Sunday, February 15, 2009

Interim Budget---a tamasha

This is not just that old 'guns vs. butter' argument, but a call of more of the latter and in a strictly literal sense, about roti, kapda and makaan. And if there is an argument here, it is about what kind of butter to buy.

In a few days, external affairs minister Pranab Mukherjee, standing in for Prime Minister Manmohan Singh, will present the interim budget. Before he firms up the budget proposals, Mukherjee will have to asses the requests by the deputy chairman of the Planning Commission, Dr Montek Singh Ahluwalia, for additional sums for development work.

In a letter to the Prime Minister, Ahluwalia has asked for an additional Rs 55,000 crore for social welfare programmes, over and above what the finance ministry (now under Mukherjee) has earmarked for this year’s budget. As Ahluwalia says, the finance ministry has said Rs 285,149 crore is available for 2009-10. That, he flatly says, is not enough. And this is why:

* this is an increase of only 4 per cent in nominal terms over the gross budgetary support of
2008-09. In real terms, this is a reduction.

* As a result, it will not be possible for the government to provide any form of fiscal stimulus to
ward off the possibility of doom and gloom. While Ahluwalia doesn’t say that in so many words,
by referring to ‘stimulus,’ he has the global economic crisis in mind.

In an election year, when every possible sop has to reach the voter (he must at least know more are coming), this will not do. So, Ahluwalia is looking for growth, particularly as the wolf of depression is at the door. He wants:

* The fiscal deficit that is being kept at 5 per cent be increased. If the fiscal deficit is increased by
1 per cent, another Rs 55,000 crore would be available and that would swell the gross budgetary
support to Rs 340,000 crore.

* This, he says would be a substantial increase, as it would be a 24 per cent increase over the
Revised Estimates of the previous year’s budget.

The alternative to having this stimulus is pretty grim. The Rs 285,149 crore GBS would be only an increase of Rs 11,000 and very little can be done for the big schemes that the UPA government led by Dr Manmohan Singh is pinning its faith on. Also, there will be little for the new programmes like the National Knowledge Network, the construction of roads in Naxal-affected areas and such like. If you go with such a small increase in these economically difficult times, there is no stimulus and we are at the mercy of the wolves of the Great Depression of this century.

Yes, the additional Rs 55,000 crore will raise the overall deficit to about 9.5 percent but even that is tolerable compared with this year’s deficit of 11.3 per cent. If the increase remains at Rs 11,000 crore, some of it (about Rs 1,958 crore) crore will go as additional central assistance to the states.

* Rs 300 crore goes for the Tsunami Rehabilitation Programme
* Rs 600 crore goes for the New Delhi Commonwealth Games
* An additional Rs 910 crores will additional buses and other facilities under the Jawaharlal Nehru
Urban Renewal Mission

Central sector schemes will also benefit:

* About Rs 1800 crore will go for Railway overbridges
* Rs 2000 crore will go for highways in the Naxalite-affected areas
* About Rs 300 crore for the already lavishly funded Rural Employment Guarantee Fund

The Dr Manmohan Singh government has invested in a number of major projects. There is a belief that the success or failure of these projects will play a part in the elections three months away. And these projects are about big numbers.

* The National Rural Employment Guarantee Programme: Rs 30,300 crore
* The National Rural Health Mission: Rs 12,050 crore
* The Midday Meal Scheme: Rs 8,000 crore
* The Sarva Siksha Abhiyan: Rs 12,050 crore
* The Indira Awas Yojana’s: Rs 8,800 crore
* The Integrated Child Development Programme: Rs 6,300 crore

The significant feature of these numbers is not how big they are: together these six programmes alone add up to 75 per cent of India’s entire defence budget. The important point is that the numbers are no different from this year’s revised estimates. This means that the government of India has no additional funds to bolster the six flagship programmes of the government, on which it has bet its life on.

With an Rs 11,000 crore increase, only a few major schemes will get some more money. These are:

* The Pradhan Mantri Gram Sadak Yojana: an additional Rs 1,470 crore
* The Rajiv Gandhi Gramin Vidyutikaran Yojana: an additional Rs 500 crore and
* The Accelerated Power Development Programme: an additional Rs 580 crore

Also, strategic ministries would not get a penny more: atomic energy would stay at Rs 3,550 crore, space at Rs 3,600 crore and science and technology at Rs 1530 crore. Only highways and road transport and information technology would get big hikes of Rs 2,000 crore and Rs 1,500 crore respectively. (NOTE: All numbers mentioned are not projections by some chamber or association, but allocations being firmed up by the government itself. They WILL change if the additional money, or even some part of it comes through)

Severe burden on the exchequer they may be, the social welfare programmes have hopefully done some good. As Ahluwalia himself has said privately, the NREGA has done well in some states and not as well in others. As the government believes, even if they are partly successful (there are enough cases of leaks) some benefits will accrue and that will translate into votes.

So, think of the growth strategies with an additional Rs 55,000 crore. Not to speak of welfare schemes.
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