The finance minister is leading up to the budget and what he said to Doordarshan as a prologue is unobjectionable. Certain macro indicators (export growth, high foreign exchange reserves, low inflation, industrial recovery) are good. But do these signal 8 per cent growth, as promised in the tenth plan' Clearly not. Eight per cent growth requires reforms, as noted in the approach paper to the tenth plan. Without reforms, if it is “business as usual”, to use the expression used in the approach paper, India is stuck with a lower trend of around 5.5 per cent. The tenth plan document has a long agenda of pending reforms and the finance minister chose to focus on five — revival of the capital market by removing weaknesses, containing the fiscal deficit, revival of the manufacturing sector, tax reforms and pushing capital investments in agriculture. This is as good a list as any and the only three items conspicuous by their absence are labour market rigidities, de-reservation of small-scale industries and power sector reforms. However, it is doubtful that the finance minister will accomplish his wish list of five. Containing the fiscal deficit, revival of manufacturing and increasing capital investments in agriculture are well outside North Block’s purview, at least for purposes of budget-making. In fact, some of these involve the states and as the prime minister’s unsuccessful meeting with state chief ministers on October 18 indicates, reforms are difficult, especially if elections are in the offing.
This leaves removal of weaknesses in the capital market, which is indirectly the responsibility of North Block but is outside the budget exercise. The finance minister gave the game away by indicating three objectives — gross domestic product growth, more money in housewives’ purses and more money in citizens’ pockets. The first is fine, but the last two lead to the question — which citizen and which housewife' So far, all indications point to a pandering of the urban middle class and arguably, this does not necessarily ensure removal of capital market weaknesses. This may also affect tax reforms, the meat of any budget. But to give the finance minister his due, he intends to make budget-making more transparent and place tax proposals in the public domain through the internet. Once discretionary elements are removed from direct and indirect taxation, budget-making should indeed lose all mystery and hype.
Three task forces are already at work to remove procedural hurdles in direct taxation, remove similar hurdles in indirect taxation and recommend required legislative changes. Given lobbying pressures, including those from the allies, it remains to be seen whether the finance minister can remove discretionary elements substantially. However, if procedural hurdles are eased, the direct and indirect taxpayer may be more amenable to paying the right taxes and the government may well accomplish its objective of increasing the tax/GDP ratio. Mr Yashwant Sinha conveyed an impression of being lost. So far, Mr Jaswant Singh seems to have a game plan.