Thursday, August 11th, 2022 14:12:37

The Union Budget 2013-14 In Pursuit Of Political Optimisation

Updated: March 16, 2013 12:55 pm

If budgets are elaborate policy statements, economic surveys are precise MRI of the economic mind of the government. But this year’s Economic Survey can at best be taken as a bad weather forecast which could hardly predict in which direction the policy prescription of the budget would go. In the introductory chapter of the survey, we see the signature statement of Raghu Ram Rajan where he lists the key objectives–reviving growth to provide job, shifting from consumption to investment-led growth and macro-economic stabilization to reduce inflation, fiscal deficit and current account deficit.

Except for a verbal balm by the Finance Minister P Chidambaram in his distinct style in the budget speech, no real efforts have been made to address the problem highlighted in the Economic Survey 2013. In the opening sentences of the budget speech, the FM says that he will make his speech simple and straightforward, but an analysis of economic figures and numbers speaks otherwise. He understandably begins with the global economic growth slowdown from 3.9 per cent in 2011 to 3.2 per cent in 2012 and attributed India’s slowdown to the global slowdown. However, I have argued in an article in an English weekly, Uday India (“India Growth Story: An Orthodox Narrative”, 02-03-2013) that India’s slowdown is majorly because of the internal factors, which are structural in nature. There is emerging evidence now that India has not been affected by the global slowdown to the extent the government has been claiming. Therefore, the 5 per cent prediction of the growth rate by the CSO and 5.5 per cent by the RBI should have been taken with great concern as all the indicators of the health of the economy like saving, investment and consumption were showing a danger mark, while the FM was fiercely defending that the downturn is over and the recovery is evident, the economy was gradually sinking in the deep blues.

The redundant debate on the current budget, whether it is populist or prudent, occupied the major space on the electronic and print media, while two crucial factors were completely ignored. One, in terms of policy and number, the current budget was completely out of sync with the 12th Five Year approach. The second factor is the structural problems that impaired the economic growth of the country.

The growth enthusiasts led by Montek Singh Ahluwalia wrote the rims of papers defending the inclusive growth, which gets one-sentence space in the budget speech of Chidambaram, where he defines the moolmantra as higher growth leading to inclusive and sustainable development. Except for this one sentence, the FM makes no efforts to translate the vision of the 12th Plan, which defines inclusiveness as lower incidence of poverty, improvement in health, universal education, better opportunities for wage employment, improvement in basic amenities (water, electricity, road and housing) and special attention SCs, STs and women. All these areas that were planning priorities received no attention in this allocated design. The budget is essentially and perhaps deliberately exclusionary in nature, and is therefore completely out of sync with the budget of the common man.

Anybody who does know basic economics would not believe the projected growth figures of the annual Economic Survey 2013, which is between 6.1 per cent and 6.7 per cent. Even the passionate expression of the FM that “growth is a necessary condition and we must unhesitatingly embrace growth as the highest goal. It is growth that will lead to inclusive development” induces no enthusiasm because the common man and the enterprise both know that the slowdown is broadly a self-inflicted pain, which the policy incoherence of the UPA has injected in the system in the last two years. More worrisome factor is that despite passionate verbosity on inclusiveness and growth, there is no road map, no architectural planning and no prescription on support.

Fiscal Deficit

With lot of talk on economic space consumption because of high fiscal deficit, no reliable methodical operation is visible in this budget. The promise of fiscal deficit of 5.3 per cent this year and 4.8 per cent in 2013-14 appears unrealistic. The conditions were so grave that the Prime Minister had to focus on the fiscal consolidation as a necessary condition for macro stability. Therefore, this credit rating oriented budget was forced to correct the master numbers to show a reduction in fiscal deficit. The foundation to calculate these numbers is shaky. The lower fiscal deficit is based on fairly optimistic assumptions that the revenue growth will be 19 per cent and disinvestment and telecom receipt will be fair. Major spending cuts are not evident. Therefore, at this early stage of analysis, there are legitimate doubts about the credibility of the fiscal consolidation. Knowing the fine crafting abilities of Chidambaram in terms of number, these doubts are realistic.


