Budget solid, but lacks boldness

In spite of being an ex cavalry officer, Jaswant Singh in his first Budget has failed to display the military tactics or strategy that he must have learnt as a young officer.

He would have been taught that a successful attack must rely on the concentration of his forces and not their diffusion.

Yet in his Budget that is precisely what he has done.

He has advanced on many fronts, on agriculture, on health, on some assistance to senior citizens, but nowhere has he selected a point for a significant breakthrough.

It was inevitable that he would be thwarted by the limitations that the fiscal deficit places on all Budget makers.

Yet it is possible to argue that a great opportunity has been lost. For never since Independence has the Indian economic scene looked so ready for a significant expansion.

As the finance minister himself pointed out, "From 1956 onward, continuously we have endured serious foreign exchange constraints. Not any longer."

He could have added that these constraints were totally unnecessary had we adopted a sensible exchange rate policy.

But our economists were so convinced that nothing could be achieved that they continued a restrictive policy that suited 'rent seekers' and politicians who wanted to be able to dispense with patronage.

Manmohan Singh finally broke that particular constraint by reluctantly devaluing the currency twice in 1991. The mindset that he changed had nothing to do with greater export optimism but just demonstrated the acceptance that an over-valued exchange rate was no longer workable.

Once this exchange bind had been broken it followed that the many distortions that had accompanied the over-valued exchange rate started untwisting.

The boom that followed could however not be sustained because interest rates were maintained at a high level.

When the economy turned, a dying boom could only be sustained by a sharp cut in interest rates; but such dramatic moves are unfortunately alien to a conservative bureaucracy.

The subsequent cuts were slow and too late until momentum disappeared from the economic upturn. Further, the down-turn in the world economy spoiled the environment.

Meanwhile our external reserves swelled to a point when the finance minister could say this year that exchange constraints were 'Not any longer' in existence.

The economic trench war that India chose to fight for so many years which consisted of restraining expansion to protect the Balance of Payments is now no longer necessary.

Conditions are right for a major advance, but it requires a thrust in some particular direction and that alas Jaswant Singh has failed to provide.

He has indicated a forward push in many areas. The clever idea that Chidambaram introduced, and Yashwant Sinha unfortunately reversed, of freeing share holders from the tax on their dividend income has now been withdrawn; VAT as a long-term base for raising revenue is now slowly being reinforced.

Promises have been made and minor steps have been taken to improve credit to agriculture and a small potentially substantive step has been taken towards health care.

To use a military analogy, the trench line has been pushed forward by a yard or two but it is still a field where retreat and safety are foremost in the mind of the authorities.

It is of course only Jaswant's first Budget. But, alas, opportunities for the country do not coincide with terms of finance ministers.

This is a time where great opportunities are available to India because economies of the world are looking for effective demand.

Thus far it is only China that has seized the opportunity of growing aggressively by deficit financing through her banking system, and it is worth noting that this has not led to any external crisis. Nor is it likely to. The world needs China's demand as it does India's.

Chinese reserves will be bolstered not only by her own savings but also through support from the rest of the world.

It is therefore a totally wrong signal that has been sent to the world by our repaying of those expensive loans from the World Bank and the Asian Development Bank.

Optimisation of reserve management is not the critical step that the finance minister should be encouraging.

The thrust that the government ought to be providing has been illustrated by the extraordinarily successful 'highway' programme. It is another thrust of this kind that Jaswant Singh should have made.

In all such matters different people have different objectives; but at the finance minister's level the nature and scope of an expansive move has to be one capable of changing the face of the country.

If he had tackled agriculture by substantially increasing resources for the National Bank for Agricultural Reconstruction and Development or any such vehicle for enhancing equity capital to agriculture, that could have been a worthy move.

But the total capital outlay for agriculture in this Budget is no more than the budgeted estimate for the previous year. It is no forward push.

And a forward push in equity for agriculture is desperately needed. Sixty per cent of India's population lives in villages but gross capital formation has been very low. No serious steps have been taken to provide equity capital to farmers.

These restraints can be justified on a cautious approach but that is not what one would have hoped for from a finance minister who is blessed with the opportunity to break the shackles of caution.

The prime minister has called for a substantial rise in GDP, but this Budget has failed to argue for a blitzkrieg in any direction that might have possibly brought a rapid advance.

Jaswant Singh is simply maintaining status quo. Any improvement next year will depend on the forces of nature -- a better monsoon for example -- but that has always been the characteristic of our economy.

We have been given no imaginative programme, no risk has been taken, no boldness exhibited in any particular direction.

This Budget is characterised by hope; it banks on the chance that the economy will revive and the expectation that the early signs of an upturn will somehow lead to an investment boom.

But it is to misunderstand the nature of investment to assume that a boom will emerge through tinkering with interest rates. That possibility 'no longer' exists.

A sharp cut in interest rates five years ago might have saved the boom but at this stage wider action is required. That action this Budget has not provided.

It goes without saying that those who stick their necks out and forecast future outcomes may well be proved wrong. What is obvious to others may well have escaped one's attention.

It is quite possible that some mixture of events may turn out to lead to great improvement.

This Budget has rightly been well received for its cautious solidity; but it lacks the dash and boldness that one might have hoped for from a cavalry officer. It is not an exposition of a cavalier's ability to seize an opportunity but rather that of a horseman all at sea.

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