THE BOTTOM LINE
By G.V.L. NARASIMHA RAO
A POLITICAL BUDGET?
While budget making is a huge media event in India, for the vast masses in the country, it is a bit of a non-event. Successive cuts in both direct and indirect taxes, and galloping urban incomes have robbed the attention that budgets in the `90s used to receive from the urban, salaried middle classes.
Months of planning go into making budgets. An interesting, though somewhat obvious conclusion is that political and electoral considerations dominate budget formulations, usually in the first and the last years of a government in office. The years in between are periods of economic activism, scans political or electoral considerations.
With general elections slated for May 2009, this government will be presenting two more budgets after this one, if the general elections are held as per schedule. On the other hand, buoyed by the recent favourable opinion polls – and results of key state elections later this year – if the United Progressive Alliance (UPA) government were to advance general elections, as the political buzz seems to suggest, the first indications of that would be available from the nature of budget proposals and the thrust of the budget.
The political imperatives demand that this budget will have to address and articulate three major concerns – the rural crisis that has bobbled agriculture and consumed many farmer lives, rising inflation hurting the poor, and rural infrastructure.
Agricultural sector is clearly in the throes of a crisis. The number of farmers committing suicides annually has steadily increased to an estimated 1,050 last year from 324 in 2004 and 36 in 1999. No elected government can ignore these numbers. For the first time, the contribution of agriculture to the nation’s gross domestic product has declined to below 20%, even as it remains the principal livelihood source for 65% of the population. The electoral implications of this hardly need any emphasis.
Demands are being voiced for a farm-friendly banking sector, easy availability of farm credit, additional debt relief measures, reduction of interest rates on crop loans to 4% and supply of quality and affordable inputs. Given the stark ground realities, one should expect many farmer friendly initiatives.
Inflation is the other major worry factor. The finance minister will have to address this problem as it is hurting household budgets of the poor and the middle classes. Prices of essential commodities play a critical role in shaping voter’s political choices. The 1998 election to the Delhi assembly, in which a spurt in onion prices led to a rout of the ruling Bharatiya Janata Party (BJP), is a vivid reminder of what can happen.
Notwithstanding the highly favourable opinion polls and high approval ratings for the central government, spiralling prices of essential commodities is a huge cause for concern and should the government fail to address this issue on expeditious basis, it can expect to lose political ground heavily.
Following the shift of focus of the government from outlays to outcomes as outlined in the 2005-06 budget, it appears that a realization has dawned on the government that large amounts of expenditure in social sectors are wasted due to inefficient and corrupt delivery systems. There are indications that these funds may be diverted to priority sectors.
Expect the finance minister to make right noises and grandiose announcements for the welfare of the farmers, the poor, the under privileged, minorities and rural India. But people are no longer swayed by mere announcements, rather, they evaluate these initiatives by the visible impact these make on their lives.
The widely held belief that economic reforms have widened the urban-rural gap and the rich-poor gap has the potential to cause a major political upheaval and the UPA is not oblivious to such concerns. Chidambaram has recently stated that those who benefited from the reforms must yield a part of their wealth and space for the poor. How far he goes in translating this wisdom into his budget proposals will be keenly watched and will determine the electoral fortunes of the ruling coalition.
Column published in the business daily Mint, in association with The Wall Street Journal
GVL Narasimha Rao (PRM 6) is political analyst whose day job is Managing Director of Development & Research Services, a research and consulting firm. Your comments are welcome at the bottomline@livemint.com