The budget is actually verbose because when the FM thanks to the hard working farmers of the country in his budget speech for their performance, he forgets the fact that even the input costs are not met in the support prices. To such a vital sector, it is insensitive that he mentions that the support price of every agricultural produce has been increased under the UPA government. This total disconnect with the prevailing reality of this sector is reflected in his budget allocations to this sector.

Hence, the budget is anti-farmer, anti-agriculture and thus would distort the entire rural economy. Agricultural investment has not been addressed. It is presumed that FDI will take care of everything. The allocation of Rs 27,049 crore to the Ministry of Agriculture, an increase of 22 per cent over the revised estimates of the current year is an eyewash because this comparison should have been done with budget estimates of the current year and increment of agriculture credits from 575,000 crore to 700,000 crore is a negligible increase.

Agriculture research, for which every rupee spent brings about 10 per cent of rural growth, gets 3415 crores, which is an insulting figure for a core sector. So much talk about the second Green Revolution and only 500 crore to start a programme of crop diversification–it shows that the FM has decided to neglect agriculture sector forever. The total outlay on agriculture and allied activities has fallen about 20 per cent in last 10 years and the government is talking about the Green Revolution, food security and poverty alleviation through accelerated agriculture. In this budget the farmers are worst hit segment because on the one side the cost of input and labour cost are increasing and on the other side, this sector does not get a compensatory hand.

Rising stalled projects and falling projects start

The recent Economic Survey gave one important suggestion for reviving the growth in terms of giving top priority to investment through infrastructure. There are emerging studies which show that investment in road and infrastructure is significantly correlated with the poverty alleviation. Rather than expenditure on the social welfare programmes, expenditure on roads brings about decline in poverty in a more effective way. In every way, the growth rate of economy is correlated with investment rate. Therefore, the strategy should have been to attract massive investment from both the domestic and foreign investors. No such attempts have been made in this budget. Against the 55,00,000 crore of infrastructure requirement under the 12th Plan, a meagre 60,000 crore to the infrastructure debt bonds and tax-free bonds have been mobilised. There is no hope for the infrastructure-induced growth in this budget as no major project seems to be getting the attention of the Finance Minister. The 3000-km of road project announcement along with constituting the regularity authority on road is an extremely insignificant step for the growth of the investment hungry infrastructure sector. The Cabinet Committee on Investment is the only response of the government on the stalled projects and the revival of investment in the economy, for which the nominal Economic Survey has made a strong case. On ground, we see no additional effective measures to boost new investment and to quicken the implementation of the projects (See Box 1.1).

Power, coal, oil and gas were the three sectors that required maximum attention. It is ironic that a strategic silence has been maintained on all these sectors. Except for inserting some detail on the policy review or on devising a PPP policy framework, no big idea appears for necessary structural reforms for these sectors on how the probable engineering will be done to fuel growth. It is shocking that para 70 on power is only having four and a half sentences. The budget is powerless for growth.


■              ++A budget without any hike in the common passenger fare

■              Indian Railway enters the one billion tonne select club joining Chinese, Russian and US Railways

■              Proposal for Corporate Safety Plan for the year 2014-2024.

■              Proposal to eliminate 10797 level crossings during the 12th Plan and no addition of new LCs to the IR system anymore

■              Introduction of Train Protection Warning System on Automatic Signalling Systems.

■              Four companies of women RPF personnel already set up and another 8 to be set up to strengthen the security of rail especially women passengers.

■              A new coach factory to be set up at Rae Bareli, and a Greenfield Mainline Electrical Multiple Units (MEMU) manufacturing facility at Bhilwara.

■              Green initiatives by encouraging more usage of agro-based and recycled paper and ban on use of plastic in catering and progressive extension of bio-toilets on trains.

■              Proposal to identify 104 important stations for immediate attention to all aspects related to cleanliness.

■              Provision for free Wi-Fi facilities on several trains.

■              Introduction of an ‘Anubhuti’ coach in few selected trains to provide excellent ambience and latest facilities and services.

