Reema Sharma/ Ajeet Kumar
The Union Budget 2013-14 is the last full-fledged budget that the UPA II government is going to announce before the country goes for general elections next year. Like every pre-poll year, it is widely expected that the government may dole out huge funds, and many other flagship programmes, to woo voters. The sentiment may transpire to the upcoming Budget also. But in foresight a populist budget will not ensure sustainable growth nor will India’s growth momentum accelerate by blindly embarking upon the path of reforms.
For the Indian government, challenges are abundant. The government has to walk the tightrope and do a balancing act between resorting to extreme reform push and mindlessly adopting flagship programmes.
Just weeks before the Budget, the Central Statistical Organisation (CSO) lowered the growth target for this fiscal at a sharply lower rate of 5 percent (lowest in a decade) due to poor performance of major sectors. This is a crucial time for the government, since the estimate is going to be its yardstick to chart out the roadmap ahead.
The government estimates of growth also pose a serious question on whether it should get rid of subsidies in the name of improving fiscal health or should it approach rigorous measures to push through further reforms.
Let’s for instance take the partial de-regulation of diesel prices. Time and again the government has mentioned that subsidy burden will ease if fuel prices are concomitant with international prices. Planning Commission’s Deputy Chief Montek Singh Ahluwalia recently said that “rich countries can afford to have energy subsidies”- meaning a country like India cannot afford to do this.
A hike of forty to fifty paisa in diesel does not spell trouble for the middle classes as much as it affects the marginalised class of society. For the ones who earn Rs 50 a day (assuming the level way above the Planning Commission’s poverty line cut-off figures as on September 2011), even the slightest increase in fuel prices will make his/her living tougher because of the cascading effect of the hike. It must also be noted that welfare schemes are not meant for those living below the poverty line, as per the Planning Commission’s level. This is a double whammy for the already deprived class.
Meanwhile, the government can certainly focus upon systemic reforms. Take for example the tax system which is nothing more than a complex web of formalities. Government needs to focus on Direct Tax Code (DTC) and implement the Goods and Services Tax (GST) regime which will make the overall system transparent, simple and accountable. The government should push through more such reforms in order to make the country an investment friendly destination and minimise corruption and procrastination in decision making.
The feasibility of the flagship programmes by the government should also be taken into account while adopting a balanced budget. It is true that flagship programmes are more than or should be more than mere announcements. But in a country like India, it is more important to channelise the entire flagship programmes under a common banner. Without proper checks and balances and without having a proper mechanism, such policy announcements only escalate the burden on the exchequer while the poor and the marginalised class remain far from availing the benefits.
Though the government has launched direct cash transfer with an aim to bring the major social welfare schemes under a common roof but with lack of proper infrastructure and systems, such schemes remain far from reality.
Since red-tapism and corruption at administrative levels impede the effectiveness of social policies, one cannot state that the government should completely stop its subsidy programmes. The need of the hour is to ensure the effectiveness of these policies. However, the government can easily get rid of the flagship programmes which were totally failed.
Finance Minister P Chidambaram had said that some “bitter medicine” needs to be taken this year to achieve much higher growth next year. It’s high time that the government made a balanced budget which is devoid of both populism and unreasonable reforms.
Only a pragmatic approach can make platform for a comprehensive and sustainable growth.