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Article in The Economic Times
Authored by Dr.Jayaprakash Narayan


National Coordinator of
VOTEINDIA movement

Budget Blues - Money Is Not Always the Solution
02 March 2002

Once again, the nation's attention is riveted on the Lok Sabha. However, whatever the Finance Minister (FM) has on offer for us, there are certain unchanging fiscal rigidities evident in recent years. Fiscal deficit remains stubbornly at the 10% GDP range for the union and states, and around 5% for the union alone. Industrial and manufacturing sector is growing sluggishly, though there are some indications of demand picking up. Expenditure pattern in government is rigid, and unyielding to policy prescriptions. Not surprisingly, fiscal deficit for the current year is now estimated at 5.7% of GDP, and the FM projected a deficit of 5.3% for fiscal 2002-03. In fact, the FM's room for manoeuvering is severely limited. At the union level, the interest payments, central transfers to states, defence and wages together far exceed the revenues. There is no significant reduction possible under any of these heads. And unemployment continues to mount.

Given these inflexible realities, what is it the government can do in the short and medium term? For this, we should rise above the din of the stock market and tax rates. Even disinvestments, labour policies and second-generation reforms will not suffice. We should look at the big picture. There are real and serious concerns we need to quickly address. What is more, most of these things cost no money. Let us focus on four issues.

First, banking sector is flush with funds. Interest rates are at record low levels. Inflation is under control. Manufacturing sector is in doldrums. But the tragic irony is that many small and medium enterprises, which are valiantly and successfully fighting to survive both external competition and economic slow down are denied credit. Banks are simply not responsive to customers' credit needs. Otherwise thriving units are either stagnating or declining for no fault of theirs. But spurious enterprises get unlimited credit! The message is clear: don't waste time in wealth creation and production of goods. Speculation in capital markets, corruption and outright cheating of the public are far more profitable (with little risks). Obviously financial sector must be made to move, and move quickly. Banks must be made to understand that due diligence is different from callous indifference and inaction, or criminal collusion. Flow of credit and capital for wealth-creating activities is what spurs economic growth.

Second, the continuing crisis in power sector. 'Reform' has now become a catch phrase devoid of all meaning. Prudent and economic use of resources, and increase in productivity and production are ignored. We are going through the motions of 'regulators', independent power projects (IPPs), unbundling of power sector etc, but most of these are without substance and spirit. There is no tangible and realistic effort to reduce transmission and distribution losses. And IPPs are in a mess. Low cost generating units of SEBs are discouraged. High costs, guaranteed rates of return, faulty fuel allocations, bad fuel policies without regard to future energy costs, cronyism, arbitrary decisions and corruption have brought a bad name to private generation. The net result of this criminal neglect and collusion is a loss of about Rs 40000 crores - nearly 2% of GDP - in SEBs in the form of subsidies and revenue deficits! What is worse, power shortages continue to daunt the economy. The Union should sit with the states and resolve the crisis. There are practical solutions. But where necessary the whip must be cracked.

Third, the Union is talking of VRS for a million employees. If they achieve it, well and good. But past experience shows that the burden often continues, thanks to overly generous VRS policies with an eye on numbers. FM more modestly announced a token reduction of 12000 jobs. In any case, the real question is public employment in states, and redeployment. Over 50% of the employees in most states are unproductive, and most of them are deployed not in service delivery, but as support staff. We need to redeploy them and make them accountable. Kerala's predicament today is not a local issue. All states are in the same boat. A national approach is needed to make employees deliver. Real labour reform is needed in government.

Finally, there are measures that will significantly improve the climate for investment and wealth creation. Removal of urban land ceilings and rent controls, improving land records, and protection of property rights are vital to curb corruption and end artificial housing shortage and stimulate the economy. These sensible, and pragmatic land policies will see dramatic rejuvenation of our towns and cities. Repeal of ULC Act by the Union had no impact on some states. Property rights are increasingly arbitrated by criminal gangs. Some of the reform-linked assistance should go to better land surveys and record maintenance, as well as speedy mechanisms for resolution of property disputes.

One can understand, if not condone delay in addressing other problems which need resources or major reforms - public transport, capital formation in agriculture, marketing infrastructure, education, speedy justice, rule of law etc. But there is no excuse for delaying action on areas that require no monetary inputs or vast political capital. We are suffering from excessive lethargy and focus on irrelevant issues diverting national attention. Between the small things we won't do and the big things we cannot do, nothings gets done. Budgets will come and budgets will go, but these issues need to be addressed to rejuvenate the economy and fulfill our potential.




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