Thank you, Sir. I rise to speak on the Budget 2013-14. The Economic Survey 2012 had predicted that the Indian economy would register growth of around 7.6 per cent, plus or minus 0.25 per cent, in 2012-13. But now, the economy is expected to register a growth rate of 5.0 per cent in 2012-13.
According to economic Survey, Growth rate in Agriculture, forestry and fishing has declined from 5.1% in the year 2005-06 to 1.8% in the 2012-13. Mining and Quarrying from 1.3% in the year 2005-06 to 0.4% in the year 2012-13, Manufacturing from 10.1% in the year 2005-06 to 1.9% in the year 2012-13, Construction from 12.8% in 2005-06 to 5.9% in the year 2012-13, Trade, Hotels, and restaurants, transport and communication from 12.0% in 2005-06 to 5.2% Service. The Growth Rate has declined significantly in almost all sectors during the period from 2005-06 to 2012-13. As a result, our GDP has declined from 9.3% in the year 07-08 to 5.0 in the year 2012-13. Fiscal Deficit increased from 2.5% in 07-08 to 5.01% in 2012-13. Capital formation also declined from 38.1% 2007-08 to 35.0% 2011-12.
Sir, the allocation in case of education, health and woman and child development in respect of the UPA II has decreased from UPA 1 . I would just give you data, in education it was 25.7 %, now in UPA II it is 21.7% . In health it was 19% now in UPA II it is 16.2% . In case of woman and child development it was 28.9 % now it is 25.4 %. There is inadequacy of the Budgetary hike for education sector. 25.7 %, now in UPA II it is 21.7% . The Education Minister informed press recently that a very little amount has been allocated to Education Ministry, and he will make a request to Finance to increase. Nothing has been done.
The Economic Survey also indicates that, the economy has slowed down due to euro crisis, uncertainty in fiscal policy in the United States and weak monsoon. Revenues did not keep pace with spending, the fiscal deficit threatened to breach the target, saving falls and private saving also shrinks. Current account deficit also increased.
Sir, if we take the issue of Infrastructure projects, they are unable to complete due to inconsistent Govt. policies thus resulting huge PSU banks exposure and becoming NPA’s.
While world-wide infrastructure financing is on long term basis, we have no Policy regarding Long Term Low Cost initiatives. Not only this, Sir, we have no proper gestation period methodology and combined with improper finance planning which is affecting Thermal / Gas based / Hydel Projects and they are all languishing
In AP alone, I am told, 6000MW equivalent power plants capacity is completed but due to environmental clearance (once given) are kept idle and this amounts to Rs.30,000 Cr of Banks’ Money which is completely stuck.
No proper Coal Linkages/non fuel supplies resulting in power plants being non-starters are posing a major setback to the whole Country, while Petroleum as well as Gas allocations which are not planned are affecting our foreign exchange outflow.
Sir, This kind of inconsistent approach towards the Industry will have serious ramifications on industries too, be it large, medium or small, and they are all not running beyond 30% of their capacity due to the lack of working capital or power cuts as all this is cyclical.
This would lead to people’s unrest because most employees will eventually default in either housing loans or personal loans which eventually will affect the Country’s ratings.
Sir, regarding Agriculture, this sector is constantly suffering either due to lack of fertilizers or lack of power or no proper financing. In fact no Indian farmer wants any dole as he is a respectable person . Our economy is pushing him to live on doles. Govt can give them a level playing field by supporting proper timely fertilizers, power, warehousing facilities and cold storage centers.
Sir, our farmers in Andhra Pradesh are going on Crop Holidays which was unheard in the past. Why is there no planning to address such issues when we are largely dependant on agriculture? Is there no responsibility to take care of farmer issues? I am sure though this Budget did not mention, at an appropriate time this Government will resort to some quick fix method in this election year to give a Loan Waiver scheme in order to draw votes as well as help middle men as seen by the recent CAG’s report on the earlier loan waiver scheme.
In order to accelerate the growth rate, all the major sectors, Agriculture, Industry and services, have to perform well. India has 1799000 square kms. of Agricultural Land. China has lesser agriculture land area than India and still it produces more agro products than India. Productivity per acre is much more there than in India. I would like to know from the Hon’ble Finance Minister what Government has in mind to increase productivity in agriculture.
Sir, in my Budget speech of last year in this House you may please recall that I have mentioned the way our economy is going and the way industries are going to their banks for Corporate Debt Re-structuring and unless this is not corrected it would hit the healthy banks which have played such a vital role in nation building. They are likely to land on the sick bed which may warrant a Special Banks Restructuring Cell. This will pull our Country’s rating further down.
