SK/1A/11. 00 The House met at eleven of the clock, mr. Chairman in the Chair. OBITUARY REFERENCE mr. Chairman


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(Ends)


SHRI N K SINGH (BIHAR):

Mr. Vice-Chairman, Sir, I rise to speak on the Budget (General) 2013-14 and the Appropriation (Vote on Account) Bill, 2013, the Appropriation Bill, 2013, and the Appropriation (No. 2) Bill, 2013, as passed by Lok Sabha, and moved by the Hon’ble Finance Minister in the Rajya Sabha on March 18, 2013.
The exercise of Budgeting is an act of intrigue – working numerical improbabilities and keeping the other side guessing as they conceal more than they reveal, much like the game of shatranj. This game can become an obsession, much like the players of the shatranj in the 70s classic movie Shatranj ke Khiladi by Satyajit Ray, based on Munshi Premchand's short story. I understand that all Finance Ministers have a compulsion to present an optimistic picture, but in this Budget, the Finance Minister has not only been the pasha, he has pulled off the magic of a gogia pasha.
The GDP is a magician’s trick much-loved by Finance Ministers all over the world – an optimistic GDP assumption makes all numbers look robust when calculated as a proportion of it. This is especially the case with deficit numbers, which look respectable because the denominator has been somewhat optimistic. However, an unrealistic diagnosis and remedy of the macro-economic situation can lead to problems festering go beyond any policy correctives. As I say this, I am reminded of philosopher Machiavelli who thought somewhat similar in matters of state-craft, who said, “Physicians say of consumption, that in the early stages of this disease it is easy to cure but difficult to diagnose; whereas later on, if it has not been recognized and treated at the beginning, it becomes easy to diagnose and difficult to cure. The same thing happens in affairs of State.” 
So, let me raise some pertinent issues relating to the Budget arithmetic.
Credibility of economic forecasts
The CSO advance estimates for national income for 2012-13 indicate the growth rate of Real GDP at factor cost o be 5%. This is sharply lower than the 7.6% growth projection made by the Government in the Budget presented for 2012-13. Likewise, in the Budget for 2011-12, the Government had predicted 9% growth for 2011-12, whereas the result was 6.2%. A gap of approximately 2.5-3% between economic forecasts and the year-end actuals for two consecutive fiscal years is deeply disturbing.
Optimistic assumptions
The Finance Minister has Budgeted for a significant increase in tax collection of 19 per cent, even though nominal GDP is projected to increase by only 12.9 per cent. It is unclear how the projected expenditure increase can actually be financed while at the same time reducing the overall deficit. This estimate relies on very optimistic tax buoyancy, which is not completely warranted given that the current year shows a significant shortfall of more than 5% of actual tax collections over the Budgeted amount.
Subsidies are almost inevitably underestimated. For the year 2012-2013, subsidies were expected to be at Rs 190015.13 crore. The revised estimate has come in at Rs 257654.43 crore, which is almost 36% higher. This makes it very difficult to believe the next year’s subsidy target of Rs 231083.52 crore. It may be noted that the total subsidy bill is to be brought down by more than Rs.26,000 crore — almost entirely on account of reduced outlays on fuel subsidies. This will necessarily require the Government to push through several unpopular price hikes, which might be particularly difficult in a pre-election year.
Two major problematic areas are the Budgeting of oil and fertilizer subsidies. At the beginning of 2012-13, oil subsidies were Budgeted to be Rs 43,580 crore. The revised amount of Rs 96,880 crore is more than double initial estimate, and even that is lower the actual under-recoveries of OMCs, which is estimated at Rs1,24,854 crore for the period of April-December 2012-13 alone (Chapter 3, Economic Survey, 2012-13). This is discounting the fact that nearly 40 percent of the subsidy is given by ONGC, Gail and Oil India by sacrificing their profits. The third quarter results for ONGC alone show that the company paid out Rs 12,433 crore in discounts (subsidies) to the oil marketing companies (OMCs).
The fertilizer subsidy is estimated at Rs 65,974 crore for 2012-13, and Rs 65,972 crore has been allocated for the 2013-14. However, the Minister of State for Fertilisers and Chemicals has indicated in a Parliamentary question that the actual requirement for 2012-13 is Rs 1,02,207.39 crore. This leaves a gap of over Rs 37,000 crore between actual subsidies required and the Budget’s revised estimate. If this amount is rolled over to 2013-14, the Government will be left with just over Rs 28,500 crore for the current year, which will be very difficult to meet the fertilizer subsidy for 2013-14.
Growth rate and savings (Investment Gearing Ratio)
As per the approach paper for the XII Plan, a savings rate of at least 36.2% and an investment rate of 38.7% is required to support a growth rate of 9.0%. In contrast, the CSO has indicated that the national savings rate this fiscal could be as low as to 30 per cent, declining further from the an eight year low of 30.8 per cent last fiscal. In light of the current low levels of savings and investment, the prediction of economic growth in the 12th Plan of 8.2% is unrealistic.
There is then the matter of fiscal discipline.

