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After the Budget, what? -- From fiddling with figures to economic management

Several courses are open to the Finance Minister if he is to meet unavoidable obligations and still maintain the growth targets and provide adequate funds for physical and social infrastructure. But if only the Finance Minister cares to lift his vision f rom budgetary minutiae to total economic management, he will realise that with greater efficiency in using the same resources, he could achieve the same objectives, says B. S. Raghavan.

BY THE time this piece appears, the Finance Minister, Mr. Yashwant Sinha, would have made his decisions, raised and lowered this or that tax, duty or allocation, worked out the sums and toted up the totals. Even his speech, after incorporati ng final flourishes, including a soothing quotation from some poet or other, would have gone to print.

With that, Mr. Sinha would have completed the easiest part, basking in the glow of the so-called `fundamentals' _ industrial growth rate, pick-up in exports, take-off in capital markets, rise in forex reserve, software explosion, soaring services, bulgin g buffer stock of foodgrains _ with the rupee stable, inflation low and GDP poised at 6 per cent _ all despite the economic sanctions clamped on the country by the US, Japan and Germany.

Mr. Sinha's Budget would not have suffered from want of advice from any quarter on any count. Federations of chambers of industry and commerce as well as economic columnists have been exhausting themselves flogging to death their own pet notions and peev es in respect of measures to contain the fiscal deficit, spread the tax net, speed up disinvestment and privatisation, retire public debt, reduce the interest burden, downsize ministries and babudom, lure foreign capital, the works. With luck, Mr. Sinha may even succeed in leaving his advisors pleased by including odds and ends of their suggestions at strategic places.

Arithmetical arrhythmia

Who cares? Budgets in the era of liberalisation have been shorn of their mystery and mystique, and have ended up as an array of arithmetical arrythmia packaged in a mish-mash of explanations and rationalisations as to why something went wrong or right.

The reasons for the staleness are not far to seek. The levers operated by the Government are getting fewer and fewer. The scope and nature of their operation deriving from, say, the Final Act launching the World Trade Organisation (WTO) and the cornucopi a of legislative measures and policy prescriptions for a world without walls are public knowledge. The Government's choices and the limited range of manouverability within which they are to be exercised are also open secrets.

Annual patchwork of

hope and hype

Globalisation has turned the spotlight away from the annual patchwork of a Budget to the larger picture on a broader canvas of the interplay of forces in a longer time-frame. It has also made the man-in-the-street familiar with the basics and specifics o f the economy, and the working of boardrooms, bourses and markets. As a result, he too is not that keyed up over the litany of hope and hype.

However, this year, there is one difference. Unlike in the past, this time, in the run-up to the Budget, the people have been repeatedly asked to brace themselves for hard decisions and harsh choices. This has imported a mild curiosity in the public mind on what precisely they may be, and how the Finance Minister proposes to mesh the `feel good' factor with the `feel the pinch' and `turn the screw' parts of the Budget.

Squaring the circle

Here too, Mr. Sinha is cribb'd, cabin'd and confin'd within a narrow bandwidth. However harsh Mr. Sinha wants to be, if the ruffled political feathers over plugging the haemorrhage of resources on account of oil pool deficit and rationalising the prices of petroleum products are any indication, he faces a predicament akin to squaring a circle. He has already been warned to keep his hands off the holy cow of farm income; so, a big chunk of Rs. 41,300 crores of taxable capacity clean goes out of his reach .

The gaps in preparedness exposed by Kargil and the wave of admiration for the Defence forces will not permit him to put any cap on the outlay on Defence; he may not be able to slash more than a fraction of the subsidies spiralling to 15 per cent of the G DP, because behind each of them are strongly entrenched vested interests; he will find it politically incorrect to refuse demands, particularly if they come from NDA constituents, for bailout of States which have become financial blackholes; astronomical amounts drained away on salaries and perks with no prospect of downsizing in sight will leave very little for productive activities and capital investments.

