Commentary/Mani Shankar Aiyar

For every Rs 7 the finance minister has left with the rich, he has given but one rupee to the poor

The single most important component of central government expenditure targeted at the poor is provided for in the ministry of rural affairs and employment's budget.

As between the revised estimates for last year and the budget estimates for the next, the allocation to poverty alleviation and employment assurance programmes have been increased by about Rs 12 billion. However, if the two budget estimates are compared, you find that the increase in allocation is a mere Rs 70 million. Please note that this is between one-fifth and one-seventh of the amount saved by the rich on their taxes. That is, for every Rs 7 the finance minister has left with the rich, he has given but one rupee to the poor.

Also note that while only 10 million Indians benefit from the new tax cuts, there are at least 30 crore of the poorest of poor, helplessly dependent on the ministry of rural affairs and employment. The per capita increase in allocation to them comes to Rs 45 as against Rs 4,500 for the rich. The rich have been benefited a thousand times more than the poor -- and the richest, a hundred thousand times more!

This is what makes this the most iniquitous Budget ever.

All the calculations in the Budget are based on the assumption that the economy will continue to grow at seven per cent per annum. If there is any faltering in the growth, all the projections will fall flat. Prices will rise.

Further, the Budget assumes that the main constraint on growth is inadequate resources in the hands of the investing class. And, therefore, if tax rates are cut, investment will rise and all will be well.

There is nothing to indicate that growth rates in the manufacturing sector have been held back on account of high tax rates. If that were so, the sector would not have recorded such high growth rates as it did through most of Manmohan Singh's finance ministership.

The collapse in manufacturing sector that has characterised the nine months of the United Front rule was brought about by three primary factors: the perceived instability of the government which has made the corporate sector, both Indian and foreign, investment-shy, and the stock market teeter; the collapse in power generation and other essential infrastructure; and the high interest rates that have drastically increased the cost of borrowing and, thus, the availability of industrial credit. The Budget does nothing to remove any of these.

Moreover, though the fall in domestic crude oil production has been averaging nearly one million tonnes a month for the last nine months, there is nothing in the Budget to reverse it. The same is true of coal and other mining activities. It is, therefore, fanciful to imagine that a mere cut in tax rates is going to promote an industrial revival.

The other major danger in the present economic performance is in respect of exports. Export growth rates had been hiked to 20 per cent and more. During 1996-97 it had sunk to under 6 per cent. The Budget does nothing to indicate how exports might be increased. Also, the import growth rate, which was averaging a healthy 25 per cent or more earlier, collapsed last year to about the same as the export rate.

Indeed, if oil imports (which account for some 41 per cent of our import bill) are excluded, imports in the current year are running at some 4 per cent less than in the previous year. This may have saved the balance of payments -- but at the cost of growth.

Meanwhile, the deficit in the oil pool account, which was a mere Rs 500 million when the UF government took office, has crossed Rs 150 billion and might even breach the Rs 200 billion-mark before the financial year is out. It will have to be raised from the government resources or gouged out of the people. Either way, it is the long-suffering and much-ignored poor who will bail Chidambaram out. And whichever way you look at it, it will dampen growth.

The seven per cent growth target is a dangerous illusion. And, therefore, all of Chidambaram's sums are illusionary. Revenues will not demonstrate the buoyancy he has assumed, nor will the tax-to-GDP ratio reach the level projected. The last hope is the Voluntary Disclosure Scheme. It is only by winking at deceit and combining it with parsimony towards the poor that there is a remote possibility of the finance minister not bankrupting the country.

Tell us what you think of this column