Dr Ashwani Mahajan
Though Vote on Account 2014-15 can merely be called an accounting statement, but the script seems to be written keeping an eye on elections in 2014. While preparing Vote on Account, which is last such presentation of 15th Lok Sabha as also the last budget of UPA II and also of P Chidambaram as Finance Minister of UPA II, he has shown all his masterly skills in (mis)representation of data; a statement, which may not face much heat of opposition but would prove to be a headache for the next government.
It is notable that in his presentation Chidambaram has stated that he has been able to keep the fiscal deficit within ‘red lines’ by curbing it to 4.6 percent of GDP; GDP growth in the current year would remain 4.9 percent despite global, especially in emerging economies’ slowdown. Though trying merely a window dressing on manufacturing, Finance Minister gives excise concessions to automobiles, mobile phones etc.; however, he has not only tried to postpone hikes in size of the budget by keeping the hike in total expenditure to less than 11 percent, but has also very skillfully managed to account for increase in central government’s expenditure in the next year.
It is no secret that economy is in deep trouble today. Continuously inflation has been keeping high, brunt of which is on the common man, eroding their welfare. High rate of inflation is impacting industrial growth, apart from hurting the poor man. Continuously decelerating rate of industrial growth from a high of 15.6 percent in 2007-08, has gone negative in the first nine months of the current fiscal year. But seemingly election compulsions make Chidambaram to paint a rosy picture of the economy. In his budget speech he has been so engrossed in counting the achievements of the Government, that he blindly ignored the miseries of common man, particularly poor and down trodden, who is reeling under the mess of the economy. All efforts of the government towards populism, in its own style, announcing doles like food security, LPG subsidy, cash for subsidy and think that these would be ‘game changers’ and would turn the game in their favour.
It is a fact that populist policies of the central government are multiplying the woes of the people. No doubt if cheap fruit grains are distributed or more subsidies are given on LPG or if cash is given to the people, there would be a momentary pleasure for them. However, this pleasure would vanish if they have to give the same money to the government through their nose by way of inflationary tax. We note that in the last 3 years food prices have increased by 48 per cent. and people’s food budget has increased accordingly. Therefore, even if 50 per cent of the budget is given in the form of subsidies, their welfare would not increase in real terms.
Data Engineering
Chidambaram claims in his Vote on Account 2014-15, that fiscal deficit would be limited to 4.6 per cent of GDP during 2013-14. How correct this figure is, is anybody’s guess. It is notable that in the first 9 months of current fiscal deficit had exceeded 92.5 per cent of the projected figure of 4.8 per cent of GDP. By any stretch of imagination, it is not possible that in the next 3 months, there is no fiscal deficit at all! This ‘miracle’ could be made possible by Finance Minister by not showing some expenditure in the present fiscal year and overestimating the proposed receipts in the current year. It is believed that in the absence of such gimmicks, fiscal deficit could well exceed 6 percent of GDP.
In his endeavor to somehow show fewer deficits, Chidambaram has forced Coal India and cash rich oil companies to make advance dividend payments. However next year these gimmicks would not work. For the year, 2014-15, fiscal deficit figure has been kept at 4.1 percent, and for reaching this figure, growth in tax receipts has been kept at 18 percent, which looks to be nearly impossible task, looking at present grim scenario of economy in general and industry and commerce in particular. Regarding non-tax receipts, Finance Minister has himself conceded that they would remain subdued.
Planned expenditure has been pruned the most in 2013-14 and in the next fiscal they are expected to increase by merely 16.2 percent. It is notable that in the last year’s budget they were proposed to be increased by 34 percent, while actually they remained 14 percent less than proposed.
Apart from pruning the planned expenditure, growth expectations have been over blown, while inflation has been shown less, at 7.1 percent. It is notable that less than three weeks ago, RBI in its quarterly policy announcement had given wholesale inflation at 8.6 percent. For budget 2014-15, Finance Minister has proposed less than 11 percent hike in total expenditure; which looks too less. This has happened due to the fact that Chidambaram has made a provision of only rupees 2,55,706 crores for subsidies. Given commitments of heavy subsidy in food security, LPG cylinders etc., this figure may well exceed 4 lakh crores. In fact year after year we note that actual fiscal deficit always remains higher than the projected figures in the budget.
In the name of giving relief to the industry, government thinks to have dissolved of its duty by giving excise duty concessions for automobiles (including SUV cars), mobile phones etc. However in reality industry is not lagging due to high excise duties, but due to high interest cost, costly inputs and fuel and lack of demand. Therefore to come out of blues, industry needs low interest rates, cheap raw materials, including imported raw materials; and for that, it is imperative to give strength and stability to Indian rupee and control on inflation. No signs of any effort to control inflation or to strengthen rupee are visible in this budget.
Continuously rising interest rates are mounting EMI burden on the middle class. This not only disturbs their budget, but also jeopardizes the demand for houses and consumer durables, including automobiles. Industrial investment has come to a standstill and infrastructure investment is depressed too. Finance Minister should understand that solution to the present woes of the economy, does not lie in red carpet welcome to foreign investment. We need a policy boost for domestic investment. We need to bring down interest rates by controlling inflation; strengthen rupee and bring down input and fuel cost.
Economy is relieved by good performance of agriculture, which expects 4.6 percent growth in 2013-14, thanks to good monsoons. However, this is not going to last long. We not only have to help agriculture, industry too, especially small scale industry requires support. If we give interest subventions for SSIs on the line of agriculture, it would go a long way in expansion of SSIs; which in turn would encourage growth, control inflation and create employment.
( The author is Associate Professor, Dept of Economics, P.G.D.A.V. College (University of Delhi)
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