■              Approximately170 escalators and 400 lifts at A-1 and other major stations to be installed to help the elderly and the handicapped

■              Attempt at curbing malpractices in reserved tickets including tatkal scheme.

■              The UID card ‘Aadhar’ to be used for various passenger and staff-related services.

■              67 new express trains to be introduced.

■              Proposal for setting up of Railway Tariff Regulatory Authority formulated and at inter-ministerial consultation stage.

Seizing the demographic dividend

Raghu Ram Rajan has written an elaborate piece including the detailed analysis of a macro phenomena–The Demographic Dividend. He raises expectation: “Policymakers are usually focused on short-run economic management issues. But the short run has to be a bridge to the long run. The central long-run question facing India is where will good jobs come from? Productive jobs are vital for growth. And a good job is the best form of inclusion. More than half our population depends on agriculture, but the experience of other countries suggests that the number of people dependent on agriculture will have to shrink if per capita incomes in agriculture are to go up substantially. While industry is creating jobs, too many such jobs are low productivity non-contractual jobs in the unorganised sector, offering low incomes, little protection, and no benefits. Service jobs are relatively high productivity, but employment growth in services has been slow in recent years. India’s challenge is to create the conditions for faster growth of productive jobs outside of agriculture, especially in organised manufacturing and in services, even while improving productivity in agriculture. The benefit of rising to the challenge is decades of strong inclusive growth.”

The budget figures dampen the expectation raised by the Economic Survey because the budget fails to address the challenge of the skill mismatch completely. Just 1000 crore for the “skill revolution” seems a cruel joke.

 Rail Budget



With the looming Lok Sabha polls, politics over Budget and Rail Budget is but natural. The Rail Budget may not be as encompassing as the General Budget, but the fact remains that the former also impacts everyone in the country some way or the other. The Rail Budget presented by Railway Minister Pawan Kumar Bansal, who is the first Congress minister in the Rail Bhawn after the gap of 17 years, has earned praise from the mentor and criticism by the Opposition. While Prime Minister Manmohan Singh has preferred to call it “a reformist and forward looking”, the BJP stalwarts like Yashwant Sinha and Gopinath Munde went to the extent of calling it ‘Rae Bareli Budget’. According to them, there is nothing for the four NDA-ruled states Gujarat, Maharashtra, Chhattisgarh and Bihar, in it. Samajwadi Party supremo Mulayam Singh Yadav has no complaints over the special treatment for Amethi-Rae Bareli, but he is at pains to note the maltreatment to his area of influence in UP- Etawah, Mainpuri, Etah, Kannauj belt. Every Rail Minister in the past has used rail for nourishment of his constituency and state— Mamata Banerjee, Nitish Kumar and Lalu Prasad in the recent past and before them both Madhavrao Scindia and Ghani Khan Chawdhary. But if Mulyam Singh is to be believed, the present Rail Minister has broken all the previous record by not nourishing his constituency, but by deliberately ignoring the non-Congress-ruled states and regions. What is, however, more glaring is that the UPA constituent like the NCP-led by Maharashtra satrap Sharad Pawar, is also extremely unhappy about the ‘neglect’ of his state in the budget.

A budget without any hike in the common passenger fares and proposal of starting 106 new trains in addition to lofty proposals for travel safety and comfort, including escalators at key stations, introduction of e-ticketing system and provision of a swanky coach in some trains, Railway Minister Pawan Kumar Bansal presented his maiden Railway Budget with the aim of appeasing the middle class on the eve of 2014 parliamentary poll.

Presenting the last Rail Budget for the present UPA regime, Bansal said there will be no major fare hikes this time, which has already been revised last month. Yet, he proposed minor revisions in tatkal service and reservations. He also called for a routine 5 to 6 per cent fare hike every year. This technique of devising new means of increasing the fares earlier and not in the budget is what Bihar Chief Minister Nitish Kumar himself in charge of the railways during the NDA regime has called it a “cleverness”. The Bihar chief minister described the Rail Budget as “disappointing” and claimed that while Congress-ruled states were given sops, other states including Bihar have been ignored. “No new train has been given to Bihar despite the fact that it has maximum number of train travelers in the country,” said he.

