Speech by Shri Rajeev Chandrasekhar, MP During the Debate in Parliament on Central Budget 2010-11

 

15 March, 2010

Sir, thank you for the opportunity to speak on the Central Budget 2010-11.

In the new post 2008 Global financial crisis world, few countries have the growth potential that India has! We have a relatively clean and efficient financial system, a confident and reasonably competitive private sector, a significant long term demand for infrastructure investments and services that remains huge and untapped, a demographic profile that points to at least 2 to 3 decades of strong growth of the consumption economy.

This is the background, this is the opportunity – and the reasons that India has the potential to be a real economic power house and use this economic power and growth to address rapidly the destitution and poverty that still afflicts a majority of our brothers and sisters.

So what ought to be the Government’s role given this – A government that seemingly has a broader mandate to effect some real change and also is, in their own words, unfettered by their former political partners, the Left - It is to create a framework and basket of policies and strategies that fully exploits this inherent potential of our country and do so over the next 4 years.

To this, there are a number of positives in this Budget that need highlighting – Hon’ble Finance Minister has articulated the 10% growth as his objective. For the first time in some years, the growth in expenses is lower than the growth in projected revenues – a critical element of bringing fiscal responsibility in our finances, The budget has also for the first time in several years increased outlay to Capex from 1.87% to 2.16% with a consequent decline in revenue expenditure. This is an important structural improvement in Government spending. After several years of increase of Debt service to GDP, interest payments as a percentage of GDP are shown to be declining this year. All very necessary and positive changes to the structure of the budget, it is left to be seen how many of these turn to be real – given all their dependence on revenue targets.

 

Sir, the challenges for the Finance Minister and the Government are quite obvious –

  1. Fiscal consolidation
  2. Potential slowdown through the coming tightening monetary policy and impact of an uncertain global environment on Investment flows which could be made worse by a double dip recession
  3. The strong inflation bias in our economy that has remained unattended to since mid 2006.

 

It is in this context that we should examine the Budget – shorn of the rhetoric and spin that nowadays usually accompanies this process – this Budget does not meet the test of setting a clearer direction for the next four years.  Yes, it does do a number of things like make more a credible roadmap to fiscal consolidation – as I have mentioned above. But unfortunately, there is no other big idea in this Budget or accompanying this Budget – which is critical to set the directional cue for the next four years.  Let me say something about the three challenges :

Firstly, fiscal discipline - Even in the area of fiscal consolidation, with the greatest respect Pranabda, unfortunately time will prove that you took the wrong turn at the fork. The process of fiscal consolidation and reforming subsidies should have and could have been done together, and indeed, represented a huge opportunity to restructure subsidies. If politically you have chosen to increase fuel prices, the correct and sustainable way to have done it would’ve been to allow the OMCs to increase pricing, reduce under-recoveries, and therefore, reduce the funding pressures on the Government, as the Kirit Parikh Committee report has suggested.  This fiscal jugglery - and unfortunately sir, this is what it is – does not address the liabilities and losses of OMCs and other Government linked companies – which given the sovereign nature of these companies, can never be allowed to default, and therefore, are Government liabilities. Pushing the debt and liabilities off the Government balance sheet and into OMC balance sheets will not pass the test for investors who closely view our economy.

The simple rule for fiscal management is the simple, common sense economics that millions of homes and businesses practise all over our country. Spending has to be aligned to revenues. Every rupee of the Rs. 11 lakh crores that will be spent this year, should be spent wisely. We cannot continue going on borrowing from the future to finance the present. With the proliferation of entitlements  and consequent profligate spending that has become the hallmark of this Government – it is clear that public spending will be under pressure to be increased year on year – That in itself isn’t a bad thing – as long as the spending is efficient and that there is accompanying and sustainable top line growth as well.  But this critical issue so important to our long term fiscal sustainability – of spending reforms and restructuring - finds very little mention in the Budget.

Secondly, the issue of economic growth.  As we all know our economic growth has been fuelled primarily by investment economy – which has created the consequent jobs and consumption economy. There is real risk around these investment flows – as is an opportunity. I hope that the Finance Minister focuses on this as a clear area of focus and concern. To boost our economic growth amidst a tightening credit cycle/policy by our Central bank, we need significant FDI flows into our economy and on a sustained basis. The Government must have a target of US$ 40-50 Billion of FDI this year if we are to continue this growth trend and move to a 10% growth trajectory, and the Finance Ministry must coordinate the public policy action of various economic ministries to align to this objective – and not have the current scene of each Ministry going at its own direction and pace.

Thirdly, Inflation bias in our economy not addressed. Sir, I have been saying for some years now including in this house that we are not addressing our inflation as a structural problem. This challenge of demand-supply mismatch led inflation was brought to the attention of the Government in 2006/2007 when inflation was first rearing its head. The solution should have been thought of then and we would have not been still discussing this today as if it was a brand new phenomenon. Any economy that’s been structurally aligned to high levels of growth needs to ensure that the supply side is managed, as is the growth. This is common sense economics and given the proliferation of economists and wise men that seem to speak on behalf of the government or consult with the Government, I find it surprising that there has been so little real action on this front, including in this Budget. Sir, platitudes and rhetoric are no solution to this form of structural inflation.

Sir, this is a transition year globally – This Budget is hopefully a transition Budget as Government address the many years of profligate spending and consolidates its fiscal situation. Sir, in this house I cautioned the Government in 2007, saying that it was not the time to be complacent and to believe that tomorrow will take care of itself.  I fear that the Government is getting complacent and falling into a comfort zone again – being taken in by statistics and numbers – that economists are famous for,  where growth numbers are replacing common sense and logic – almost a license to reform around the edges.  And this despite the promise in last year’s Presidential Address “The dreary sand of dead habit must be left behind”.

I hope and wish the Hon’ble Finance Minister him luck, but would also urge him to use his credibility and respect to get the many parts of the government that seem to have slipped into a comfort zone and/or private agendas to be kick-started. He needs to use his goodwill and respect to make this happen and not allow this year to be a year of lost opportunity.


Jai Hind.