Sir, the problem is, there is total paralysis of the Govt. in terms of inter – Ministerial relationship, be it in fiscal issues or even internal law enforcement issues. There is total chaos in between Ministries. I had on several occasions cautioned that the way our economy is being neglected there would be very soon large scale NPA’s and as the Manufacturing sector is already down. Very soon joblessness will rise and would Impact inflation. Our Imports and exports amounts to 44% of GDP and capital inflow and outflow represent 108 % of GDP.
Sir, Today we are discussing the most important issue, i.e. Finance of the Country and continuous slow down of the economy for the two/three years, which the Hon’ble Prime Minister has also accepted. I would like to know from Hon’ble Finance Minister, what concrete steps are being conceived to move up our economy and to contain inflation. Every Budget time, the Government takes the international crisis as the reason for the slowdown of the economy. International crisis was there in 2008. But in the year 2008-09 our economy was completely insulated. Why our economy today is so badly affected and why is the Government takes the reason of the crisis to the American crisis. India is a big country; we have a big domestic market. We should explore the possibilities to boost domestic market. There is a huge potential for the domestic consumption and market. I wish, the Hon’ble Finance Minister, would tell us what plans this Govt has for this.
Unless India undertakes reforms, our economic growth will be far below potential. At this hour, there is a need to be innovative in terms of policy. But our Government have failed to spell the innovation in the policies in the Budget.
Sir, regarding my State of Andhra Pradesh which was one of the most flourishing States and several years back and was being compared to California / Singapore etc. The State which gave the best talent to the Software world and created so many jobs is today in total backwardness. This Budget has nothing to provide for issues like Power as am sure that many industries would be closing down while many more will become NPA’s. Both Govts in Centre as well as the State are same but apathy been shown in such a way that the state is totally neglected.
Earlier we were told that we are a de-coupled economy and hence insulated. Does it now mean that are we now re-coupled economy?
Sir, this Budget has no direction. This Budget has failed to fulfil the dreams of the people of the country. With this, I conclude. Thank you, Sir. (Ends)
DR. ASHOK S. GANGULY (NOMINATED) :
The Finance Minister presented the 2013-2014 Union Budget against a backdrop of a decelerating economy, an endemic fiscal deficit, the spectre of downgrades from rating agencies, general elections in 2014 and an embattled global economy. It was a time for “prudence, restraint and patience”, said Mr. P. Chidambaram, and delivered a Budget focused on long-term revival of the economy rather than short-term triggers or radical moves.
Low on populist measures, this Budget aims to provide concrete outcomes in the form of faster growth and lower inflation. Given that the specifics demanded by the macroeconomic scenario include taming the fiscal deficit and spurring investment and saving, the fiscal discipline mooted by this Budget is arguably its biggest positive.
The Finance Minister has reduced the fiscal deficit for this year to 5.2% of GDP, against the expected 5.8% in 2012. Moreover, he has committed to a fiscal deficit of 4.8% in the next year. Prioritization of expenditure and widening of the tax base would be crucial in reducing the risks to this fiscal marksmanship.
THE CRIPPLING CURRENT ACCOUNT DEFICIT, THE FOREIGN INVESTMENT IMPERATIVE AND THE NECESSITY OF CURBS ON GOLD IMPORTS
Oil and gold are the largest components of the import bill and largely responsible for the current account deficit (CAD) becoming the Indian economy’s greatest worry. India imports over 70% of its crude requirement, which is essentially non-negotiable given soaring energy and transportation needs.
What is inexplicable however, is that despite the Economic Survey clearly stating that gold buying was actually fuelling India’s CAD, gold imports – rising from around 0.5% of GDP till FY08 to 2.5% in FY12, have been rewarded with a higher duty-free allowance. Even a temporary sharp increase in customs and excise duty on gold would have added to revenue and diverted savings from an unproductive asset to financial assets.
The rising demand for gold is a symptom of more fundamental problems in the economy. The overarching motive underlying the gold rush is high inflation and the lack of financial instruments available to the average citizen, especially in the rural areas. A series of small measures with reference to the financial sector like reduction in securities transaction tax (STT), clarity on the securitization guidelines, and tax treatment on alternate assets are small steps in the right direction in encouraging savings away from gold and into financial assets.