Fiscal Profligacy
Looking back, the years of high economic growth coupled with high tax buoyancy in an earlier period could have been used for retiring public debt and creating fiscal space. As John Maynard Keynes had said,The boom, not the slump, is the right time for austerity at the Treasury. Instead, this fiscal space was frittered away by blatant fiscal profligacy.
The combined fiscal deficit in 2007-08 was just about 4 per cent and revenue deficit was very close to zero along with a primary surplus. In 2008-09, there was an increase in public expenditure of 28.4 per cent – economic stimulus measures like the farm loan waiver and the expansion of social security schemes under the National Rural Employment Guarantee Act (NREGA), the Sixth Pay Commission award and subsidies for food, fertilizer and petroleum were introduced (leading the fiscal deficit to shoot up to 8.5 per cent of GDP against five per cent in 2007-08 and turning the primary surplus into a deficit of 3.4 per cent of GDP).
While this was necessary to some extent to counter-balance the effect of the global economic crisis in 2008-09, a further increase of Government expenditure by 30.4 per cent in 2009-10, was unwarranted. It worsened the fiscal situation with fiscal and primary deficits increasing to an unsustainable 10.1 per cent and 4.9 per cent of GDP respectively.
The excessive fiscal and monetary stimulus that was provided between 2008 and 2010 not only artificially inflated our growth rate, but also led to a massive increase in inflation. Without a corresponding growth in the number of goods and services, we now face a situation of high inflation coupled with a moderating growth rate.
Fiscal Discipline and Monitoring
Fiscal policy can no longer afford to be insensitive to the business cycle. The FRBM Act has not helped in bringing down overall fiscal liabilities of Government as it does not distinguish between what is structural and what is cyclical. Moreover, in the present form, it only requires the Government to justify its failure to achieve the specified targets. In practice, the Government is rarely held accountable for the breach of targets. We need to consider a mechanism which requires a deliberation and vote prior to incurring expenditure that would result in a breach of a hardline target, as opposed to the existing system of an ex post facto ratification. Failing this, the attempt at fiscal discipline will remain a weak and ineffective one.
This is also a befitting time to consider the recommendation of the XIIIth Finance Commission regarding the need for a Fiscal Council that acts as an autonomous body reporting to the Ministry of Finance, which should report to Parliament. In today's environment of high public debt and rising deficits, such an institution can play an important role not only in assisting the Government in the task of fiscal consolidation, but also add integrity to the Government's medium term plans for fiscal consolidation.
Most importantly, we need to concentrate our efforts towards achieving a framework which will enable economic growth.
Current Account Deficit
To bridge the widening CAD, we not only need economic policy reforms, but also their implementation. Even in a stagnant world economy, the export pessimism reflected in official statements can be overcome by undertaking the necessary internal reforms and making the policy environment friendlier for labour-intensive manufacturing. In 2011, India's share in the world merchandise exports was a minuscule 1.7% compared to China's 10.4%. India therefore has vast scope for export expansion just by increasing its share in global exports. We must encourage FDI and remittances and announce concrete measures for reviving exports.
Encouraging investment
There is a serious mismatch between the optimistic asseverations of Finance Ministers and India’s unenviable standing in the global investment community. According to the report of a comparative survey on the ease of doing business in 185 countries published by the World Bank Group, for both 2012 and 2013, India has been ranked 132. In investor protection, it is down to 49 in 2013 from 46 in 2012. More alarmingly, it ranks 184th in enforcing contracts and 182nd in the issue of construction permits. As per the report of World Economic Forum for 2012-13, India ranks 59th amongst 144 economies in the Global Competitiveness Index for 2012-13. The high informal regulatory costs are especially worrying, especially when in the new global competitive environment the investors are to compete globally with low cost producers.
We would also do well to apply the observations of former White House economic adviser, Lawrence Summers, to our context. He has observed that the uncertainty over the future of the corporate tax code is creating a drag on the US economy by making businesses hesitant to invest. Our situation is no different. The proposal to categorize foreign direct investments (FDI) and foreign institutional investors (FIIs) based on their holdings in a firm would require companies to undergo significant changes in their foreign shareholding structures and could unsettle the flow of overseas investments. Statistics indicate that in 217 of the 586 firms with FDI holdings, the overall foreign ownership is less than 10%. On the other hand, of the 1,317 companies with FII holdings, the overall foreign ownership is more than 10% in 380 firms. Going by the Budgetary proposal, all the 217 firms with FDI holdings less than 10% may need to raise such ownership to comply with the proposed classifications. If they fail to do that, the FDI entities will be reclassified as FIIs and will lose the promoter tag and any say in management. On the other hand, 57 key FII entities hold more than 10% in various listed firms. To comply with the new laws, they will have to sell their shares to bring down their holdings to below 10%. If they fail to do that, they will be tagged as promoters, getting certain voting and transaction benefits, but losing tax benefits and freedom from lock-in mandates. These issues should be ironed out at the earliest.
The Budget is much more than a mere accounting statement, and should hold some promise and comfort for the millions of poor and underprivileged Indians.
Inflation
Inflation, especially the CPI driven largely by food inflation, has been hovering at uncomfortably high levels for well over three years. A stubborn inflation not only wipes out the welfare gains achieved through public investment but it limits the options required for growth acceleration. There is a need for a comprehensive strategy to improve the supply side, including augmenting capacities in the manufacturing sector to keep pace with the growth in demand.
The issue of food inflation remains particularly relevant. Despite the increase in foodgrain production, which has been attributed to the raising of the minimum support price, foodgrain inflation has exacerbated. We need to rethink our strategy of tackling this issue. Even though there is an increase in the production of foodgrains, the distribution channels are not properly developed. In addition, with artificially high profitability of producing foodgrains, and there is no incentive for crop diversification. A durable solution to inflation would require simultaneously improving agricultural productivity as well as strengthening food supply chains

