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India finds 'gross national
contentment'
By Indrajit Basu
KOLKATA - With general elections looming, Indian
Finance Minister Jaswant Singh presented the Bharatiya
Janata Party-led government's interim budget on February
3, painting a rosy picture of the economy and meanwhile
holding out yet another bag of sops - the fourth in the
span of one month - to woo the country's huge number of
middle-class voters.
Technically speaking, this
budget was a "vote on account" (VOA) and quite different
from the usual full-fledged annual budget that comes at
the end of each February. Such VOA budgets - coinciding
with election years - seek just an interim spending
authority before the country's parliament dissolves,
which in this year will occur this Friday. Therefore,
the final budget for fiscal year 2004-05 will come about
four months later - after the country chooses a new
government.
Yet, unlike all VOA budgets that are
often bland financial statements, this budget was
nowhere near being staid. Besides the expected
enticements doled out to win votes, for the first time
in India's political history, a finance minister has
been able to use the success of economic reforms as an
electioneering tool to swing votes in his government's
favor. "The country's macro-economic situation [is]
better than it has been in 50 years," said Singh.
Admittedly, India's economic indicators are
encouraging. "With inflation at 4 to 4.5 percent, this
year we expect the growth rate of our GDP [gross
domestic product] to be between 7.5 to 8 percent," said
Singh. He added that a combination of moderate
inflation, burgeoning foreign exchange reserves (at over
US$104 billion and growing every day), declining
interest rates and healthy stock markets, "have set
India's economy on the path of [an] accelerated growth
rate".
Still, that Singh was desperately trying
to be popular without being a populist is evident. Singh
said that this budget is not about economic development
alone, "it is a political statement too", and therefore
above all, it seeks "gross national contentment".
Indeed, this budget had something for everyone
of those who were left behind in the earlier largesse
that the finance minister doled out in three
installments in the past month. There was something for
the middle class, something for investors - including
foreign investors, something for the file pushing
bureaucrats - who incidentally form a significant part
of India's voting population, something for small
businesses and even something for cow-worshipping
farmers - Singh directed the country's banks to make
agricultural loans cheaper, including those for buying
livestock.
Thus, this budget refrained from
tampering with the present income tax rates, which
experts said needed streamlining in places, but
"promised higher income tax exemptions soon", and it
didn't reduce the interest rates of federal small
savings schemes, which according to experts should have
been done. It indirectly hiked the salaries of federal
employees by merging half of a special inflation
allowance - called the "dearness allowance" - with basic
pay that could cost the government $1 billion in the
next four months; it announced mega drinking water
projects for large Indian cities; extended capital gains
tax for another three years for the direct benefit of
equity investors and foreign institutional investors
(FIIs); raised loan limits for small businesses; and
announced a slew of incentives for industries like tea,
sugar, power and shipping, which according to Singh
"employ a large number of our citizens".
Comparatively, barring capital goods, tea,
sugar, power and shipping, there was little in the
budget to benefit large businesses, primarily because
they were already given their share of sops in early
January. For three days starting from January 8, in what
many called a mini-budget, Singh had announced a $10
billion "reforms push" that benefited a gamut of big
industries like infrastructure and heavy industries,
information technology and telecommunications,
electronics, health, tourism and aviation.
But
the real story behind Singh's interim budget is the
fiscal correction that the government has effected.
After years of consistently over-shooting its fiscal
deficit target (the excess of the government's
expenditures over revenues), it has actually managed to
cut back almost 1 percent from its deficit target for
the current year. Fiscal deficit, said the finance
minister, is expected to be around 4.8 percent of the
GDP in fiscal 2003-04. This is lower than the 5.15
percent average for the period of 1992-93 to 2001-02,
and significantly below the 5.6 percent that last year
the government had said it would be.
According
to many experts, including rating agency Standard &
Poor's, this is no mean achievement. Especially since,
unlike in the past, the reduction in the government's
expenditures has not been done by cutting back wholesale
on capital development expenditures, but rather through,
by tightening the belt on unnecessary expenses, lower
subsidies and interest payments.
Most believe
the finance minister had deftly played "good politics
and good economics". "Even as the budget did take some
important steps in terms of employment generation and
improved credit delivery [notably to agriculture]," said
finance expert Jamal Mecklai, "It was, overall, an
electoral wish list." And critics said that although
Singh made an honest effort to increase the "gross
national contentment, the feel-great efforts could leave
one groggy with a hangover", while the political
opposition termed the budget as "nothing but
poll-gimmicks".
Nonetheless, it was undeniably a
worthy effort, particularly because, in the backdrop of
impending elections and expectations of populist
measures in VOA budgets, this one did not have any
hysterical give-aways - other than of course to the
federal employees.
"I do not remember a recent
budget which said that macroeconomic actual performance
was better than the previous budget estimates," said
Alok Vajpeyi, president of the foreign institutional
investor, the DSPL Mutual Fund. "In his speech the
[finance minister] has surprised many in a very pleasant
manner. The VOA provides a bullish backdrop for
investors. This is a cause for cheer for investors and
savers across the length and breadth of the country."
Clearly, the FIIs are impressed. And that augurs
well for India.
(Copyright 2004 Asia Times
Online Ltd. All rights reserved. Please contact content@atimes.com for
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