second instance of implicit off-loading of the fiscal
deficit is with regard to the Infrastructure Development
Fund, whose capital of Rs.10000 cr., which is supposed
to provide ''bridge finance'' for infrastructure projects
that are remunerative economically but not financially,
is not provided for in the budget. Instead of borrowing
directly the government in other words making an agency
set up by itself do the borrowing. This borrowing, being
off-budget, is not shown as part of the fiscal deficit.
The third instance is what has already been referred
to above, namely the absence of any reference to the
food component of the Employment Programmes in the budget
documents. The 5 million tonnes which the Finance Minister
has promised as the food component of the FFW and which
does not figure in the budget will obviously be loaned
by the FCI to the FFW programme. A part of the fiscal
deficit in other words would have been shifted out of
the budget. Putting it differently the actual fiscal
deficit generated by the budgetary provisions is much
larger than what appears in the documents.
One cannot fault this in principle. On the contrary
it only confirms the point that the FRBM Act which forces
the government to do such ''off-loading'' of the fiscal
deficit away from the budget to other government organizations
is an absurdity which even people like Mr.Chidambaram
have come to realize. But in this particular case there
are two concrete considerations that militate against
this practice. The first is that such ''off-loading''
may, given the general neo-liberal ethos, jeopardize
the future of the agencies on to whose shoulders the
deficit is being off-loaded or have other harmful consequences.
A reference has already been made to the possibility
that off-loading the fiscal deficit onto the shoulders
of the State governments could turn them into proteges
of agencies like the ADB and the World Bank (which some
of them are already in the process of becoming) with
dangerous consequences for national integrity. Likewise
if the FCI's giving loans to the FFW programme increases
its deficit (which is covered through the food subsidy),
then in the name of cutting the food subsidy the same
government might decide one day to wind up the FCI.
In other words, enlarging the fiscal deficit whether
directly through the budget or through other government
agencies is fine provided a consistent approach of defending
the government agencies is simultaneously adopted..
But, of this there is no sign.
while enlarging the fiscal deficit for incurring larger
expenditure is fine, there is no justification whatsoever
for doing so together with a reduction in corporate
income taxation. The argument that some parity has to
be established between personal income taxation and
corporate income taxation has no basis whatsoever. Hence
the argument that since the highest rate of personal
income tax is 30 percent, the rate of corporate income
tax must also be reduced to 30 percent from the current
35 percent lacks substance.
Indeed most of the tax concessions given in the budget
lack any justification. There is no reason why the scope
of the service tax should be cut down from its existing
level. There is no reason why import duties should be
reduced on a variety of capital goods: while it would
have a scarcely noticeable effect on the overall investment,
it would act to the detriment of the domestic capital
goods producers, causing a degree of de-industrialization
in this sector. (Such deindustrialization would also
follow from the dereservation of a number of items hitherto
reserved for the small-scale sector). Likewise, there
is no reason for reducing the excise duties on a variety
of luxury goods like air-conditioners. And the reduction
in import tariffs on a range of agricultural goods is
precisely the opposite of what the government should
be doing if it wished to undo the damage done to this
sector by neo-liberalism. Even experts like M.S.Swaminathan
have been arguing that agriculture cannot be treated
like any other sector in the matter of protection since
the livelihood of millions of peasants and labourers
who have nowhere else to go depends upon it. The budget
alas pays scant heed to such sage advice.
While these tax concessions are being given, the imposition
of a cess of 50 paise per litre on petrol and diesel
can hardly be justified, especially as it comes on top
of price-hikes decreed very recently on these commodities.
Indeed whatever little relief that the people might
have derived from the reductions in import and excise
duties on kerosene and LPG would be offset to a significant
extent by this cess. In the case of petrol the net revenue
raising effect is much less than what appears at first
sight since the government is a major consumer of the
commodity. In the case of diesel, any price hike jacks
up transport costs and has an across-the-board inflationary
impact which would hurt the people.