Social sector expenditure
Even the claims of welfare spending are inflated, and do not present an accurate picture. The revised estimates for the current fiscal year show that Plan spending was nearly 20 per cent below the Budget estimates for 2012-13. The Budget claims larger spending with respect to the revised estimate which reflects the severe cut-backs, and does reflect the actual spending trend vis-à-vis the original spending proposal.

For instance –

  • The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was originally provided for Rs.40,000crore. In the past two years this amount has been reduced to Rs.33,000crore. The current year’s actual estimate is at Rs.29,387crore. The Finance Minister has optically brought the proposed target back to Rs. 33,000 crore, which is lower than the Rs.40,000crore originally proposed.

  • The Pradhan Mantri Gram Sadak Yojana was initially Budgeted for Rs.2301 crore. The revised estimate for this road construction plan in the current year is Rs.900 crore, and it is proposed to increase the expenditure to Rs.1743 crore.

  • The food subsidy bill was estimated this year at Rs.75,000crore. The revised estimate is Rs.85,000crore. For next year’s Budget, the estimate has been reduced to Rs.80,000crore, yet the Finance Minister claims to have provided Rs.10,000 crore extra because of the Food Security Bill. Effectively it is only an increase of Rs.5,000crore, whose impact on food subsidy will be marginal.


Weakness in implementation
An analysis of expenditure trends in most social schemes suggests that the spending capacity is low. For instance, the combined Budget of the Centre and the States for the Sarva Shiksha Abhiyan (SSA) has increased nearly three-fold from Rs.21,360 crore in 2007-08 to Rs.61,734 crore in 2011-12. However, the expenditure has failed to keep pace with this increase. In fact, expenditure as a proportion of allocations dropped from 70% in 2007-08 to 61% in 2011-12, suggesting a serious capacity gap in spending capability.
Further, the current mechanism for transferring and utilization of funds from one level of Government to the next is beset with inefficiencies and bottlenecks. For instance, for two key infrastructure projects under the Jawaharlal Nehru National Urban Renewal Mission in 2010-11—the integrated housing and slum development programme and the urban infrastructure and governance programme—as much as 49% and 44% of the money, respectively, was transferred only towards the end of the financial year, in March 2011. Effective implementation of funds is extremely difficult given the uncertain and opaque nature of disbursement of funds (Report of the Comptroller and Auditor General).
A bulk of the Central transfers is done through Centrally-Sponsored Schemes (CSS). Most of these schemes have rigid implementation norms. This has resulted in the creation of multiple, parallel departments, often with overlapping responsibilities. Consolidating these CSSs will help streamline management systems and could contribute to improving expenditure capacity at the district level. The Planning Commission should be advised to constitute a bi-partisan Committee of the Chief Ministers to prepare a new Roadmap for Consolidation of Centrally Sponsored Schemes and its implementation during the XIIth Plan itself.
Regional focus:

Special Category Status

The Finance Minister has promised for a re-look at the present criteria for determining backwardness and granting of “Special Category Status” which is currently based on terrain, density of population and length of international borders. He has proposed to restructure the criteria for devolution of funds from the Centre to the States on the basis of parameters defined along the lines of the distance of States from the national average for multiple parameters such as per capita income, literacy and other human development indicators.
This is necessary for inclusive development, and should be welcomed unequivocally. While doing so, I expect the Finance Minister to come out with a time-bound action plan towards the implementation of this commitment. The parameters for the assessment of development should be identified, and Central investment should be targeted to enable and incentivize backward States to perform at par with the national average. The process should be broad-based and involve consultations with the Finance Commission, the Planning Commission and the Inter-State Council.
This is also the appropriate time to restructure the stalled Inter State Council and create an Inter-State Economic Forum under the ambit of the Ministry of Finance to give content to federal related issues. Economic-policy making cannot remain in the exclusive domain of the Centre when it affects the states in more ways than one. In addition, given the importance of incentivizing agriculture in the Eastern Region, a Chief Ministers’ Committee comprising the Chief Ministers from the Eastern States should be constituted for a coherent Action Plan and adequate support from the Central Government.
Having said this, I compliment the Finance Minister for a delicate balancing act as he has both responded to the political requirements of a pre-election-year Budget and the economic compulsions of fiscal rectitude. The Finance Minister today is faced with his own impossible trinity of reconciling austerity with growth, fiscal rectitude with populist expenditure and moderating subsidies with compulsions of tax revenues. Yet, these need to be reconciled in a manner that the India Growth Story can be reinvigorated.
We don’t have the luxury of an assured high economic growth anymore. Millions of people can slip back into poverty if there is a continued slowdown in economic growth coupled with the high levels of inflation.
The times are grim, with falling growth, widening Current Account Deficit, rising Debt to GDP ratio, stubborn inflation alongside falling inward capital flows. However, I draw hope from the same poet that the Finance Minister referred to in his Budget Speech,
There is nothing too difficult to be accomplished
When done carefully with unflinching endeavour.”

- Tiruvalluvar

The underlying optimism in the Budget is contingent on several assumptions, which will be borne out in the coming months, including the behaviour of inflation, return to high growth path and more importantly the fate of legislations pending before Parliament.

In the absence of tangible action to carry out the measures embedded in the Budget Speech of the Finance Minister returning back to the high noon of growth will become increasingly difficult, necessary for poverty redressal and inclusive growth.



Finally, it is the implementation of the Budget that will test the resolve of this Government to remove poverty and hunger and bringing about inclusive growth. Failing this, the cynical observation made by John Kenneth Galbraith may well be a reality - “they are a species who will only discover tomorrow that the prediction they made yesterday has not come true today”.

Budget – Talking Points

The GDP is a magician’s trick much-loved by Finance Ministers all over the world – an optimistic GDP assumption makes all numbers look robust when calculated as a proportion of it. However, an unrealistic diagnosis and remedy of the macro-economic situation can lead to problems festering go beyond any policy correctives.
Physicians say of consumption, that in the early stages of this disease it is easy to cure but difficult to diagnose; whereas later on, if it has not been recognized and treated at the beginning, it becomes easy to diagnose and difficult to cure. The same thing happens in affairs of State.” –Machiavelli


  1. Credibility of economic forecasts




  • CSO advance estimates for national income for 2012-13 indicate the growth rate of Real GDP at factor cost o be 5%. This is sharply lower than the 7.6% growth projection made by the Government in the Budget presented for 2012-13.

  • Likewise, in the Budget for 2011-12, the Government had predicted 9% growth for 2011-12, whereas the result was 6.2%.

  • A gap of approximately 2.5-3% between economic forecasts and the year-end actuals for two consecutive fiscal years is deeply disturbing.