So far as freight is concerned, the Rail Minister said that there would be a hike of 5-6 per cent from April 1 to meet the challenge posed by the hike in fuel costs. What is important to note here is that Bansal has adopted fuel adjustment component introduced by former Trinamul Minister Dinesh Trivedi. The Rail Minister has indicated that it may lead to 5 per cent increase in freight tariff with effect from April 1, 2013.

The other important proposals in the Rail Budget include mechanisation of the remaining 13,000-odd unmanned level-crossings, deployment of 400 lifts and 179 escalators in category one stations, wheel-chair friendly coaches, a next-generation ticketing system by the end of 2013, a new e-ticketing system through mobile phones, SMS alerts for reservation status and free wi-fi on some trains, apart from setting a target of Rs1 trillion for projects under public-private partnership.

In his 75-minute speech interrupted by opposition benches amid slogan-shoutings, the Rail Minister said there were a number of supplementary charges remained unchanged for the last several years. Bansal, however, proposed to abolish the concept of enhanced reservation fee in order to simplify the fee structure, having already done away with the idea of development charge in January this year. But, the subsequent hike in diesel price and electricity charges put an additional burden of Rs 3,300 crore on the railways causing a loss of Rs 24,600 crore in the current financial year in passenger traffic segment. This was Rs 22,500 crore in 2011-12. Probably for the first time the proposal for setting up of Railway Tariff Regulatory Authority has been formulated and as the minister disclosed it was at the stage of inter-ministerial consultations. The Rail Budget also contains a number of concessions like complimentary passes to the national sports hero in elite trains. This includes the recipients of Rajiv Gandhi Khel Ratna and Dhyan Chand awards in First Class and 2nd AC and Olympic medalists and Dronacharya awardees in Rajdhani and Shatabdi trains.

On the whole, it is a budget made with the aim of attracting different sections of people constituting the middle class. It is believed that in country like India, the vibrant middle class helps mobilise electorate during elections. Whether it comes up to the expectation of the ruling party at the Centre in the forthcoming elections is not known, but it has already annoyed the opposition as well as its UPA partners at the Centre.

However, there are mix reactions to the Rail Budget. There are some who have termed it a ‘non-event’. According to Angel Broking chairman and managing director Dinesh Thakkar, “The Rail Budget is a non-event from the market perspective even though it is overall positive in its intent and future direction. The budget is devoid of any major populist measures and is focused on developing and improving railway infrastructure.” India Infoline vice-president for research Amar Ambani feels, “It seems like railway stocks see few near-term benefits, possibly given the financial constraints of railways and have shed any gains made in recent weeks.” Common man reactions are also mixed depending upon the kind of impact generated by the Rail Budget. Thus a journalist working in Delhi, Pracheta, was happy as his home town in the remote area of Bhagalpur, Bihar is now linked to Ranchi in Jharkhand through a new train. On the other hand, Vivekanand Singh, who was till recently actively involved in the academic projects of Patna-based AN Sinha Institute, said that in the last several years for the first time the annual Rail Budget did not offer anything to Bihar.

The sectoral picture that emerges across the country suggests several messages, which are highlighted in the National Economic Survey. The share of workers dependent on agriculture has been shrinking at a similar pace almost in all Asian countries. However, in India the pace of shrinkage would be higher in coming years. The problem is that while the industry is creating jobs, these jobs are low productivity jobs. High productivity service sector is not able to create employment commensurate with its growth so an imbalance is foreseeable. The National Economic Survey highlights that there will be a large number of jobs that are missing. The number of missing jobs will be as large as about 12 million. (See Table 2.1)

To respond to this challenge, two-pronged strategy is required. India needs more jobs. And India needs more productive jobs. Apparently, nothing has been done in the current budget to respond to these challenges. Eight and the half lines on the skill development contain nothing. No idea. No evident. No effort. How India intends to seize the demographic dividends is not clear at least from the budget document. Fragmented fund arrangements from here and there put a question mark on the skill of the Finance Minister to address such a massive challenge.

