BUDGET CONUNDRUM

On March 16, India makes its tryst with yet another budget. B Day with
all its surrounding hype and hoopla is seen as the quick fix to
alleviate our endless woes. The hoi polloi’s constant and ever growing
litany of complaints and grouses will not be transformed at the end of
Pranab da’s speech. There is no metamorphosis or magic wand to change
the course of our lives. In many ways, the budget is a statement of
record, it details the income and expenditure plans of the government.

At best a balance sheet where some commodities, products and services
either get more expensive or cheaper since they are a function of a
hike or reduction in taxes. More importantly, with the UPA
Government’s singular focus on social security schemes so that the
message of financial inclusion actually takes shape at the bottom of
India’s vast pyramid being all pervasive, the rest of the budget
speech doesn’t hold too many surprises anyway. Constructive decision
making has to be taken out of the ambit of the budget. Decision making
to circumvent policy paralysis is a dire and crying need. From the
corporate to the common man, one and all want to see concrete ideation
and quicker roll out on the ground in terms of implementation.

This logjam primarily due to the lack of persuasive and cogent intent
on the part of the executive and bureaucracy to get things moving is
costing India. A classic case of tripping over a major policy
initiative was the fiasco over the entry of multi brand retail trade.
The government for a change showed that it had the gumption to bite
the bullet. As soon as the winter session opened, the Union Cabinet
rammed the new policy through. Alas the parliament was in session and
all hell broke loose.

The resistance to this decision was vehement as opposition parties
closed ranks against the ruling dispensation. In fact, UPA constituent
Trinamool Congress went ballistic on the decision and wanted a
rollback. It was a curious case of – what did we do wrong? Yes, simply
because now that the government had bitten the bullet and rolled out
big ticket reform, why was there so much hullabaloo? More like a cul
de sac, I guess. After all when the Government chooses to allow a
drift in policy, they are criticized by trenchant opposition. When
they do take the plunge, equally the treasury benches are at fault.

So, one step forward and three steps backwards as the parliamentary
whirligig found a decibel level which was uncomfortable for the ruling
party. Humbled, they had pull the plug on the multi brand retail
foreign direct investment issue. It was a resounding slap on the face
of this government. Let us go back in the Wellsian Time Machine for a
bit. In June 2010, once again the government decided to go for a dare
all bare all type of policy impetus. But, again it worked out as a
half way house since oil deregulation translated merely into petrol
pricing deregulation. A dangerous half way house, align petrol prices
with global crude prices, but refrain from taking a call on diesel,
LPG and kerosene pricing. Remember India runs on diesel, its entire
freight movement is on diesel wheels.

Ergo, diesel is an untouchable. Which allows people to exploit a
nearly Rs 26 differential between petrol and diesel prices. Car
manufacturers big and small have entered the diesel domain and the
entire business case for oil sector deregulation has been self
defeating. Oil companies are in the process losing money hand over
fist. Between April and December 2011, the under recoveries are a
humungous Rs 97313 crore. All told at the end of this financial year
ending March 31, 2011-12, they will be in the vicinity of Rs 140,000
crore in this high crude price environment. This is pretty much
bleeding the oil marketing companies, debilitating them to such an
extent that soon they will not be able to secure loans to buy crude to
refine.

Let us now come back to this budget and what it will showcase. The
first big number that anybody who understands economics and finance
will be looking out for will be the fiscal deficit number. This is a
biggie, all eyes are on this number. The number despite the FRBM Act
which mandates that this number needs to be scaled down year after
year progressively will be closer to 6 % of GDP against 4.6 % last
year. Throw in the debt that state governments have amassed and this
number grows in a hydra headed monster. Nearly 10 % of GDP, a scary
prospect for any finance minister. Now add the new fangled Food
Security Bill and the rising subsidy bill which includes food, oil and
fertilizer and you have a potent mix on hand. Nobody has a fix on the
new food security bill and what kind of allocations will be made for
the same. The subsidy bill hovers around Rs 120,000 crore presently,
add another Rs 30,000 crore for the new food security bill and the
spike in the fisc is a cause for concern. All this can shave off as
much as a percentage point from the already decelerating GDP growth
numbers.


WHAT IS HURTING THE GROWTH STORY

*India’s economy is stuck with 10 headaches – just when it looked like
a challenger to China as the world’s fastest growing economy.

*Food prices may have moderated, but global commodity prices,
especially crude oil prices are soaring.

*High commodity prices will knock up prices of most goods

*Industrial sluggishness owing to a spike in interest rates

*Export slowdown and weakening consumer demand are major concerns

*Overhang of Corruption scandals have hit political and bureaucratic
sentiment impacting business climate

*Recent Supreme Court judgment invalidating 2G licenses has rocked the
investment climate forcing a pull out from some of the foreign majors
who had set up shop

*There have been no major policy decisions in recent months because
policy-makers cannot agree on critical issues

*Spats between ministers and a parliamentary logjam have hurt governance

*Not many innovative policy decisions have been taken in recent months
to reach out to the poor, whose votes are vital for the Congress-led
UPA.

*Time and cost overruns have been a bane for India’s infrastructure projects.
•
*Coal and equipment shortages, bad weather and delays in government
clearances have resulted in major slippages in projects

*Investment remains concentrated heavily in favour of few states.

*Policy uncertainties loom ahead of the budget, threatening the
government’s aim to rein in its deficit

*Runaway prices have upset the government’s plans of implementing a
carefully calibrated exit plan of the fiscal stimulus package set in
motion during the world economic crisis.

*Recent results at the hustings will encourage Congress to resort to
greater populism in the budget.

-MAIL TODAY,14TH MARCH,2012