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VOICE OF
ELECTRICITY WORKERS
Budget 2004-05 : Backsliding On CMP
: Prabhat Patnaik
THERE
are two and only two possible trajectories of economic policy in the
contemporary world: either to open up to global capital and commodity flows and
let the domestic economy adjust to their consequences over which the government
has little control; or to mould the domestic economy according to certain social
objectives, in which case its openness to global capital and commodity flows
must be restricted. This is why “liberalisation with a human face” is an
impossibility. If the “human face” is to be preserved then restrictions have to
be put on “liberalisation”. On the other hand if “liberalisation” is to be
persisted with, then one has to forget about the “human face”, as the country
has been doing for the last thirteen years. This is why there is a fundamental
contradiction between the central thrust of the Common Minimum Programme with
all its limitations (since it promises employment guarantee etc.) and
neo-liberal economic policies.
BACKSLIDE ON THE CMP
The
2004-05 budget acquired importance in this context: which way is the UPA
government going to move? And the answer is clear: it has chosen to persist with
neo-liberal policies and backslide on the Common Minimum Programme.
Ironically, the budget has been hailed as being “pro-poor” and “pro-farmer”, and
“having a vision for agriculture, irrigation and rural development”. Nothing
could be farther from the truth. The outlay for the Department of Agriculture
and Co-operation remains at the same level as the NDA’s interim budget, Rs 3014
crore. There is no additional outlay over what the interim budget had provided
for the food-for work programme; and the extension of coverage from 1.5 crore to
2 crore families under the Antyodaya Anna Yojana had also figured already in the
NDA’s interim budget.
Indeed, paradoxically, for a government committed to Rural Employment Guarantee,
there is a marked decline in Central Plan outlay on rural employment compared to
2003-04 (RE), from Rs 9,640 crore to Rs 4,590 crore. True, the outlay for
2003-04 was inflated because several rural areas were declared
“calamity-affected”, and the finance minister has promised financial assistance
upon request this year too; but even if we remove this special component from
both years’ figures the outlay actually decreases from Rs 4,751.25 crore to Rs
4,310 crore. If we take the outlay for the Department of Rural Development as a
whole, again excluding the “calamity relief” component, the increase is meager,
from Rs 10,612 crore to Rs 11,437 crore. No doubt there are off-budget measures
promised, such as the Rural Infrastructure Development Fund, and the doubling of
credit to agriculture over three years, but the budget itself is extraordinarily
niggardly towards agriculture and rural development, contrary to the promise of
the National Common Minimum Programme.
The
budget does bow in the direction of the Common Minimum Programme by raising the
amount of budgetary support for the Plan by Rs 10,000 crore over the provisions
of the interim budget. Of this however a significant amount of Rs 4,910 crore
according to the Receipts Budget, which is financed by the two per cent cess
levied on five taxes, should go for education. The remainder is too small to
make much difference. By contrast, defense expenditure has gone up by Rs 11,000
crore over and above the sum provided by even the interim budget of the BJP-led
government. Questioning the need for such an enormous jump in defense
expenditure may not be de rigeur, but the contrast between the attitudes to
defense and to rural development is quite striking, more characteristic of the
NDA than of the UPA. It comes as no surprise that the NDA’s former finance
minister Yashwant Sinha has expressed “satisfaction” over the increase in
defense outlay while calling the education cess, perhaps the most positive
feature of the budget, a “mindless act”!
What
is dubious about the budget is not just its commitment to the Common Minimum
Programme, but also its macroeconomics. The relentless pursuit of
neo-liberalism, especially during the NDA years, had imposed a drastic deflation
on the economy, compressing aggregate demand, and giving rise to a combination
of unutilised industrial capacity, unsold food stocks, and increased
unemployment. Boosting domestic demand through increased government expenditure,
and doing so via increased outlays in rural India, was the obvious need of the
hour. The budget not only does not raise outlays in rural India significantly,
it does not even give much boost, as it stands, to aggregate demand in the
economy. This is so for two reasons: first, the fiscal deficit is supposed to
come down from 4.8 per cent of the GDP in 2003-04 (RE) to 4.4 per cent in
2004-05, which is contractionary per se; and secondly, since a large chunk of
defense expenditure would go for equipment imports, representing a demand
leakage from the economy, the 27.7 per cent increase in defense expenditure,
which significantly alters the composition of public expenditure, would have a
further contractionary effect. In short, the budget as it stands does not free
the economy from the scourge of deflation.
The
implementation of the Common Minimum Programme requires a strengthening of state
government finances, which are in a crisis for no fault of theirs. The two main
reasons for this crisis are: the implementation of the Fifth Pay Commission
recommendations in line with the centre, which the states could not possibly
avoid doing; and the exorbitant interest rates charged on central loans to the
states. While the budget does reduce interest rates on fresh central loans to
nine per cent, it is silent on the issue of debt write-off, which even the NDA
government’s Planning Commission had proposed for non-Small Savings debt.
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