A deceptively friendly budget sans forethought
It is painful to see cuts being imposed on deserving sectors on account of commitments elsewhere, such as the security concerns in Jammu and Kashmir, concerns largely traceable to the government's attitude and approach. After liberalisation, privatisation and globalisation in the 1990s, management of the country's economy has increasingly called for the ability to do things "differently" rather than doing "more" of what was done in the past and doing them "better". No such innovative approach is visible in the budget document.
One is also left wondering how much forethought went into the formulation of the budget and the manner of its presentation. The unusually sharp fall in stock prices following the presentation of the budget could not certainly have been intended.
With clockwork precision, the government of India has delivered one more budget. Whatever one may have to say for or against it, the government of India can hardly be accused of failing to present the annual budget regularly and on time. Even if what is presented often falls far short of the expectations of the common man, it covers professionals and all important sectors such as defence, agriculture, industry, education and health. Though window dressing invariably makes the document deceptively friendly, it might be lacking in concrete measures. One redeeming feature this time is the absence of further sops, a regular feature on previous occasions.
Take, for instance, the agricultural credit sector.
Finally, it seems, wisdom has dawned on the Central government's thinking and good sense has ultimately prevailed. Better late, they say, than never. Or to put it in the Indian idiom, 'der aaye durust aaye'. The pre-budget economic survey has eventually recognised that writing off agricultural loans is not such a good thing after all. The Finance Minister said, "Huge amounts of government revenue are being spent year after year for debt waivers, but it has not brought any relief to farmers as evidenced by continuing farmer's distress and suicides." 'Neither a borrower nor a lender be', said Shakespeare's Polonius in Hamlet. A loan, by definition, is meant to be repaid. Unless exceptional circumstances justify, repayment cannot be postponed or staggered. The pernicious practice of waivers began with the ARDR scheme of the government of India in 1990 when Devi Lal, as the Deputy Prime Minister, ordered a massive loan write-off. Several States and the Centre have done it many times thereafter.
Government interventions in the regime of purveying and collection of agricultural credit have always been frowned upon by regulatory and developmental institutions such as the Reserve Bank of India and the National Bank for Agriculture and Rural Development. Because they vitiate the recovery climate and shrink the kitty from which loans are advanced. Even relatively less harmful concessions, such as interest subsidy for prompt repayment, fresh loans to defaulters and zero (negative) rate interest loans have also always been stubbornly resisted by them.
Interestingly, waivers are shown up as instruments of relief, travesty of truth. Studies by institutions and individuals with impeccable credentials, have shown that the primary cause for distress in the farming community is the failure of input/output markets but not, repeat not, indebtedness or usurious lending practices. The practice has severely damaged the health of rural credit institutions, particularly the cooperatives.
Unfortunately, waivers have not been confined to the agriculture sector. The country has witnessed several brazen attempts by the government of India to shield defaulters to commercial banks in the industrial sector on a much larger scale. Strangely enough, commercial banks failed to do the right thing in agriculture and resorted to the wrong things in the industrial sector. And RBI's regulatory powers have often been weakened by external influences.
In Andhra Pradesh, after the 2004 elections to the State assembly, the Congress led by Dr Y S Rajasekhar Reddy waived off thousands of crores of electricity dues including those from rich farmers. Supply of free power followed and resulted in indiscriminate, use of power, leading to alarming depletion of groundwater levels.
The whole malaise can be put down to the absence of political will to allow commercial considerations to be respected in the banking system. A modicum of discipline, order and method was restored to that system after the implementation of the recommendations of the Committee on the Financial System headed by the legendary M Narasimham. As a fallout, the importance of income recognition, asset classification and capital adequacy began to be appreciated for the first time. What are known as non-performing assets or NPAs were segregated in the banks' accounts. And the state of the health of various banks in the country began to be assessed on the basis of the accumulation of NPAs and the efficacy of the systems designed by the banks to deal with them.
Coming back to the agriculture sector, one is rather disappointed that the government of India, has not suggested improvements to the 'Rythu Bandhu' scheme of Telangana State. Firstly, it is debatable whether such assistance should be extended across-the-board to all categories of farmers irrespective of the size of their holding and need for financial support. Surely there should be a case for restricting such largess to those most deserving and needy, in terms of their economic status. Likewise, would it not sound economic that the same amount of money, if used as a margin for leveraging institutional finance for funding infrastructure projects such as irrigation or power, would travel a much longer distance, in terms of enhancing production and productivity and indirectly improving the lot of the same beneficiaries together with many millions of others? What is more, the beneficiaries are usually landlords who have leased out their lands to tenant farmers, and do not share the assistance with the tenants, who resort to borrowing for agricultural operations. Apart from the consequent resentment, continued possession by tenants disinterested in the health of the land, leads to neglect of soil health and groundwater depletion.
It is painful to see cuts being imposed on deserving sectors on account of commitments elsewhere, such as the security concerns in Jammu and Kashmir, concerns largely traceable to the government's attitude and approach. After liberalisation, privatisation and globalisation in the 1990s, management of the country's economy has increasingly called for the ability to do things "differently" rather than doing "more" of what was done in the past and doing them "better". No such innovative approach is visible in the budget document.
One is also left wondering how much forethought went into the formulation of the budget and the manner of its presentation. The unusually sharp fall in stock prices following the presentation of the budget could not certainly have been intended.
This columnist has always opposed the "everything – everywhere – all- the -time – for –everyone" syndrome that unfortunately is a feature of most government exercises. This budget is one more instance that sharply brings out the wisdom of that principle. In a situation where deficit financing has become the order of the day, and the fiscal deficit is defying all attempts to keep it under control, one would expect the government to be selective and prudent in deciding where to employ the scarce resources at its disposal.
A certain amount of clear understanding of the options available and the priorities that need to be addressed first needs to inform the process of budget formulation. A cursory reading of the budget document, however, does not give the impression that any such distinction was made between things that can wait and those that cannot.
"Simplify, simplify, simplify…", said Thoreau. Much as one admires the Union Finance Minister for shunning onions in the interest of the country, one would also like to register a humble request that this be heeded, at least in terms of rationalising, demystifying and simplifying the tax and duty structures.
One can understand a weighty document as the Union Budget of the country making specific and individual references to items such as aircraft or motor vehicles. But, peanut butter, chewing gum, hair clippers, and water filters? Surely, there would appear to be some scope for rationalisation!
(The writer is former Chief Secretary, Government of Andhra Pradesh)