Two suggestions thrown out in the budget are a source
of disquiet. The first relates to the banking sector
where the bounds on the Statutory Liquidity Ratio and
the Cash Reserve Ratio are sought to be removed and
the Reserve Bank is to be made free to prescribe such
prudential norms as it deems fit. This entails giving
greater autonomy to the RBI and making banks free in
their portfolio choice which would enable them to speculate
more freely. Both these, like the earlier pronouncement
regarding making the management of public sector banks
more autonomous, are measures of financial liberalization,
which would have disastrous consequences for the economy.
The fact that the Finance Minister who talks of giving
more credit to agriculture in one breath, advocates
financial liberalization in the next, only shows the
lack of seriousness with regard the first objective.
Moreover, nothing has been done in the budget either
to curb FII operations on the stock market which even
the RBI governor in an unguarded moment had asked for,
or even to undo the anomaly caused last year by Mr.Chidambaram's
rolling back of both the stock market transactions tax
and the capital gains tax. And to cap it all he has
even suggested that trade in derivatives is not to be
treated as speculative, when almost by definition it
Even while doing precious little to curb financial speculation,
and if anything adding to speculative tendencies in
this sphere, the budget makes some ritual noises against
black money: the 0.1 percent tax on cash withdrawals
from banks is neither appropriate nor significant for
tackling black money.
The second disquieting suggestion relates to the entry
of foreign direct investment into mining and pension
funds. As regards mining, the argument against FDI is
obvious. Indeed, as Joan Robinson, the well-known Cambridge
economist had once remarked, of all the different terrains
of FDI involvement, the mining sector is the worst,
since minerals are an exhaustible resource. The MNCs
extract the mineral, ship the surplus back home, and
leave when the mine gets exhausted. But when that happens,
the country is left high and dry, with no more mineral
resource left. The case of Myanmar illustrates the point.
At one time its oil wealth attracted much foreign investment
(Burma-Shell), and it experienced for a brief period
an enormous boom, when oil extraction was going on.
But today, with its oil wealth exhausted, it is one
of the forty ''least developed'' countries in the world.
There is absolutely no argument whatsoever for inducting
MNCs into the mining sector.
In the case of pension funds, it is sometimes argued
that FDI in this sector would fetch higher rates of
return for the pensioners, so that any opposition to
FDI in this sector is only ideological and hurts the
interests of the pensioners. Even if we take this argument
in itself, i.e. even if we leave aside the macro-economic
implications of entrusting a part of the country's savings
to a bunch of multinational corporations, it is not
the case that the pensioners would be better off if
their funds are managed by MNCs. The reason is simple:
in India the level of political empowerment of the people
is far greater than the level of their effective legal
empowerment. They can agitate against the government
and force the latter to listen to them, but, as the
Bhopal Gas Tragedy victims' case shows, they cannot
fight a successful legal battle against an MNC, certainly
not within a limited period (as is necessary in the
case of pensioners). Pension funds therefore are best
managed by the government and must not be entrusted
to MNCs. Doing so is an act of disempowerment of the
pensioners, which no promise of higher returns can offset.
The fact that such patently neo-liberal measures are
being contemplated by a Finance Minister who has ostensibly
shown concern for the poor, only demonstrates that this
budget is an attempt to please all, the MNCs, the corporate
sector, the salariat and, to an extent, the poor and
those who speak for them. Such a ''please-all'' budget
can only be based on a degree of arithmetical jugglery
and hence can only be a transitory phenomenon. Or putting
it differently, this budget does not mark the ushering
in of a ''growth-with-equity'' trajectory, or of ''liberalization
with a human face'', as some newspapers have claimed.
It is impossible to combine liberalization with a human
face, because of the immanent logic of liberalization.
This budget rather represents marking time, a small
tactical adjustment, in the form of a pause in the march
along a neo-liberal path. But just as a tactical retreat
does not represent an equilibrium situation, this pause
should not be confused for a new trajectory of ''liberalization
with a human face''. This retreat has been necessitated
by the relentless pressure of the Left. The Left has
to continue exerting, and indeed intensifying, that
pressure against the pursuit of the neo-liberal trajectory.