Speech by Shri Rajeev Chandrasekhar, MP During the Debate in Parliament on Central Budget 2009-10

14 July, 2009

Elections are over, the people have spoken and the Government has been given a fresh and stronger mandate, and because of statements in the Presidential Address like “The dreary sand of dead habit must be left behind”, the expectations from this Government are high - as they should be. There is a lot to learn from the last five years on what we should do and what we shouldn’t do. For the UPA in terms of reforms, the last five years should be forgettable – the next five years can be and should be its legacy. 

It was clear to most of us that fiscally there was very little room for the Finance Minister to do more than what was already done in the Interim Budget. This Budget is clearly a wait-and-watch Budget with some additional fiscal support thrown in to try and reinforce the ambiguous signs of a recovery. So I call it a sensible Budget, because it has avoided the temptation to create a flourish at a higher fiscal cost and risk. 

But let’s be clear, we are in a sticky situation as far as the economy is concerned. The signs of growth at best can be described as tentative. There are some attempts in some quarters to spin the precarious fiscal situation as not serious since “even the US is operating a trillion Dollar fiscal deficit”. But with great respect to the spin masters, the US and Western economies have very different capacities to rebound and are architected very, very differently in so many ways. This argument is as credible as saying that just because a few companies can leverage their balance sheets and borrow large amounts – therefore all companies can! 

Our economy has for the last several years grown on the back of sustained investment flows (Equity, Credit) and a surging services/export sector, which has resulted in a downstream consumption economy that creates a further spiking of growth. Over the last several months and looking forward, it is safe to make some assumptions – Given the global credit crisis, Foreign Investment flows have moderated (FII flows from 33 billion to minus 11 billion) and will show little signs of reversing (except for the short term phenomenon of funds playing the arbitrage game between markets) – leaving the domestic sources of capital as prime driver of investments. Even assuming that liquidity in Indian credit and equity markets remain high, the problem is that, with the increasing fiscal deficit and increased borrowing needs of the Government, the chances of Private sector and investment requirements being crowded out by the Government’s own and Government-linked entities’ financing needs of Rs.4,60,000 crores in a total market of Rs.5 lakh crores, is very high. Simply put, the capacity of the domestic markets to finance the ambitious investment requirements of our economy are limited and if foreign investment flows don’t materialize and in significant numbers, the investment side of the equation of our economy will falter. China is using investments to pump-prime its domestic economy and brace itself against the global downturn. Given our fiscal situation, we will not be able to do this without significant external capital! 

Pressing this point further, if investment flows falter as they have in the last 8 months, then the economy could be vulnerable – given that the second leg of our economy (i.e. exports and services like IT, BPO) is weak because of its linkages to the global downturn and is already plateauing or declining (Manufactured exports are very hit!). 

It follows from this, that the derived consumption economy is also sputtering as is obvious from the results of the retail companies and retail sector in general! This sputtering so far has been gradual and not been sharp – which could either mean that things aren’t as bad or about to get worse! 

Given this background, I can understand the challenges for economic strategy and policy making for this Government and the partly self-made predicament it finds itself in –

a) It has a significant social spending program which it has to finance and
b) The economy needs a significant investment program to kick-start or pump-prime!
c) Both these objectives will compete for capital – increasingly limited to domestic banking and capital markets.

Indeed, it seems that the Government is changing course and ensuring a healthy dose of Government spend – primarily in the consumption side (NREGA etc) and some infrastructure (NHAI, Bharat Nirman) to pick up the slack here. But this is not the solution, nor is it sustainable, unless it is accompanied by strong spending efficiency measures! 

Knowing as we all do that the Finance Minister cannot compromise the Government’s spending programs, the policy measures and Government actions post the Budget will have to lay out bold, decisive, clear policy and administrative measures for the following critical objectives: 

a) Accelerate external capital flow and other sources of capital into the investment programs of the private and public sector (including Deepening Domestic debt markets, FDI, FII, ECBs)
b) Reform the Government’s own finances primarily by focusing on efficiency of Government spending, to ensure that Government requirements for its social programs don’t increase and cause more financing pressure!