  1. Optimistic assumptions




  • The Finance Minister has Budgeted for a significant increase in tax collection of 19 per cent, even though nominal GDP is projected to increase by only 12.9 per cent.

  • This estimate relies on very optimistic tax buoyancy. However, the current year already shows a significant shortfall of more than 5% of actual tax collections over the Budgeted amount.

  • Underestimated subsidies – In 2012-2013, subsidies were expected to be at Rs 190015.13 crore. The revised estimate is Rs 257654.43 crore (almost 36% higher). This makes it very difficult to believe the next year’s subsidy target of Rs 231083.52 crore.

  • Fuel linked price hikes – It may be noted that the total subsidy bill is to be brought down by more than Rs.26,000 crore — almost entirely on account of reduced outlays on fuel subsidies. This will necessarily require the Government to push through several unpopular price hikes.

  • Oil subsidies –

  • Budgetedto be Rs 43,580 crore at the beginning of 2012-13.

  • This was revised to Rs 96,880 crore (more than double initial estimate).

  • The actual under-recoveries of OMCs, which is estimated at Rs1,24,854 crore during April-December 2012-13.1

  • In addition,nearly 40 percent of the subsidy is given by ONGC, Gail and Oil India by sacrificing their profits. The third quarter results for ONGC show that the company paid out Rs 12,433 crore in discounts (subsidies) to the oil marketing companies (OMCs).

  • Fertilizer subsidy –

  • Estimated at Rs 65,974 crore for 2012-13, and Rs 65,972 crore allocated for 2013-14.

  • The Minister of State for Fertilisers and Chemicals, has indicated that the actual requirement for 2012-13 is Rs 1,02,207.39 crore – leaving a gap of over Rs 37,000 crore between actual subsidies required and the Budget’s revised estimate.

  • If this amount is rolled over to 2013-14, the Government will be left with just over Rs 28,500 crore for the current year, which will be very difficult to meet the fertilizer subsidy for 2013-14.




  1. Growth rate and savings (Investment Gearing Ratio)




  • As per the approach paper for the XII Plan, a savings rate of at least 36.2% and an investment rate of 38.7% is required to support a growth rate of 9.0%.

  • The Central Statistical Organisation has indicated that the national savings rate may be as low as 30 per cent this year, declining further from the an eight year low of 30.8 per cent last fiscal.

  • In light of the current low levels of savings and investment, the prediction of economic growth in the 12th Plan of 8.2% is unrealistic.




  1. Excessive stimulus and fiscal profligacy

  • The years of high economic growth coupled with high tax buoyancy in an earlier period could have been used for retiring public debt and creating fiscal space As John Maynard Keynes had said, The boom, not the slump, is the right time for austerity at the Treasury.Instead it was used for fiscal profligacy.

  • The combined fiscal deficit in 2007-08 was just about 4 per cent and revenue deficit was very close to zero along with a primary surplus. In 2008-09, there was an increase in public expenditure of 28.4 per cent – economic stimulus measures like the farm loan waiver and the expansion of social security schemes under the National Rural Employment Guarantee Act (NREGA), the Sixth Pay Commission award and subsidies for food, fertilizer and petroleum were introduced (leading the fiscal deficit to shoot up to 8.5 per cent of GDP against five per cent in 2007-08 and turning the primary surplus into a deficit of 3.4 per cent of GDP).

  • While this was necessary to some extent to counter-balance the effect of the global economic crisis in 2008-09, a further increase of Government expenditure by 30.4 per cent in 2009-10, was unwarranted. It worsened the fiscal situation with fiscal and primary deficits increasing to an unsustainable 10.1 per cent and 4.9 per cent of GDP respectively.

  1. Fiscal Discipline and Monitoring

  • The FRBM Act does should be amended to distinguish between structural and cyclical liabilities of the Government, and systematically improve the fiscal health.

  • In the present form, the FRBM Act requires the Government to justify its failure to achieve the specified targets. The Government should consider a deliberation and vote prior to incurring expenditure that would result in a breach of target, as opposed to the existing system of an ex post facto ratification.

  • Need for a Fiscal Council that acts as an autonomous body reporting to the Ministry of Finance, which should report to Parliament (as recommended by the XIIIth Finance Commission)–in the environment of high public debt and rising deficits, such an institution can play an important role not only in assisting the Government in the task of fiscal consolidation; it can also add integrity to the Government's medium term plans for fiscal consolidation.




