WHILE ANNOUNCING its unabashedly market-friendly new policy package, the government has also added a footnote that care will be taken to provide a safety net for the vulnerable sections of society. Even in this age of ‘market worship’, none can dare deny that the market remains particularly hostile to the toiling masses. Theoretically speaking, the budget could be used to create a major safety net to correct the inherent distortions and imbalances of the market mechanism, and our ministers, establishment economists and the mainstream media would have us believe that such is indeed the character of the latest budgetary exercise. But can the budget go against the whole thrust of the policy package? Can the footnote challenge the main text? Let us examine the official claims and media hype about the budget.
• ‘The poor have been given relief.’
There could not be a bigger falsehood. While food subsidy has been raised by a meagre 7% (Rs. 150 crore), fertiliser prices have gone up by 30% and to compensate the farm lobby for this rise in input cost, the government has assured it of a sufficient rise in procurement prices of foodgrains. This would immediately nullify any possible impact of the increased food subsidy. Moreover, far from expanding the public distribution system (PDS) to the villages and including a most essential item like pulses, the budget has only raised the PDS sugar price by nearly a rupee a Kg.
• ‘It’s a soak-the-rich budget.’
On the contrary, it is yet another soak-the-poor-and-save-the-rich budget. The rise in excise duty on luxury items like motorcars, colour TV sets, VCRs and refrigerators – on which ground sections of the mainstream media have labelled the budget a soak-the-rich one, is slated to yield only a modest Rs. 325 crore in an estimated total excise rise of Rs. 2,277 crore.
• ‘The accent is on direct taxes.’
False again. The estimated additional yield from income and corporation taxes is only around Rs. 1,300 crore, or just one-fifth of the corresponding figure for indirect taxes. True, the government has reintroduced the interest tax thereby raising the estimated yield from direct taxes by another Rs. 535 crore, but this will increase the nationalised banks’ cost of lending, a rise which in the case of corporate sector will be directly passed on to the consumers through increased prices, while in agriculture and small sector, it will disrupt operations and depress wages.
• ‘It’s development-oriented.’
Totally false. The budget has refused to add a paisa to the meagre allocation for rural development. There is simply no thrust on rural employment generation programmes while the defence budget has been granted another hike of Rs. 600 crore. Also, while the largely unproductive non-plan expenditure is projected to rise by 15%, expenditure on assets has been allowed to ‘grow’ by a measly 2%.
•‘It will mobilise black money for national use.’
A better term would be legitimise and not mobilise as black money holders have been granted a total amnesty for all deposits made in the National Housing Bank. Of this only 40% will go to a national housing fund while the rest will be washed white and restored to the owners. In another sinister move, the budget also grants NRIs a free entry into the lucrative real estate business. Going by our past experience with similar offers to black money, the first scheme is only likely to prove a damp squib while the second will help black money holders pump a part of their unrepatriated wealth back home.
Significantly, while all talk of providing a safety net has turned out to be a cruel joke, the budget has dutifully fulfilled the commitment made to the IMF to bring down the overall fiscal deficit to 6.5% of the GDP. This has been accomplished by slowing down the expenditure on creation and maintenance of assets and selling off 20% equity in selected profit-making public sector undertakings. On the other hand, major items of the government’s expenditure including the fund earmarked for payment of dearness allowances to large sections of government employees have not been adjusted for the July devaluation, railway fare and freight hike, and the higher rate of inflation. Whether it is just another accounting trick to understate the deficit or the government’s way of indicating an impending DA freeze for central government employees will be revealed in the coming months.
Box
Coming Soon!
‘The Debt Trap’
An Uncle Sam Production
Sponsored by IMF
ONSLAUGHT OF ‘SHOCK THERAPY’
Rumblings of Discord
FATING the cake and having it too is a habit very hard for the Indian big business to give up. After years of sheltered growth under the benevolent ‘socialistic’ dispensation of the Nehru-Indira era, almost all sections of industry were of late lobbying hard for ‘opening up’, ‘decontrol’ and a more ‘competitive’ market. But with the new economic package meting out equal and in cases more favoured treatment to foreign capital – for example, an Indian industrialist would need a licence for import of capital goods worth more than Rs. 2 crore while foreign industrialists have no such bar – The Federation of Indian Chambers of Commerce and Industry, considered more representative of domestic industry, has struck a discordant note questioning the wisdom of exposing the domestic market to unbridled foreign influence. The Associated Chambers of Commerce (ASSOCHAM), generally regarded as the voice of the foreign lobby and the main rival body against FICCI, has of course extended a hearty welcome to the new measures. Sections of Indian engineering and electronics industries are also quite wary of the new package.
While the industry has expressed its reservations, the farm lobby has taken to the streets and has successfully forced the government into a 10% retreat on fertiliser rates. The rumblings of the farm lobby are quite audible within the ruling party too, not to speak of the Janata Dal and its regional allies. Even the BJP, the most ardent champion of the ‘tree trade, free market’ philosophy, cannot remain totally insensitive to such rumblings. But given the essentially collaborationist character of Indian big business and the close economic and political nexus among the farm lobby, big business and foreign capital, such frictions cannot be considered as something fundamental. It must be remembered that V P Singh was a key architect of the first phased economic liberalisation in the mid-80s and only last year his government had also tabled an essentially similar industrial policy which was put off at the end for reasons of political expediency.
The real resistance to the shock therapy of structural reforms has to come from the worst hit people – workers, peasants, and other sections of the rural and urban poor – and the democratic and Left forces who are really concerned with national dignity and public welfare.
Box 2
STRUCTURAL REFORMS;
The Hidden Persuaders
“Quite honestly we need the support of the IMF to restore international confidence in our economy at this juncture and to convince international commercial banks as well as non-resident Indians that India is a viable entity.” Speaking these words was none else than Finance Minister Manmohan Singh while defending the budget on the floor oi the Parliament. So forty-three years of ‘independent economic development’ later, the country needs a certificate from a global lending institution to convince the world of its ‘viability’.
Interestingly, along with the loan and the accompanying package of structural reforms, the Fund-Bank experts have also provided their Indian clients with free tips as to how to carry out the conditionalities. In the pedagogic parlance of the World Bank, it is called the ‘art of reforms’. The Bank’s 1991 World Development Report discusses details of the ‘art’ like the timing, speed, scope and sequencing of the reforms.
Consider the following excerpts from the Report: “The timing of reforms involves political considerations. New governments are in a strong position to initiate reforms. … Economic and political crises are opportunities for radical change. In Indonesia, reformers designed their plan for liberalization well before the crisis of 1983. When the choice came to implement it, the homework had already been done.” More explicitly, “Rapid action can improve the political sustainability of reform. … Bold changes are especially necessary if a government lacks credibility. … Adjustment usually occurs in a climate of crisis. Governments do well to capitalize on the broad, potentially snort-lived mandate for reform that crisis confers by front loading the reform programme.”
So it is not sheer coincidence that the weakest of Congress governments since independence has mounted the biggest ever onslaught of economic liberalisation from day one. Evidently, during the whole eighteen months of Singh-Shekhar governments, while the country was treated to the Mandal-Mandir opera and the longest ever elections, somewhere some people were busy with the ‘homework’!
