Click to play videoFinance Minister Pranab Mukherjee will present the Union Budget on July 6. With the Congress-led United Progressive Alliance (UPA) having come back to power securing a decisive mandate in the 15th Lok Sabha elections less than two months ago, the time is ripe for taking some tough reformist measures. But the Union Budget is not just about economy; it is also about politics.
The Union Government on Wednesday raised the prices of petrol and diesel but does the UPA, in its second term, have the will to take decisions that are unpopular with the public but good for the economy?
Face the Budget discussed the politics of Budget with Congress MP and Spokesperson Manish Tewari, senior Communist Party of India-Marxist leader Nilotpal Basu and Biju Janata Dal MP from Orissa Baijayant Jay Panda.
President Pratibha Patil in her address to Parliament did not mention anything about economic reform and even the government after assuming office has not spelt out its reforms agenda the way it has spelt out its social agenda.
Baijayant Jay Panda began the discussion blaming the UPA for not having a reformist agenda and for not putting the money where required.
"In the government's earlier term there was a slowdown on many fronts. One of the key short comings in our country is infrastructure. Compared to China, we are woefully behind in spending on infrastructure. When Biju Janata Dal was in the government at Centre a very large programme of national highways as well rural roads had started. A coastal highway from West Bengal to Tamil Nadu would change the face that part of the country," said Panda.
"There is a calling for government expenditure in infrastructure. The government has believed in raising taxes and borrowing but has not spent that money in a wise way. Government should have developed infrastructure that private sectors hasn't. But on the other hand, it has schemes like NREGA (National Rural Employment Guarantee Act) and two of Orissa districts are on top countrywide, yet the bureaucracy they face from the Centre in getting funds on time makes it difficult to implement the programme," said the Orissa MP.
The government has already taken a bold decision in raising prices of petrol and diesel but there is feeling that the UPA is not convinced about reforms and in pushing forward bolder measure like big-ticket disinvestments which could, many say, alleviate the staggering fiscal deficit.
Manish Tewari disagreed claiming that the UPA was very much in favour of reforms even though the world economy has been facing recession.
"Government's roadmap has been very clearly spelt out in the President's address. Disinvestment in public sector companies figures prominently in that agenda. We are in a situation of economic slowdown. This is the first time after Second World War that the global economy has contracted by 1.3 per cent. It is unprecedented and has never happened before. There is an impact on India also," said Tewari.
UPA has the Food Security Act, the NREGA and various poverty alleviation schemes. But how is the government going to pay for these schemes?
Tewari continued saying that disinvestment cannot be a panacea for all economic problems.
"I think fundamentally and conceptually there is a problem with disinvestment. If you are going to disinvest in companies and use that to fund you regular Budget. That is something that needs to be seriously debated even if we do decide to go down that way. Essentially disinvestment is about making companies in which you have disinvested profitable and not about diverting those resources. Disinvestment is definitely on the agenda. It is a tough balancing act when revenues are going down despite the fact that the last quarter industrial output is much better than what it was in the earlier quarter. Augmenting and funding social sector schemes is a challenge which the Finance Minister faces," said Tewari.
However, Nilotpal Basu blamed the Central Government for making life tough for the common man by taking steps like fuel price hike.
"The government has to shift its paradigm in favour of more government spending. It is being done all over the world. The government's approach is very deceptive on the social agenda. Two days before the budget they have an off-Budget exercise. I differ. It is not a bold step. There is negative inflation but food prices are soaring which is very burdensome for the aam aadmi on whose name the government has got its mandate. You have to go for improving you tax-GDP ratio in such a manner that you can fund some of these programmes," said Basu.
Panda quickly intervened saying, "The question is whether that is going to be adequate or not. Last year, when fuel prices were going up internationally the government held back for political reasons because it was the last year before elections. Now when fuel prices are much lower compared to last year, prices go up. This speaks about the attitude of the government in keeping administered prices in place for political purposes rather than allowing a greater role for market forces to have a play."
Tewari took exception to Panda's statements claiming that the UPA has never shied away from taking tough decisions.
"Let me take Jay Panda back to June 2008 when international crude prices were $140 per barrel and despite the election coming up, the UPA Government bit the bullet and raised prices of even kerosene and LPG. When prices came down, we reduced petrol price by Rs 10 and that of diesel by Rs 5. Now prices have again gone up from $40 a barrel to $70 a barrel, government has absorbed price hit in terms of kerosene and LPG and marginally raised the price of petrol and diesel. So where is the dichotomy that he is pointing to? Whether the administrative price mechanism should be dismantled needs to be discussed in detail," said Tewari.
The perception is that the Congress-led UPA won 2009 General Elections on NREGA and loan waiver. So there is no political incentive on the part of Congress and UPA to engage in economic reforms.
"There is a political constituency for reforms. If you go by the Margaret Thatcher experience she had a political constituency till she went too far. The problem with disinvestment is that the moment disinvestment transforms itself into crony capitalism, the problem starts. That is what happened during the NDA (Bharatiya Janata Party-led National Democratic Alliance) regime. Valuation benchmark of public companies because they have been built by taxpayers' money need to be very transparent and absolutely above board," said Tewari.
Fiscal deficit is 11 per cent of GDP and just 10 to 15 per cent of disinvestment in Coal India or LIC can give the government Rs 60,000 crore to Rs 80,000 crore.
Tewari once again claimed that disinvestment should be done judiciously.
"So it means that every year we sell off a part of a public sector company in order to fund fiscal deficit. I don't think that is a very prudent way of running the nation's finances. It is not a question of control. The better thing would be what Nilotpal suggested and UPA did in the last five years. Increase your tax to GDP ration, be more stringent about tax compliance and broad base you tax network," he said.
Basu continued blaming the UPA for following anti-people policies.
PAG_BREAK
"The reasons for financial meltdown were the premise on which the Left had differences with the UPA. There is a complete rallying around of corporate India behind the Congress. So I think there is a conflict of interest or conflict of compulsions that is creating this problem. On one hand there is talk about social sector programmes but at the same time when it comes to raising resources, there is greater emphasis on off-budget and anti-people moves like oil price hike," said Basu.
Panda went back to Tewari's statement about the NDA regime of which the BJD was a part of.
"I want to point out to Manish Tewari that crony capitalism is not limited to certain governments. This government has plenty of allegations. There are many accounts that corruption has reached legendary levels. I actually agree with Manish Tewari on certain aspects, which is that reform agenda need not be anti-people and need not be bad politics. Navin Patnaik has led BJD to its third term and our government has been extremely reformist but it has been sensibly reformist. Orissa has had investments worth Rs 85,000 crore in the last few years which is much more that what took place in the last 50 years. There have been some problems with a few projects but vast majority of projects have gone on stream. The question is not that there is no value in reforms. The question is the ability to sell it to the people and carry them with you," he said.
Government has sold NREGA, loan waiver and has the Food Security Act but does it know how to sell reforms to the people?
"UPA government has a five-year mandate. It does not have a six-month or 12-month mandate. Therefore wait and see what the Finance Minister has in that legendary bag before damning the Congress of not having a particular agenda," said Tewari concluding the debate.
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