  1. Current Account Deficit




  • In 2011, India's share in the world merchandise exports was a minuscule 1.7% compared to China's 10.4%. India has vast scope for export expansion just by increasing its share in global exports. Undertaking the necessary internal reforms and making the policy environment friendlier for labour-intensive manufacturing can achieve this. 

  • In addition, we need to encourage FDI and remittances and announce concrete measures for reviving exports.




  1. Encourage investment




  • Mismatch between the optimistic asseverations of Finance Ministers and India’s unenviable standing in the global investment community.

  • According to the report of a comparative survey on the ease of doing business in 185 countries published by the World Bank Group, for both 2012 and 2013, India has been ranked 132. In investor protection, it is down to 49 in 2013 from 46 in 2012. More alarmingly, it ranks 184th in enforcing contracts and 182nd in the issue of construction permits.

  • As per the report of World Economic Forum for 2012-13, India ranks 59th amongst 144 economies in the Global Competitiveness Index for 2012-13.

  • The high informal regulatory costs need to be minimized, especially when in the new global competitive environment the investors are to compete globally with low cost producers.

  • Former White House economic adviser, Lawrence Summers, observed – the uncertainty over the future of the corporate tax code is creating a drag on the US economy by making businesses hesitant to invest. Our situation is no different.

  • The proposal to categorize foreign direct investments (FDI) and foreign institutional investors (FIIs) based on their holdings in a firm would require companies to undergo significant changes in their foreign shareholding structures and could unsettle the flow of overseas investments. Statistics indicate that in 217 of the 586 firms with FDI holdings, the overall foreign ownership is less than 10%. On the other hand, of the 1,317 companies with FII holdings, the overall foreign ownership is more than 10% in 380 firms. Going by the Budgetary proposal, all the 217 firms with FDI holdings less than 10% may need to raise such ownership to comply with the proposed classifications. If they fail to do that, the FDI entities will be reclassified as FIIs and will lose the promoter tag and any say in management. On the other hand, 57 key FII entities hold more than 10% in various listed firms. To comply with the new laws, they will have to sell their shares to bring down their holdings to below 10%. If they fail to do that, they will be tagged as promoters, getting certain voting and transaction benefits, but losing tax benefits and freedom from lock-in mandates. These issues should be ironed out at the earliest.

  1. Inflation

  • Inflation, especially the CPI driven largely by food inflation, has been hovering at uncomfortably high levels for well over three years.

  • Such high levels of inflation not only wipe out the welfare gains achieved through public investment but it limits the options required for growth acceleration.

  • There is a need for a comprehensive strategy to improve the supply side. A durable solution to inflation would require improving agricultural productivity, strengthening food supply chains and augmenting capacities in the manufacturing sector to keep pace with the growth in demand.

  • Food inflation remains a major issue. Despite the increase in foodgrain production (attributed to the raising of the minimum support price), foodgrain inflation has exacerbated, and there is no incentive for crop diversification. We need to rethink our strategy of tackling this issue.




  1. Social sector expenditure




  • The claims of welfare spending are inflated, and do not present an accurate picture.

  • The revised estimates for the current fiscal year show that Plan spending was nearly 20 per cent below the Budget estimates for 2012-13.

  • The Budget claims larger spending with respect to the revised estimate which reflects the severe cut-backs, and does reflect the actual spending trend vis-à-vis the original spending proposal. For instance –

  • The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was originally provided for Rs.40,000 crore. In the past two years this amount has been reduced to Rs.33,000 crore. The current year’s actual estimate is at Rs.29,387 crore. The Finance Minister has optically brought the proposed target back to Rs. 33,000 crore, which is lower than the Rs.40,000 crore originally proposed.

  • The Pradhan Mantri Gram Sadak Yojana was initially Budgeted for Rs.2301 crore. The revised estimate for this road construction plan in the current year is Rs.900 crore, and it is proposed to increase the expenditure to Rs.1743 crore.

  • The food subsidy bill was estimated this year at Rs.75,000 crore. The revised estimate is Rs.85,000 crore. For next year’s Budget, the estimate has been reduced to Rs.80,000 crore, yet the Finance Minister claims to have provided Rs.10,000 crore extra because of the Food Security Bill. Effectively it is only an increase of Rs.5,000 crore, whose impact on food subsidy will be marginal.




