The Telegraph
Since 1st March, 1999
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- The problem of implementing the budget must be faced firmly

Whether we like it or not, two or three centuries co-exist side by side in our blessed land. Modern, futuristic skyscrapers have ugly shanties in their neighbourhood; overbearing city-lines are bordered by depressing ghettos and dingy settlements. And if one is inclined to travel well beyond the city limits, one would invariably find, hidden behind the lush greenery and all that, the good old Indian village untouched by the waves and ripples of economic development. The contrast seems to be increasing over the years.

The so-called process of liberalization has done quite a bit of good to the handful that were equipped to take part in it. This, in turn, has permanently changed the face of the Indian cities, albeit in patches, which have now started to resemble the legendary West or the coveted Far East. The larger chunk has been left out though. People who lack the necessary skills or training or the means to buy them or the capital to do business with the civilized world, have been excluded from the process of globalized and market-oriented progress.

In the early days of liberalization, it was fashionable to keep one's faith in the market. Partly, it was an over-reaction to the long rule of oppressive government intervention, and partly it was inexperience with a lack of foresight. Be that as it may, for more than a decade, both the Congress and the Bharatiya Janata Party broadly moulded their policies under the assumption that there is no separate need to do something for the poor. The market, once in full swing, will alleviate poverty by progressively dragging the underprivileged within its ambit. Unfortunately, the assumption has turned out to be incorrect.

Markets have indeed failed to include the poor in its sweep and, quite understandably, those who were denied access to the emerging globalized economy, did not find the going particularly delightful. The dissatisfaction was reflected in the mandate given by the common Indian in the last general elections. The Congress, therefore, has been careful this time. Even the most enthusiastic right-minded within the party has learnt to keep his emotions about economic reforms under control. Instead, the current style is not to talk about the market but about the poor, especially if one is entrusted with the finance ministry and with the task of masterminding the annual budget for the country. But then political compulsion or pragmatism is only a part of the story. The party has learnt important lessons from the economic scenario as well. It has realized that along with unleashing market forces to get the benefits of a globalized world, it is simultaneously important to take a direct shot at solving the problems of hunger and destitution. Indeed, this is a significant bend in ideology. The ultimate aim, of course, is to make the underprivileged suitable for the market economy, for it is the market which will shape the fate of the country in the long run. But it is now believed that this will not happen automatically.

Conscious efforts are to be made by the government to provide the economically handicapped with suitable education, training, health, drinking water, roads, electricity and other infrastructure. These measures are expected to help them participate in the market in the long run.

The budget speech of the finance minister this year clearly signals that there has been a change in the policy stance in these directions. It has been presumed, as the speech would suggest, that since the market economy has been doing rather well over the last couple of years, apart from a few reductions in customs duties, it does not require any further boost from the government. So almost the entire thrust, at least as far as the budget speech goes, has been put on providing support to the backward village economy which had so far been left out of the map of development.

Three natural questions should crop up to a serious listener of the budget speech. First, are the actual budget allocations consistent with the advertised change in the policy stance' That is, are the ministries entrusted with education, health, rural welfare and the like experiencing a swelling of funds as one would expect it to happen if one takes the budget speech seriously' Second, where will the funds for these welfare measures come from' Is the finance minister being a shade too optimistic about generating revenues' Third, even if the government is capable of generating the necessary funds, how does one solve the nagging problem of implementation' How does one guarantee that a reasonable fraction of the money spent on the poor would actually reach the poor'

A closer look at the budget suggests that the government has become more serious than before about the development of the village economy where most of the poor live. Rural development and land resources have each got 32 per cent more funds than their last year's allocation. Drinking-water supply has got 43 per cent more, agriculture and cooperation have got a 39 per cent, and agro and ru- ral industries a 20 per cent raise respectively.

While these are significant moves, it must be pointed out that, leaving out fertilizer subsidy, the rural sector as a whole still gets about a meagre 6 per cent of the total budget allocation. Again, the rural poor benefit only from a part of this, because a large chunk of this money is spent as administrative costs. Similarly, health and education have obtained a 23 per cent and a 38 per cent increase respectively, and the thrust is on primary education, which has received 56 per cent more money than it received in the previous budget. In the same vein, road transport and highways have got a 61 per cent increase. These increases are significant if we take into account the fact that increase in total expenditure is only 1.69 per cent.

So the march seems to be in the right direction, but there is a long way to go, for in the present budget the expenditure shares of health, education, and roads and highways are only 2.07 per cent, 3.56 per cent and 2.41 per cent respectively. One must contrast these figures with the share of defence expenditure, which stands at 18.8 per cent and has increased by 35 per cent over its previous year's allocation.

Doubts may also be raised about the revenue optimism of the finance minister. One can, of course, argue that since, at present, the economy is performing so well, there is some basis for optimism. But whether such an optimistic estimate as a 33 per cent increase in corporation tax and a 23 per cent increase in income tax is justified or not is not at all clear. Similarly, the proposal of using foreign exchange reserves to build up infrastructure is dangerous. One has to remember that most of the reserves have come either as foreign investment in the stock market or as NRI deposits in Indian banks. Apart from being volatile, these capital account inflows are basically someone else's money deposited in our country. It is a liability which has to be paid back with interest. So it is not prudent to use these reserves in a big way in long-run infrastructural investments from which the immediate return to the government is almost zero.

Finally, one has to face the problem of implementation squarely and firmly. One may not exactly believe the mythical figure of 14 per cent of aid actually reaching the poor, as was told by our late prime minister, Rajiv Gandhi. But one has to admit that a disproportionately large chunk of the money spent on the poor is indeed appropriated by middlemen of various genre. Unless the vultures are kept at bay, the whole endeavour of helping the underprivileged will remain a non-starter. The finance minister has vaguely talked about a delivery mechanism through local bodies and has allocated 400 per cent more money to the department of panchayati raj, which was just created last year. But this is not good enough. One had expected more specific and innovative delivery schemes to be announced in the budget speech to handle the problem of implementation.

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