This Budget should have been more explicit about this. This time around, the larger financial and economic strategies are more important than ever before. 

So to come back to the Budget – This is a high risk year for all of us. We are poised on a razor edge fiscally! There are question marks on the monsoon. The so called green shoots need be less patchy and imaginary and more even and credible. This is the year that will take the green shoots into a path of full economic revival or not. It is precisely for this that a directional signal for the next five years is critical – The Budget doesn’t do that, but to be fair, the Finance Minister has promised that Government and various ministries and ministers will roll this out - I hope this is done as pieces of a coherent picture – because the current efforts of a 100 day agenda of different ministries is anything but coherent. 

These next five years must not be – stop and go to quote Finance Minister, who I respect very much. It must be continuous, he has said. I agree. It must also be broad based and deep. Reforms must be three dimensional – Continuous along the time axis, broad based along the various sectors and areas, and deep into each of the sectors. Stealth reforms must be replaced with bold, decisive moves in the critical areas that are holding back our economy and its participants. Most world economists like Morgan Stanley’s Stephen Roach with experience of Asia, believe that India can outperform China. Not ‘will’ but ‘can’. 

There has been much talk for most part of the last 3 years, about a so-called inclusive growth architecture to drive our growth. The thing about using phrases like this is that they need describing and articulation. Every time I hear someone in the Government say that phrase, I look for some idea of what that means. Apart from profligate spending in a notoriously leaky pipeline, there’s not one thing that can be called architectural! 

Inclusive architecture is not a phrase to be used for speeches, it should provide answers to the specific questions facing us. Eg: 

1. How does the subsidy get delivered without leakages? What will be the targeted outcomes of these subsidies every year over the next 5 years?
2. What is the definition of Poverty? Who qualifies to be poor, and therefore, the recipient of Poverty alleviation programs - States are all using different criteria
3. How can we ensure Government is more responsive and accountable?
4. How can we ensure that public and Government policy is for the good of all people and not for one lobby or the other?
5. How can we ensure that PPPs don’t give disproportionate returns to only the Private sector, and public assets, like spectrum, oil / gas blocks, iron ore mines, are not given to private parties on less than market terms?
6. What is the realistic roadmap to fiscal consolidation?
7. What is the broad roadmap of growth?
8. What happens to the fiscal deficit?
9. Can we use better economic forecasting and monitoring techniques and indices – so that we are not caught napping again like last year?

I can suggest and outline the kind of reforms and public policy path the Government should follow through on. But there’s no need, because the Economic Survey is a good blueprint and architecture for the Government to implement. It’s the best Economic Survey that I have read in my years of reading this document and if the Government goes down the path of using that as the basis of its architecture, then I will be satisfied. 

Let me end by taking serious exception to the way the Government has handled the issue of One Rank One Pension demand for the veterans and retirees of the Armed forces. By not giving the officers the benefits and giving them only to PBORs, you are creating divisions in the structure of the armed forces and creating haves and have nots. This is a classic bureaucratic short sighted approach to handling institutions – which we will all come to regret many years later if we don’t fix it. Sir, I strongly urge you to reconsider this – don’t allow bureaucratic politics with this institutions. Many institutions have been diluted, corroded and often destroyed by this kind of short-sighted mishandling. These men and their families served the nation at a time when things were much more difficult and challenging than today in terms of environment and resources. These officers were responsible in allowing our armed forces to develop into an apolitical and professional institution that we can all be proud of – a fact that should not be underplayed – given the extent of politicisation of the forces in other nations in our neighbourhood. Let these people who have served this nation, get their proud due! Please don’t let a few bureaucrats and a few 100 crores come in the way of this. 

Thank you, Sir. Jai Hind