  1. Implementation




  • An analysis of expenditure trends in most social schemes suggests that the spending capacity is low.

  • Since 2007-08, the combined Budget of the Centre and the States for the Sarva Shiksha Abhiyan (SSA) has increased nearly three-fold from Rs.21,360 crore toRs.61,734 crore in 2011-12. But the expenditure has failed to keep pace with this increase. In fact, expenditure as a proportion of allocations dropped from 70% in 2007-08 to 61% in 2011-12, suggesting a serious capacity gap in spending capability.

  • Further, the current mechanism for transferring and utilization of funds from one level of Government to the next is beset with inefficiencies and bottlenecks. For instance, for two key infrastructure projects under the JNNURM in 2010-11—the integrated housing and slum development programme and the urban infrastructure and governance programme—as much as 49% and 44% of the money, respectively, was transferred only towards the end of the financial year, in March 2011. Effective implementation of funds is extremely difficult given the uncertain and opaque nature of disbursement of funds.2

  • A bulk of the Central transfers is done through Centrally Sponsored Schemes (CSS). Most of these schemes have rigid implementation norms. This has resulted in the creation of multiple, parallel departments, often with overlapping responsibilities at the district level, that make efficient management and expenditure near impossible. Consolidating these CSSs to a few consolidated schemes is an important step forward.

  • The Planning Commission should be advised to constitute a bi-partisan Committee of the Chief Ministers to prepare a new Roadmap for Consolidation of Centrally Sponsored Schemes and its implementation during the XIIth Plan itself.




  1. Regional Development




  • The Finance Minister has promised for a re-look at the present criteria for determining backwardness and granting of “Special category Status” which is currently based on terrain, density of population and length of international borders.

  • The new parameters are to be defined in respect of the distance of the State from the national average under multiple criteria such as per capita income, literacy and other human development indicators.

  • I expect the Finance Minister to come out with a time-bound action plan towards the implementation of this commitment. The parameters for the assessment of development should be identified, and Central investment should be targeted to enable and incentivize backward States to perform at par with the national average.

  • The process should be broad-based and involve consultations with the Finance Commission, the Planning Commission and the Inter-State Council.

  • While inclusive growth is an imperative, it should not result in the erosion of the federal structure of our polity.

  • An appropriate time to restructure the stalled Inter State Council and given the preponderance of economic issues create an Inter-State Economic Forum under the ambit of the Ministry of Finance to give content to federal related issues. Economic-policy making cannot remain in the exclusive domain of the Centre when it affects the states in more ways than one.

  • Given the importance of incentivizing agriculture in the Eastern Region a Chief Ministers’ Committee comprising the Chief Ministers from the Eastern States should be constituted for a coherent Action Plan and adequate support from the Central Government. This was a promise by your distinguished predecessor and action on this is still awaited.

Having said this, I compliment the Finance Minister for a delicate balancing act as he has both responded to the political requirements of a pre-election-year Budget and the economic compulsions of fiscal rectitude.
The Finance Minister today has a different impossible trinity on reconciling austerity with growth, fiscal rectitude with populist expenditure and moderating subsidies with compulsions of tax revenues.
You need to reconcile these in a manner that the India Growth Story can be reinvigorated. We don’t have the luxury of an assured high economic growth anymore. Millions of people can slip back into poverty if there is a continued slowdown in economic growth coupled with the high levels of inflation. Budget being much more than a mere accounting statement should hold some promise and comfort for the millions of poor and underprivileged Indians.

I am not possessed with the knowledge of Tamil unlike the Finance Minister, but in the present circumstances I can’t find a line more appropriate than that of poet Tiruvalluvar, who said,

There is nothing too difficult to be accomplished
When done carefully with unflinching endeavour.

The underlying optimism in the Budget is contingent on several assumptions; action in the coming months – behaviour of inflation, return to high growth path and more importantly the fate of legislations pending before Parliament.

In the absence of tangible action to carry out the measures embedded in the Budget Speech of the Finance Minister returning back to the high noon of growth will become increasingly difficult necessary for poverty redressal and inclusive growth.

Finally, it is the implementation of the Budget that will test your resolve for a war against poverty, hunger and true quest for an inclusive growth. I have faith in your judgment more than the judgment of many of my fellow practioners of the dismal science namely economists about whom John Kenneth Galbraith had cynically said that, “they are a species who will only discover tomorrow that the predictions they made yesterday has not come true today.

(Ends)




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