Box 1.1: Recent Investment Trends: A Case of Rising Stalled Projects and Falling Project Starts

Two trends in investments stand out—rising stalled projects and falling project starts. To study these, we use data from the Capex database of the Centre for Monitoring Indian Economy (CMIE), which tracks investments at a project-specific level.

Rising Stalled Projects: There has been a surge in projects where implementation has stalled. Both in value and volume terms, stalled projects have been rising since early 2009. As of December 2012, six sectors accounted for about 80 per cent of all stalled projects–electricity, roads, telecommunication services, steel, real estate, and mining.

Falling Project Starts: New investment projects have been drying up across sectors, partly as a consequence of rising stalled projects which reduce the ability of firms to start new ones. New projects of both private sector and government have been falling. Government projects peaked in March 2010 and private-sector projects peaked two quarters later. Ever since, privatesector investment levels have been lagging government investments by about six months.

Causes of slowdown: Several factors are believed to have caused the stalling of investments and drying up of new investment. A CMIE study1 shows that in 2011-12, 20 projects accounted for almost 70 per cent of total cost of shelved projects. An analysis of these 20 individual projects suggests difficulties in land acquisition, coal linkages, and mining bans as major causes. Analysis of other stalled projects suggests that policy issues such as in telecom spectrum allocations have also played a role. Several sectors such as consumer non-durables, which are less subject to the type of permissions described above and are more driven by demand conditions and GDP growth, are also seeing a slowdown in new investments. For example, there is a slowdown in new investments in manufacturing food and agro-based products. Lack of growth and slowdown in investment are feeding into each other, with causation flowing both ways. High interest rates have contributed to the depressed investment climate as well. However, given the stability in the repo rate between April and December 2012, the latest quarterly data suggest that interest costs of companies have moderated slightly.

Way forward: The government has taken some steps to kick-start investments. The Cabinet Committee on Investments (CCI) has been set up to fast-track projects more than Rs 1,000 crore. The Land Acquisition and Rehabilitation and Resettlement (LARR) Bill, which has been cleared by the Cabinet, could bring greater clarity, reduce uncertainty, and thereby aid investments. Investments by cash-rich public-sector units (PSU) have the potential of crowding-in the private sector. Progress on the Delhi-Mumbai Industrial Corridor has the potential of providing a fillip to the investment climate of the country. Policy rate cuts by the RBI and improving business sentiments could also support a revival in investments.

1 “Sharp Increase in Projects Shelved”, CMIE, May 2012

Tokenism, symbolism and fiscal fundamentalism

Financial fundamentalism has been camouflaged this tokenism to pursue political optimisation. Take the case of announcement of women’s bank or the Nibhaya Fund. Contributing 1000 crore for tokenism so that huge financial cuts from the social sectors, gender budget can be camouflaged. Many all women’s banks are already operating in Maharashtra and Gujarat in the co-operative sector so even for the sake of the idea, it was a stale idea. Tokenism does not empower. Symbolism does not improve gender equality unless the whole planning process is reinvented through a gender lens. That is a difficult job which requires sustained political commitment. If we analyse the gender budget figures of last few years, we would see that there is an inherent gender bias within the planning process. Obviously, Mr Chidambaram would not even touch the sensitive structural areas.

Talking of the structural reforms which include governance, administrative, judicial reforms, the budget is stubbornly silent on these aspects.

Food security, which was underlined by an additional allocation of 10,000 crore is only 5,000 crore more than the revised estimates. NREGA allocations remain constant and the allocations for SCs and STs sub-plans are considerably lower than what is constitutionally committed. No work to curb inflation but good amount of exercise to further reduce people’s purchasing power indicates that there is no recovery for aam aadmi.

The efforts to widen tax base are grossly missing, yet the unproductive surcharge culture flourishes. No concrete work has been done to incentivise through high real returns despite lots of cosmetic efforts on the financial sector. So the budget can be summed up in one sentence: Excellent crafting skills and no substance.

 By Jyoti Kiran

(The author is eminent economist and columnist)











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