You can safely skip the budget

Really, it’s quite hilarious, but with the budget in the offing, the government is once again organising a slew of ‘reforms’. Some weeks ago, it set the ball rolling and diluted the archaic Essential Commodities Act (ECA) by removing wheat, rice, and sugar from its ambit — never mind, I suppose, if no state government followed its lead, even though the ECA does apply only at the states’ level. A grand voluntary retirement scheme was cleared for 10 lakh babus (so what if it was initially meant to be a compulsory retirement one?), and privatisation was given a major boost with the sales of both VSNL and IBP on a single day. And now the Cabinet has amended the Industrial Disputes Act to make it easier for firms to close down. Again, I suppose, never mind this proposal was first made by Yashwant Sinha in last year’s budget — by the way, until Parliament passes it, the proposal is useless.

Sinha’s budget speech, no doubt, will carry the reforms message further. Interest rates on small savings will, as they undoubtedly need to, be cut another per cent or so, signalling the government’s determination to lower costs of raising funds. And though Sinha asked not to be ranked (remember the 9-upon-10’s he got last year?), it’s certain he’ll be hailed all over again. Indeed, CII chief Sanjiv Goenka has already promised to do so.

Problem is, this is really just skimming the surface, and everyone knows this. Let’s look at some numbers to put this in perspective. India’s savings rate is 23.4 per cent of GDP currently, but that’s just marginally higher than in 1990-91 when the reforms first began. Worse, at 24 per cent of GDP, investment levels have actually fallen — they were 26.3 per cent in 1990-91. (Figures from the CMIE, in fact, show that the value of new projects being planned by industry have fallen a whopping 23 per cent over the last year.)

Will the cut in interest help revive investment? Probably, but the impact (of this alone) will be marginal. Borrowings, sure, will become cheaper, but what about the equity capital industry will have to raise to finance new projects? The only way firms can raise equity is if investors believe the markets are safe again, that regulators will penalise firms who’ve cheated them in the past. But the fact that Harshad Mehta died ten years after he was first accused in the Securities Scam, and without even one serious conviction just goes to show how lousy the system is. And there’s no point blaming just the courts for this. In the current Ketan Parekh scam, the Joint Parliamentary Committee has not even bothered to call corporates in for examination even though SEBI reports clearly show these very corporates diverted company funds to the likes of Parekh. Also, the fact the government still feels free to play ducks and drakes with its policy is hardly the best way to attract investments — can anyone forget how the entire cellular telecom policy was just overturned by one stroke of the pen last year?

Savings rates, we’ve just said, didn’t fall, but do you know why they didn’t go up? Excess government spending (or dissavings, in jargon), that’s why. Just between 1999-00 and 2000-01, public sector dissavings doubled, from Rs 17,000 crore to Rs 34,000 crore. And dissavings of government departments rose from Rs 95,000 crore to Rs 107,000 crore — that’s more than four times the figure in 1993-94. Clearly then, the government needs to downsize dramatically, a point made by the Fifth Pay Commission during the United Front days and by the Expenditure Reforms Commission last year. Well guess what? Last month, the Cabinet was to clear a proposal to virtually force, over a period of time, around 8 lakh babus to ‘voluntarily’ retire with a generous separation package. But with the UP elections around the corner, the scheme was diluted and the retirement option was made genuinely voluntary — let’s see how many babus opt for it. It’s the same UP and Punjab elections, by the way, that ensured no decision was taken on cutting the huge kerosene/LPG subsidies — never mind that this jeopardised the entire process of freeing the oil sector that’s been underway for the last 5 years.

Apart from the state of the economy, it’s the economy of the states (copyright: Jairam Ramesh) that’s another area of serious concern — in January, Madhya Pradesh was forced to shut down its treasury as it was bankrupt, and just last fortnight Kerala followed suit. With the number of days that states have been in ‘overdraft’ with the Reserve Bank of India rising 28 per cent this year, clearly many more are likely to go the same way.

Clearly, mere budget statements aren’t going to fix any of this, more so since, as we’ve seen, the intention isn’t really translated into firm action that often. And though they make great sound-bites for television cameras, statements like those inviting investors to share in India’s grand dream — of lifting 200 million people from below the poverty line with a 7 per cent growth — are equally ridiculous especially considering last year’s 6-per cent growth has finally turned out to be just four per cent. As the Bard said, ‘words full of sound and fury, signifying nothing.’

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