Wagles’s World – Analysing the Indian budget

Chidambaram does a Sachin Tendulkar Part 2, writes Sameer Wagle

P Chidambaram, India’s finance minister, presented the first full year budget of the Congress-party led coalition government on 28th February. The budget was widely awaited for it was expected to accelerate the process of ‘economic reforms with a human face’. Chidambaram certainly did not disappoint the markets which ended up 144 points on the day of the budget.

The budget is a decent one without any big pluses or minuses. Clearly there has been a much needed continuity in the economic reforms process while also meeting some of the government’s political commitments.

But the biggest disappointment has been the lack of a bold theme or vision behind the budget — the budget is very un-Chidambaram like. (prompting the title of this piece “ Chidambaram does a Sachin Tendulkar Part 2”)

Here’s the cricketing analogy again.

Sachin Tendulkar is one of the greatest batsman the world has ever seen and a sporting icon in India. Sachin started his career as a very attacking batsman – he was always ready to tear apart any bowling attack. His biggest strength was his ability to change the situation in a matter of minutes with his dazzling strokeplay.

However in the recent years Sachin Tendulkar ‘Part 2’ has become a shadow of his past self. Either because of injury or because of the pressure to create records, he has become more circumspect in batting, and less willing to play an aggressive shot which might cause him to get out. The result is a more technically correct and less risk taking Tendulkar – probably more pleasing to the coach but definitely less attractive (and probably less effective on the field).

Chidambaram in his earlier innings as finance minister was like the old Tendulkar — he had the flair to create, identify and build budgets around big ideas. At least giving the impression – that he had a “vision”. An example was his ‘dream budget’ in the late 1990s.

In this budget, however, he has played it safe – be it the Kelkar recommendations on tax being implemented in piecemeal basis or be it changes in FDI being hinted. His focus has been to preserve his wicket and not go for a big shot.

Did the current situation require this kind of approach – perhaps yes. But could he have achieved more – certainly. Chidambaram’s latest budget, like Tendulkar’s recent innings has been a story of opportunities lost.

The 2005 scoreboard
The positives are

  • Small enterprise sector reform continues : De-reservation of further 108 items from the SSI list
  • Banking reforms using the more politically acceptable RBI route
  • Capital market reforms – focus on bond markets & derivatives
  • Widening of the National Highway program. Increase from Rs 6500 Crores to Rs 9300 Crores – this is a wise move of putting more money in an area where the delivery system and “outcomes” are proven
  • Focus on Infrastructure – whether it is the SPV created for infrastructure projects or whether it is the rural electrification project (one distribution transformer in each village!)
  • Focus on Agriculture – Irrigation coverage to be increased, horticulture focus, diversification of crops.
  • Focus on issues within his control – It is a realistic budget with no announcement of grandiose unachievable targets or schemes. The revenue (revenue receipts 20% increase) and expenditure targets (plan exp 25%) also seem more realistic and achievable.

The negatives are:

  • Consolidation has been delayed – for the second time. If he cannot do it in a year when the economy is doing so well and no elections on the horizon how will he do it when either of these situations changes
  • The increase in social & healthcare spending is good – but where does all this money go ? Will monitoring by the planning commission really help plug the leakages ? By the same bureaucrats who used to run all these programs ? Time only will tell.
  • He said somewhere in his speech that the central theme of the budget was creation of jobs. But for that he has to move faster on labour reforms or creation of SEZs. There has been no mention of labour reforms. SEZs – we will have to wait and see if they can introduce the SEZ bill in the current parliament session
  • The tendency to Create task forces or committees continues – whether it is for the cooperative banks or for developing Mumbai as a financial centre the need of the hour is for action not thick reports. Surely by this time the government has enough analysis on all these matters available with the right recommendations.

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