Tuesday, February 18, 2014

The FM’s successor is in trouble

BL Arunjaitley, 18  FEB 14
The UPA inherited an upbeat economy from the NDA and ran it to the ground
The Vote-on-Account in Parliament was a valiant effort to showcase a decade of the UPA’s disastrous performance on the economy front in an election year. It was an electoral imperative for the Finance Minister to repackage reality in terms of trumped up numbers. He claims that the trend growth rate during the period that the NDA was in power was below what the UPA has delivered in its two consecutive terms.
One understands the Finance Minister’s compulsion to weave a glossy narrative but there is no getting around the fact that Mr Chidambaram inherited an 8.5 per cent GDP growth rate and exits on a 4.5 per cent GDP growth rate.
Explanations have been offered on the basis of the global financial crisis. But we arrived on the scene in the wake of the Asian financial crisis and exited on a far more positive note than was expected. The growth rate never fell below 5 per cent.
In contrast, for the last three consecutive years of UPA rule, there has been a sharp fall in the growth rate from a near 9 per cent to less than 5 per cent. There is no getting away from the fact that Chidambaram inherited a buoyant economy and is leaving it in a less than healthy state.
Expenditure squeeze

Let us assess his performance with regard to his own target to bring the fiscal deficit down to 4.8 per cent. The claim that there has been a fiscal consolidation with the fiscal deficit pegged at 4.6 per cent of the GDP, below the estimated 4.8 per cent, is disingenuous.
He has achieved this apparently spectacular feat not through revenue buoyancy or by reviving the investment cycle.
Indeed, this reduction in fiscal deficit has been achieved by a severe reduction in expenditure, particularly capital expenditure. This is particularly galling in social sectors where the Congress likes to make tall claims.
The grants for creation of Capital Assets and Capital Expenditure has been cut down by as high as ₹91,000 crore. This alone would have impacted the GDP to the extent of 0.8 per cent.
Similarly, allocations to various ministries in the current year show wide difference between the Budget Estimates of 2013-14 and the Revised Estimates of 2013-14.
The grant to the Ministry of Drinking Water and Sanitation are cut down by 21. 3 per cent.
The grant to the Ministry of Health and Family Welfare is cut down by 20.6 per cent. The grant to the Housing and Urban Poverty Alleviation is cut down by 41.97 per cent, Ministry of Home Affairs by 31.3 per cent, Ministry of HRD by Six per cent, Ministry of Road Transport and Highways by 18.72 per cent and Ministry of Rural Development by 22.92 per cent.
These are departments and ministries which relate to the social sector and infrastructure. Only the Ministry of Finance grants have been increased by 18.3 per cent. Then the grants to the states have been cut down from the Budget Estimates of ₹1,36,254 crore to ₹1,19,039 crore — a reduction of 12.6 per cent.
This slowdown in the manufacturing sector remains a huge concern. This directly reflects on job creation. The excise duties in the current year, which were estimated to be ₹1,97,554 crore has now been revised to ₹1,79,538 crore — a reduction of 9.1 per cent.
Papering over problems

The Finance Minister has taken credit for the stellar performance of the agriculture sector but the real credit goes to states such as Gujarat, Madhya Pradesh and Chhattisgarh which have consistently given double digit growth rates in agriculture.
The subsidy outgo on food, fertiliser and fuel has been projected at ₹2,46,397 crore for 2014-15. Out of this, fuel subsidy is at ₹65,000 crore, fertiliser at ₹36,970 crore and food subsidy is at ₹1,15,000 crore.
The combined expenditures on all food schemes has been reduced from ₹1,24,844 crore in 2013-14 to ₹1,15,000 crore in 2014-15, representing a fall.
This is much below the expectations under the food security scheme which requires a much larger outlay.
The subsidies in fuel have been underestimated year after year. The Finance Minister has once again rolled over fuel subsidies worth ₹35,000 crore to the next fiscal.
This move is a mere statistical illusion to keep the fiscal deficit look optically correct while its inflationary impact on the economy remains real. The Finance Minister has again harped on the OROP, namely the one rank one pension scheme and transferred ₹500 crore to the Defence Pension Account. The UPA Government has been paying lip service to the cause of defence personnel.
In the earlier Budget in 2009-10, a committee was set up and its recommendations were promised to be implemented. But the grievances remained as the approach was half-baked. Again the Finance Minister has promised that this cause has been completely addressed in this Budget. There should be no attempt to play with the aspirations of our Armed Forces.
Even though the Vote-on-Account is only for a period of four months, there are serious concerns on the growth rate, real fiscal deficit, inflation, investment and the slowdown in the manufacturing sector.
The stability of the rupee is a matter of concern particularly because the rupee itself has reached unacceptably low levels.
To compensate for all these drawbacks, the Finance Minister had to lean back on larger slogans such as his ‘Idea of India’.
Obviously, in an ideologically pluralistic society, there can be more than one ‘Idea of India’. No one can usurp the title of a book and claim it only belongs to him.
The question to be asked then is — will the Finance Minister seriously introspect on the legacy he will leave behind for the next Finance Minister? The Finance Minister will be a relieved man today. His successor will be in trouble.
The writer is the leader of the Opposition in the Rajya Sabha

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