The Hindu Business Line : The Budget and its fineprint

It is perhaps as well that the stock market is in a somnolent state. There does not seem to be any inducement in the Budget for intending entrepreneurs to approach the market with proposals for fresh investment when the demand for goods seems weak. The Finance Minister has his own explanations to give, particularly with reference to fiscal constraints, which have inhibited him. Overall, the Budget presents a disappointing spectacle of the Finance Minister's good intentions and unenthusiastic response from the public.

MR YASHWANT Sinha's Budget has not received the approval of either the markets, the corporates or the common man. They are disappointed that he has let them down. Whatever the actual implications of the Budget, it remains a fact that the Budget has administered a blow to stock market expectations, especially through its imposition of dividend tax and a surcharge on income tax. Apart from the various announcements on the details of the reforms process, which he has continued, there is little in the Budget for the country to look up to either in terms of an incentive or stimulus for investment. In the absence of measures to stoke up demand, it seems unlikely that investment will revive.

As usual, the Budget documents contain a great deal of useful information on the details of the economy. I particularly draw the readers' attention to the pattern of employment under the Government. The Budget document on expenditure provides detailed data on the estimated strength of establishment and provision therefor.

The size of Government employment needs to be judged in the light of the fact that of the total 3.34 million on the rolls of the Government expected as on March 1, 2003, nearly 1.53 million belong to the Railways. The other large employers are the Department of Posts with .6 million employees, Department of Defence (Civil) with 35,000 employees and the Department of Atomic Energy with 35,000 employees. Some of the larger employers include the Ministry of Home Affairs with the Police Establishment standing at nearly 0.7 million employees. In the light of the stress to which the State Police forces are subjected to, one cannot grudge the Centre for having an adequate number in its police force. The Revenue Department, which manages the collection of the Centre's taxes, accounts for only 5,160 employees and a total expenditure of Rs 100 crore — which is a small percentage of the taxes collected! The Indian Audit and Accounts Department, which audits the expenditure, has a much larger workforce of 62,000 employees.

Particular attention has to be invited to the larger numbers involved in running Departments and Ministries, which are essentially State subjects. The Department of Agriculture and Cooperation has 7,100 employees, down from 7,900 in 2001.

The Department of Education has a total of nearly 2,500 people. It is not clear how the Ministry of Labour, whose subject is mainly with the States' remits, should employ 11,600 people. By and large, however, the Government of India must be congratulated for having tightened its controls over its numbers. The growth of total employment under the Government of India, according to Budget data, has been scarcely 6,000 against a total base of 3.2 million in two years.

The Expenditure Reforms Commission has, of course, submitted its recommendations and the Finance Minister has announced progress in its implementation. It is to be hoped that these well-considered recommendations are fully implemented without much further ado.

While on the subject of implementation of budget announcements, I may be permitted a comment on the contents of the `Action Taken Report' submitted to the Parliament. There are 103 announcements covered in this report. Many of them are marked by the statement `Related legislative proposals are under examination'. The words `action completed' cover only 64 per cent of the announcements. With regard to the remainder, action is still incomplete.

On the quality of fiscal adjustment, there is room for dispute. Whether the Government is entitled to count divestment receipts as a `revenue item' to reduce the fiscal deficit has drawn different opinions. I recall that there was an argument in the early 1990s as to the inadmissibility of divestment receipts as an element for adjustment of fiscal deficit. The Finance Minister may well argue that this dispute is analogous to the inclusion of other income in corporate accounts. Sale proceeds of capital assets are used by the corporates to bring their profit and loss account into better shape. If this argument is accepted, one could agree that the inclusion of divestment proceeds is admissible for the reduction of fiscal deficit.

One of the important elements for the total revenue receipts of the Government is the receipt of dividends. These total Rs 18,805 crore for 2002-03 against Rs 16,000 crore in the 2001-02 Budget. The primary contributor to the dividends is the surplus profits of the Reserve Bank of India, the nationalised banks and the financial institutions, accounting for nearly Rs 10,760 crore. The bulk of this is from the RBI's surplus. It is worth noting that dividends from public sector enterprises have also shown a substantial increase at Rs 8,000 crore as against the BE for 2001-02 of Rs 5,419 crore. It looks as though the disinvestment process of PSUs has indirectly stepped up their performance and the flow of dividends to the Centre. This observation does not apply to the Railways, which has not been able to fully pay the agreed dividend this year also. The general revenues pay a subsidy of Rs 1,100 crore to enable the Railways to pay a dividend on the invested capital. The latest Railway Budget has, however, made a courageous beginning and a significant advance in improving the carrier's economics. Much still remains to be done.

Among the Budget documents, particular interest attaches to the Economic Survey, which presents a picture of the economy's performance in the year preceding the Budget. I would invite particular attention to the employment data presented in the Economic Survey. The public sector has, in line with the general Government policy of downsizing, maintained a very low growth rate of employment from 18.7 million in 1990 to 19.3 million in 2000. The organised private sector has contributed to an employment of only 8.6 million, a 1.1 million rise in the decade. That the employment of those who are eligible and waiting falls far short of the demand for jobs is clear from the unemployment data published in the Survey. As the Ahluwalia Committee on employment opportunities points out, additional employment opportunities have to be provided for 100 million people over the next 10 years, that is, 10 million each year. Given the current shortage of growth of jobs in the public sector and the poor prospects in the private sector, this seems to be a target beyond reach. Mr Montek Singh Ahluwalia has naturally emphasised the need to accelerate the rate of growth of GDP, with a particular emphasis on sectors likely to enhance the spread of income to the low-income segments of the labour force.

The lack of adequate emphasis on employment is a serious flaw in the Government's economic policies. It is hoped that in the months to come, the Finance Minister will concentrate his attention on rectifying this weakness. Again, the remedy mainly lies in enhancing investment and incentives for investment in specified directions. This may mean the abandonment of orthodoxies regarding permissible stresses and strains on the financial system. There is definite scope for revisiting the idea broached in these columns a la the proposals of Dr S. L. Shetty for inducing public-private partnership to invest in infrastructure by allowing them to issue guaranteed bonds to which the banks can contribute out of their abundant liquidity. Returns should be assured through proper user-pricing policies.

In the current state of social tensions, which have become evident in the body politic, it is unquestionable that the lack of job opportunities is driving many embittered youth to anti-social activism.

The Budget has not helped to provide a way out for these unemployed millions to engage themselves in socially productive activities. An employment plan — which is far larger than the present effort on the Pradhan Mantri Rojgar Yojana — has to be brought out by the Government if the energies of millions of youths are to be properly channelled.

The Budget has failed to provide this impetus. Even if it means breaking a few dogmas regarding fiscal deficit, it is worth the Government's while to jump-start the economy by encouraging large investment plans for the vital areas of infrastructure.

It is unfortunate that the Budget's critics have focussed on tax reforms here and there and forgotten the big picture, which is a disappointment in that the Finance Minister has not taken steps to reverse the decline in investment and make way for the revival of growth impulses in the economy.

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