The Finance Minister also unequivocally affirmed the imperative for foreign investment to mitigate the CAD and safeguard India’s sovereign credit rating. While the clarity emerging from adoption of the Shome Committee recommendations is welcome, the acid test for foreign investors would be how the policy provisions – the tax residency certificate (TRC), the tax rate of royalty and fees for technical services (FTS), the distribution tax on buyback of unlisted shares, the tax on direct transfers – are enforced.
WIDENING OF THE TAX BASE REMAINS CRUCIAL
Compared to a 10 year (FY03-13) average growth rate of 17%, Budget 2013-14 assumes a 19% growth in gross tax revenue, led by a 36% increase in service tax collection and a 20% increase in income tax with more modest increases in corporation tax (17%) and excise duties (15%). The tax growth assumptions – based on the assumption of a nominal GDP growth rate of about 13% evenly contributed by real GDP growth rate and inflation – appear optimistic given that GDP growth rates this year have been 5% to 4% with Q3 even lower at 4.6%.
There must be between 500,000 and 1,000,000 with annual income of more than rupees one crore a year. It is not clear what efforts are being made to correct this significant source of tax avoidance.
It is widely known that, at least in big cities, the bulk of the real estate transactions are carried out in cash and is a major source of money laundering.
The crucial Goods and Services Tax (GST) rollout has been commissioned in an effective way through the drafting of the Constitution Bill by the state Finance Ministers. Though imperfect, it will hopefully be implemented in 2013.
Despite the increase in the surcharge for high-net-worth individuals and certain companies, stemming from the compulsion to increase revenues, the tax slabs in India remain lower than in many advanced economies. However, efforts to widen the tax base remain more crucial. The proposed commission on tax administration – necessary to raise revenues without having to raise tax rates – is important in light of the realization that our tax administration is antiquated.
After reaching a peak of 11.9% in 2007-08, the tax-GDP ratio declined to 9.6% in 2009-10 and improved only marginally to 9.9% in 2011-12. Raising the tax-GDP ratio to above 11% is crucial to sustaining the process of fiscal consolidation in the long run.
DELIVERING ON PRO-INVESTMENT INITIATIVES IN INFRASTRUCTURE A strong multiplier effect on the economy is possible with the big boost to infrastructure development in Budget 2013-14 through long-term infrastructure debt funds, the enhanced limit for tax-free bonds to Rs.50,000 crores, an investment allowance for manufacturing companies which would encourage asset creation, support for innovative financing for infrastructure projects, the extension of benefits under Section 80-1 A for power projects by a year, the commitment to award 3,000 km of road projects in the first half of 2013-14, with a regulatory authority for the road sector, new industrial corridors and a bigger role to private firms in coal.
The recent announcement of the establishment of the apex Cabinet Committee on Investment is most welcome and will hopefully expedite revival of investment in major FDI projects and infrastructure projects.
A greater growth orientation is possible with higher involvement of the private sector. The Government envisages the private sector contributing half of the $1 trillion needed for infrastructure development in the 12th Plan. There are, however, “miles to go” before this can happen. The cumbersome, and unpredictable process of approvals from various authorities, particularly in the states, which complicates funding and loan repayment, needs to be simplified. As must the hurdles in acquiring land and securing environmental clearances and the political hurdles in charging appropriate political tariffs after investing thousands of crores on infrastructure projects. Budget 2013-14 has been pragmatic in balancing the need to reduce the fiscal deficit and the need to attain social, political and growth objectives. Political will is, however, just one element of the framework required to improve the investment climate and revive growth. Improved governance through proactive consensus is the pivotal link for actioning the legislative and political agenda.
SHRI RAJEEV CHANDRASEKHAR (KARNATAKA):
That our economy is facing challenging times is the politically non-alarmist way of describing our current situation.
Judged on virtually every macroeconomic parameter, the parallels between today and the crisis period of 1990-91 are striking. At 4.8% of GDP, in fact, the current account deficit is at a historical high, much higher than the 3% it recorded during the 1990-91 crisis. Likewise, as former CEA Virmani points out, the growth rate of GDP at constant market prices is at 3.3%, only slightly better than it was at the height of the earlier crisis. And another red light that’s flashing is high inflation rate – particularly the 9% average rise in GDP deflator for private consumption.
To quote a recent article - “India has become a low growth-high inflation economy (officials remain in denial), and the macro healing will be protracted and uneven.” Dharmakriti Joshi, Chief Economist, CRISIL Ltd, said, in a recent article in Business Standard dated 04 July, 2012 – “Growth slipping to 5.3% in a developing economy is as worrisome as stagnation or near-zero per cent growth in advanced countries. India needs to grow faster on a sustained basis.” Further, that “If the current low growth-high inflation environment continues, incomes will not rise fast enough, while inflation will continue to erode the purchasing power of consumers, particularly those whose wages are not indexed to inlation.” Sir, so let us not underestimate the challenges facing us and effort required to get our economy growing again.
