Commentary/Mani Shankar Aiyar

It is only a matter of months before the cheers for Budget turn to tears

Moreover, says Sengupta, "The shortfalls were there in practically every sector." He identifies the deprived sectors as including rural development and social services.

The deleterious impact of such sectorial shortfalls can best be evaluated by contrasting the UF government's performance in these key areas with Dr Manmohan Singh's prescription in his Jawaharlal Nehru Memorial lecture in November 1996: "As I see it, the major part of central assistance should be earmarked for strengthening programmes of social development with large externalities, particularly health and education, and support for programmes specifically designed for the weaker sections."

Not only has the UF government violated this cardinal principle of good governance in its first year of office, it continues to violate it in its Budget for 1997-98. Sengupta says that the provision for social services in Chidambaram's Budget "has fallen far short of the requirements" He goes on to identify the major deprived sectors as "medical and public health, water supply and sanitation, welfare (of weaker sections), social security..."

He stresses that there has been practically no addition this year to the special central assistance for the hill areas, the Tribal Sub-Plan, the border areas and the North-Eastern Council."

Sengupta further emphasises that "general education" is the worst victim of Chidambaram's parsimony. Over to Singh's Nehru Memorial lecture again: "There is an urgent need for credible social safety nets to protect the more vulnerable sections during the phases of transition to a more dynamic economy... First and foremost, the best way to cope with a fast-changing world is to have a well educated labour force." It is precisely with regard to weaving a "credible social security net" and specifically in the area of "general education" that the Chidambaram Budget reveals itself as a dangerous departure from the tenets of Manmohanomics.

Far from compensating for the shortfall in 1996-97, the finance minister has increased the central plan outlay for 1997-98 by just five per cent. Sengupta says, "Assuming a rate of inflation of 7 to 8 per cent this year, the total CPO in real terms will be less in 1997-98 than it was in 1996-97."

In other words, just as the finance minister got away in 1996-97 with a sleight of hand which gave him a reasonable fiscal deficit by drastically curtailing development expenditure, so does he propose to do in 1997-98. This is extraordinary as he is as much obliged to respect the ninth Plan targets as the planning commission. Yet, his Budget has undermined, not promoted, his government's own Plan objectives. Clearly, the right hand of this government does not know what its other 13 hands are doing!

The Budget's fulcrum, on which all other targets depend, is that the economy should grow at seven per cent in 1997-98. Sengupta recalls, "The planning commission had earlier worked out exercises about the requirements for the ninth Plan for achieving a seven per cent growth rate." He points out that to achieve this, the CPO should, on an annual pro rata basis, have approached Rs 785 billion in 1997-98.

If, he says, the intention is to backload rather than frontload this development expenditure target (that is, spend less than the pro rata average in the first few years and step it up to above the average in the last), even then this year's Plan outlay should have been at least Rs 720-730 billion. But the finance minister has pegged it at Rs 628 billion -- Rs 100 billion less than the minimum required to attain the five-year plan target.

What Chidambaram has done is repeat last year's trick: -- cut development expenditure and then pretend that books are all balanced. But this time, it will not work because, by hiving Rs 100 crore of investment in development for the second fiscal year running, the finance minister has jeopardised his own growth rate target. And if he does not attain his growth rate target, he will not attain his revenue target. And once his revenue fall short of his fanciful projections, the economy and the UF government will be up the creek.

It is only a matter of months before the cheers turn to tears.

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