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G. Srinivasan

`Even for a status quo vote-on-account Budget, there is a Rs 45,000 crore deficit to begin with which can be covered only by impounding more loan funds meant for private investment.'

NEW DELHI, Feb. 28

THE 2003-04 Union Budget, which is the penultimate if not the last Budget of the present Government, has been stillborn due to political compulsions of a countdown to general elections, with the Finance Minister Mr Jaswant Singh, having faltered and succumbed at the altar of political expediency, according to the former Union Minister of Commerce and Law, Dr Subramanian Swamy.

Reacting to the Budget, Dr Swamy told Business Line that the Budget would not be able to raise the growth rat of GDP since this could be done only by measures that raise the level of investment or that reduce the capital-output ratio or a bit of both.

Pointing out that not one such measure has been built into this Budget, Dr Swamy said that on the contrary, the high fiscal deficit financed by Government impounding more of the bank funds is going to make a rise in private investment more difficult.

There is also, he said, a huge surplus in the capital account budget, achieved through scrapping development project. This surplus is to be made over to the revenue account merely to finance government's current expenditure, he said, adding that this is "highly retrograde" from growth perspective.

Dr Swamy said the piecemeal and ad hoc measures of tariff, tax and exemption relief in Budget are "unimportant" for long-term revival of the economy unless placed in the framework of measures for tacking the twin problems of "slowdown in growth rates increasing financial asphyxiation. It is no use of boasting of food stocks and foreign exchange reserves since resting on one's laurels and basking on advantages that are prone to disappear if growth slackens. Thus the chickens will come home to roost but for the next government."

Even as domestic investible resources could be augmented by foreign direct investment, he said there is no sign in this Budget that the last two year trend of FDI decline could be reversed, since foreign investors "have been put off from India because of political uncertainties arising from the communal tensions that the Gujarat riots had induced and the Indo-Pakistan nuclear face-off that is simmering while stalemated."

Dr Swamy stated that domestic savings rate has declined dfrom25.1 per cent of GDP in 1995-96 to 22.9 per cent last year. Consumerism and stock market scams have taken their toll on household savings, but it is the duty of the Finance Minister to make amends and reward the long-suffering savers to save more, he said. This he has not done, on the other hand, he has encouraged consumption by redcuing excise on consumer durables.

Yet, another dimension of the Budget backdrop, he said, is the financial "asphyxiation" of the Central and State Governments," all operating on borrowed time to stave off bankruptcy and loan default." He said that every State Government is at the edge of a debt trap and could at any time soon not even be able to pay the salaries of its employees.

But the Union Government itself has become financially straitjacketed. Interest payments, defence, food and fertiliser subsidies, grants to States, police and pension payments require Rs 2,45,000 crore. There is no question of a solvent government defaulting on payments on any of these heads of revenue expenditure, he said noting that at current direct and indirect tax rate, the total revenue receipts are only Rs 2,00,000 lakh crore.

Hence even for a status quo vote-on-account Budget, there is a Rs 45,000 crore deficit to begin with which can be covered only by impounding more loan funds meant for private investment, Dr Swamy said. Add to this the needs of capital investment and defence equipment acquisition for fighting obsolescence.

With interest payments in the range of Rs 1,20,000 crore, the Budget has to borrow more and more to pay back the accumulated past borrowing. "Has the Budget any proposal to pull the finances out of this tailspin?" Dr Swamy asked.

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