Before I say anything further, I want to bring to your attention the need to harmonize the way various people in Government are talking about our economy.
C. Rangarajan, Chairman, Prime Minister’s Economic Advisory Council (PMEAC), stated in an event in Chennai, on 01 February, 2013 – “Actions of Government have started showing change in bid sentiment. 2013-14 is expected to be better than 2012-13 and we need to get back to 8-9% growth rate.” Later in February 2013, he then wrote – “It is pertinent to note that stagflationary tendencies have already reared their head in emerging markets, like India, where financial intermediation was never a problem.” Similar bullishness from the Deputy Chairman of Planning commission who has - in my research team’s count - on over 11 occasions since 2010, predicted that Food Inflation will ‘soon’ be brought under control and almost everyday trots out rosy predictions of the Economy. In February last year, he predicted blithely that in 2013-2014, the economy would grow at 7% and we would ‘soon’ be back to 9%.
We also have a recent admission by the Hon’ble Prime Minister on 13 March, that he expected the economy to get back to a “robust growth path” only in two or three years, and on 14th March, by the Chief Economic Advisor, Raghuram Rajan that “Indian Economy is not facing stagflation, and that growth is picking up.” Sir, before I focus on the real challenges and solutions to get us out of the current near stagflation – let me make an earnest and sincere request. There are too many people talking all over the place about our economy. I wouldn’t mind this if they were not all contradicting each other and confusing participants in our economy. This is increasingly helping the perception that there is a lot of shooting in the dark going on in terms of our economic strategy, rather than a smart, coherent, well-thought-through medium term plan.
I am no economist, but as someone who has been an entrepreneur and understands the difficulties of persuading long term investors to put capital into India, I can tell you this – this kind of confused messaging will not help your cause in boosting investor confidence and substantially increasing capital flows.
Sir, I have had the privilege of speaking on every Budget discussion since I was first elected to this august House in 2006, and if you go through my speeches, I have consistently tried to draw your attention to the dangers of hubris and the consequent lack of focus on the real Governance issues.
But being an Independent MP, whilst it has some advantages, has the disadvantage of being easily ignored. But for what it’s worth, I have been right on almost all my economic predictions.
I said way back in 2008 in this House, that our Inflation trends are all to do with capacity constraints and that the Government must focus on boosting investments, and not just consumption. This year’s Economic Survey confirms that the economic stimulus package of 2008 - whilst necessary - was flawed in its design and short term in its focus – maybe because of the elections around the corner in 2009.
In his column in Business Standard dated 04 July, 2012, Dharmakriti Joshi of CRISIL had also said “Growth has been suffering owing to sagging investment sentiment, tardy decision-making and global headwinds.” I have repeatedly said that unless you address the core structural concerns about Investors, i.e., Governance and regulatory reforms – our economy will not see the large FDI capital flows that we need, and will continue to be plagued by and dependent on FII flows to fund our Current Account. Ignoring this real reforms and focusing instead on reforms as defined by FDI limits and road shows and rhetoric, has caused the chickens to come to roost. As Dr. Rangarajan wrote recently, “The first lesson to be derived from the policy response to the current crisis in advanced economies is that while monetary policy is a powerful macroeconomic tool for stabilizing business cycles, it cannot revive growth by sweeping structural problems under the carpet”. The Deputy Chairman of the Planning Commission said in January 2012 - “I think there is a very good chance that in next 20 years you will see the Indian Economygrow somewhere between 8-9 per cent per year”, and in March 2013 this year, predicted that growth will be 7-8% in next four to five years. First, let’s accept that misguided, blithe, over the top and baseless optimism in Government don’t make for a good formula for economic recovery of any sort as long as there is excessive pessimism in Industry and investors – least of all, a sustainable one over a medium term which is what we need if we are to effectively address our issues of poverty and deprivation.
Rangarajan says - “India may need to cool consumption and clear supply side bottlenecks by switching public expenditure from subsidies to more of investment. This would help growth and lower inflation over the medium term.” So sir, while this Government has one more year to go, let’s focus on what is really needed to be done i.e. Boost investments and make our Economy more efficient.
