with Mr Chidambaram sardonically quoting Tiruvalluvar to taunt his critics for predicting that it will exceed the estimate. The Budget had provided for Rs 4,000 crore to Pay Commission-induced spending that has not fructified because of delay in the submission of the report. Estimated non-plan expenditure of Rs 2,571 crore has been saved by jettisoning 168 non-viable projects. Part of it has gone to plan spending but there has been a saving of about Rs 1,250 crore on this account. There has also been less social sector spending. Though there have been shortfall in receipts, especially from disinvestment of public sector units, the fiscal deficit containment is, in a sense, fortuitous. And of course, there is the upward revision of the GDP late in the year, inflating the denomination.
More to the point is the projection of a fiscal deficit of 4.5 per cent of GDP for the coming year. This is crucially dependent on a GDP growth of 15 per cent, buoyancy in direct and indirect taxes by a truly striking act of faith. A 17 per cent increase in the tax receipts is predicated on enthusiastic tax compliance, a surge in production following the reduction in excise and customs levies, the bringing into the tax net owners of visible symbols of affluence etc. Also there is yet another amnesty scheme, unmindful of its ethics and unfairness to the routinely honest. Neither the loss of revenue from the reduced receipts nor the anticipated receipts from new taxpayers have been separately quantified. But, since the new rate structure is part of an overall reform package of a low tax regime designed to release the animal spirits, in Dr Singhs memorable words, of the entrepreneur, it would have been expedient irrespective of the arithmetic of a particular years impact on revenue.
But the flipside of all the manifest goodies provided by Mr Chidambarams alchemy is the hiding of ugly surprises in store. Chief among them is the almost certain hike in petroleum prices.
The oil pool deficit may be outside the Budget but not outside the economy. ( The IMF, it seems, routinely includes it in calculating Indias fiscal deficit). It certainly is a parameter of the arithmetic of inflation like, the state government deficits, which is another factor routinely ignored when talking about inflationary pressures on the economy. Add to this the freight rate hikes already announced by the railway minister, and we are in for serious cost-push multipliers fueling inflation.
But as of now, Mr Chidambaram has brought off a psychological, economic and political coup. Television is a cruel medium and the post-Budget inarticulateness of the Left critics was pathetic to watch. Mr Chidambaram has disarmed the potential Left critics within and outside the government by the deft use of the CMP. He even implicated, indirectly, Jyoti Basu in his amnesty scheme by saying that its inspiration was the NDC, where Mr Basu mooted the idea. All said and done, barring accidents, the Budget has significantly increased the life expectancy of the UF government.