Beyond the Budget

Tinkering with an odd tax here, a duty there, some exemption elsewhere may fetch a couple of thousand crores of rupees, but if the Finance Minister is to meet all the unavoidable obligations and still maintain the growth targets, provide adequate funds f or physical and social infrastructure and keep the employment and other social welfare schemes going, only five courses are open to him.

Of these, only three have anything to do with the Budget; it is the last two extending beyond the Budget's constants and variables that will provide the real and lasting solution to the ills plaguing the economy. Let us give them a quick once-over.

The first course is to go in for hefty increases in a variety of taxes and duties, and look for fresh avenues, by taxing more services, for instance; this is only to be mentioned to be dismissed, as it will knock the bottom of the entire reforms process straightaway.

The second is to monetise the deficit and/or resort to heavy borrowings, boldly rubbishing as of no relevance to the Indian context the fixations on arbitrary deficit-GDP ratios and the conventional wisdom on inflationary effects of monetisation. Such a course has also to be ruled out as it may invite blackballing by foreign institutional investors, rating agencies and the two Bretton Woods lenders-cum-mentors, the IMF and the World Bank.

The third is to launch a massive disinvestment and privatisation programme, setting a target of garnering at least Rs. 15,000 crores within the next few months. This is well within the realm of achievement since the estimated gain to the Government from recommendations of the now defunct Disinvestment Commission was much more than this amount.

The fourth course is to go to the farthest extent possible to accelerate the flow of capital into the country by removing all irksome bureaucratic hurdles. For all the talk of single-window and the like, and chilling comparisons with China, there has bee n no let-up in the perception widely prevalent abroad that India is a difficult country to invest in. Plugging into the powerhouse of technologies, e-business and e-trade will abundantly compensate for the resource constraints and enable the economy to t ake rapid strides in the desired directions.

Total economic management

It is the fifth and final course that holds the greatest promise of rescuing the country from the political, economic and social quicksands in which it is mired. If only the Finance Minister cares to lift his vision from budgetary minutiae to the `broad, sunny uplands' of total economic management, he will realise that with the same or even less resources and the will and skill to improve the efficiency in the use of existing resources _ in short, by getting a bigger bang from every buck _ he will achie ve the same objectives and, in the process, add a few more percentage points to GDP at little cost.

I need do no more than give below the checklist of the five prongs of the strategy for total economic management. They are:

AProject management: Make the existing capital outlays work. Avoiding cost and time overruns means a saving of Rs. 48,000 crores.

AMaintenance management: Ensure that the existing infrastructure _ power stations, ports, railways, telecom service, transportation _ function with at least 50 per cent more efficiency. If China can peg its transmission loss at below 7 per cent, why not India bring it down from 30 to 15 per cent?

AProductivity management: The Fifth Pay Commission had made higher pay packets conditional on enforcement of adherence by employees to higher norms of productivity. Change laws to make the 27 millions of organised workforce conform to such norms on pain of dismissal.

ACorporate management: Leverage the powers of the Securities and Exchanges Board of India and the Company Law Board to make sure that good corporate governance and business ethics are not for the birds but a reality.

AExpenditure management: As urged by the all-party committee on political defections in 1966, reduce the size of Cabinets at the Centre and the States to 12 per cent of the strength of the Lok Sabha and State Assemblies; reduce the number of ministries a nd departments by one-third; scale down ostentation in Rashtrapathi and Raj Bhavans; ban visits by VIPs to foreign countries for medical attention (Mr. V. P. Singh's long sojourn in a London hospital cost the nation Rs. 12 crores); do away with passes an d freebies for MPs, MLAs and well-heeled officialdom in railways, national airlines, wherever; less employees means more work, so freeze further recruitment in all categories, and redeploy existing staff. No special Commission is needed to spot these whi te elephants.

In sum, Mr. Finance Minister, shift the emphasis from fiddling with figures to enduring economic management.