Steps for Boosting Investments These are not just red-tape issues, but rather a deep structural set of reforms required to address squarely the issue of Governance risks and public policy quality:
1. Address the issue of increasing concentration of risk in the banking sector – where 10-11 corporate sector borrowings account for almost 95% of the net worth of the Indian Banking sector. This is unprecedented and far worse than any comparable emerging economy.
2. Cease the practice of using taxpayer money to recapitalize PSU banks repeatedly. It is resulting in inefficient and unaccountable banks and creating a culture of complacency and dependence on taxpayer funds. Strict norms for proportionate asset creations and increases in return of equity should be used as hurdles for additional capital from Government – at a time of scarce capital.
3. The country has crores of rupees locked up in incomplete projects – that are effectively an unproductive waste of capital. These incomplete projects have gone from Rs.10,000 Crores in 1999 to Rs. 7,95,000 Crores currently. This is an unacceptable and terrible waste of capital – locked up as it is without creating any economic activity. The Government must put together an interministerial group or a committee focused on working the details of each of these projects, and unlock the many crores of rupees invested and bring them into economic activity. This will have a seriously positive impact on many, many projects that are waiting to contribute to the economy.
4. There is a need to relook at our disinvestment policy – whether this trickle, handful of shares being sold in adverse market conditions is resulting in true returns to the shareholders, i.e., citizens of the country. If we are serious about disinvestment, then we must examine the options that maximixe returns to the nation, and not just look at the least politically controversial options. A 'reluctance' to have a real revenue realization plan for public assets is not in the best interest of the nation.
5. Strengthening our institutions of governance:
a) Improving the delivery efficiency of the Executive
b) Capacity building in regulatory bodies
6. The problems of Governance arise from the issue of “unfettered administrative discretion” – in dealing with Public Assets and doling our Government contracts and spending with very little oversight and failure / compromise of institutions like independent regulators – leading to repeated instances of public policy and regulatory capture by vested interests.
7. The Government should usher in a Value-for-money culture – to reinforce that Government is only a trustee of public money and assets. The spending of this money and handling of public assets must always pass the test of national interest.
8. Four point strategy for introducing a culture of fiscal responsibility and value for public money within the Government:
a) Statutory disclosures by all Government departments on commercial decisions.
b) More effective oversight by the Finance Ministry on all decisions related to spending, contracts and public assets.
c) Increased use of technology for ensuring better disclosure and expenditure management. Specially, the TAGUP’s recommendations of an Expenditure Information System should be implemented.
d) A relook at the Independent Regulatory institutions.
9. Focus on reforms of the Independent regulatory framework to ensure long term public policy stability and consistency. A comprehensive review and amendments of laws and creating more independence and development of a new cadre of regulators – that are distinguished by their independence, integrity and competence. Strengthen CCI to ensure that monopolies or cartels are not created in Indian economy either foreign or domestic. Implement the ARC recommendations in this regard.
10. Need for a comprehensive and transparent policy for monetization of public assets like spectrum, mines, oil blocks etc. – to ensure benefit to the exchequer and the citizens, and avoid lopsided PPP deals in the favour of the private investor.
11. The primary area of consensus that needs to be created is around the declining state and state institutional capacity. While the last several years have been years of economic reforms, the next decade must urgently focus on undertaking governance and state institutional reforms.
After straying away from FRBM, which will go down in history as a big mistake, claims of fiscal prudence will always been seen with a 'wait and watch' attitude - because the Government’s track record in financial terms has been absent of credibility - be it inflation management or spending or growth. But this kind of profligate spending is no longer an academic issue, it is dangerously putting at risk the future direction and options for the country. If there is any doubt of the consequences of profligate spending by Governments, examples of southern Europe countries that, for many years, fostered a social spending/welfare state funding by borrowings and fiscal recklessness, should serve as cautionary lessons to us. And as Dr Rangarajan has himself written “But quite apart from following a contra-cyclical fiscal policy, another object lesson from advanced countries is that generis social compacts are difficult to renegotiate. It is, therefore, imprudent to put in place generous compacts that are affordable when societies are young and trend growth is high, but become unaffordable as society ages and growth moderates.”
Sir, the Finance Minister, in a recent Consultative Committee meeting, referred to my views as cynicism. But sir, you need a few like me to counter this self serving, and sometimes delusional rheoteric of a preordained destiny of an economic superpower headlines. In my last Budget speech, I had quoted Andy Grove of Intel, where I worked several years – “Only the paranoid survive”. So yes, we can meet our destiny of being an economic superpower, but only working hard and in a determined, disciplined, efficient way and implementing real structural changes in Governance and not through sloganeering and profligacy.