The Hindu Business Line : Money in pocket does not mean prosperity

THERE is no need to be cynical about the Finance Minister, Mr. Jaswant Singh's statement that the revenue deficit for the next fiscal year, 2004-05, will be only 2.9 per cent of GDP; 0.7 per cent less than expected according to the revised estimates for 2003-04. The elections will be behind him by then; today they stare him in the face.

It is, however, a different matter that the deficit for the current fiscal is expected to touch almost Rs 100,000 crore. That this will account for a mere 3.6 of estimated GDP is no consolation. It only means that we have somehow managed to fritter away the gains of the past 10 years; that the revenue deficit is now back almost to the level it stood at in 1993-94 — 3.81 per cent.

To make matters worse, not only have we continued, year after year, to spend more than we earn, the shortfall has wended its way up slowly but surely over the years the BJP Government has been in office.

After working its way down to as low as 2.39 per cent in 1996-97, it moved to 3.05 per cent the next year, and then to 3.85 per cent, 3.49 per cent, 4.05 per cent, 4.36 per cent, 4.24 per cent and 4.09 per cent between 1998-99 and 2003-04, the last of which the Finance Minister so aptly referred to in his "Budget Speech" as the "seventh successive Budget of the Government of the National Democratic Alliance".

Managing an unwieldy coalition does not come cheap. Far more serious is the fact that the problem is probably far less attributable to a desire to "respond to the will of the people" than to the "wealth effect"; to the forex reserves that have, quite fortuitously, been piling up in our vaults.

Surely it is these, more than anything else, that led the Finance Minister to arrive at, and take us into confidence about, his startling assessment that "the country's macro-economic situation is better than it has ever been in the last 50 years; India has evolved into a stable economy, with assured growth, and enhanced national prosperity".

Merely having a lot of money jingling in your pockets is not a sign of prosperity; especially when the money is not yours to do with as you like. Productivity is a more reliable indicator of well-being in sustainable terms. And on this count it is hard to believe that we have been doing particularly well; if one looks, for example, at the enormous spread in rates of bank interest rates.

It is profiteering that this spread points to rather than to increases in productivity; indeed, it eases rather than increases the pressure to achieve higher levels of productivity. But the story does not end here.

Surely, at least a part of the Rs 11,000 crore increase in corporate taxes, when one compares the revised estimates with the budgeted ones — and a much larger portion of the estimated increase in GDP — can be attributed to such "transfer payments", rather than taken as a sign that the economy is doing better than it has ever done before. This is true also of some of the savings that have contributed to the revenue deficit being lower than it would otherwise have been.

Finally, one cannot help suspecting that part of the increase in corporate taxes and estimated increase in GDP has come about as a result of stocks being "marked to market" to reflect their true worth.

Notwithstanding all that has been said so far, the message of this article is by no means that "we have failed on every front." Rather, the message is that it is opportunity that stares us in the face, not prosperity. It is opportunity, rather than prosperity, that is ours to do with what we will.