Thursday, February 27, 2014

UPA plays the numbers game

P Chidambaram may have shown his articulate command over pure economics and political economy, time and again. But his understanding hasn't led to the enhancement of the country’s macro-economic health
The recently presented interim Union Budget is skewed. The Vote on Account gives no space to overhaul the revenue or expenditure sides, and its provisions will haunt the successive Government as the latter seeks to review or implement policy. The last Union Budget of UPA2 lacks serious intents of fiscal consolidation.

The Union Minister for Finance spent his precious time personifying the achievements of his Government as well as his personal wisdom. Unrelated to Indian economy’s woes, the statements irritated the sufferers of the UPA’s macro-economic mismanagement.

The Indian economy has been passing through trying times, with the GDP growth sliding below five per cent and inflation hovering around 7.5 per cent. Consumer price inflation, which affects the common man the most, has been around 10 per cent or more. And food inflation rarely climbs down from the double-digits. Industrial and services growth has dropped and jobs have withered away from the scene. Naturally, the slowdown created by different factors constituted in a big way to the anti-Government mood among the masses.

An election is around the corner and the legions of the UPA have no proper ideas to curb bad governance. They could have moved to the better path when Congress vice president Rahul Gandhi admitted the policy blunders of his Government, but sadly the Prime Minister and the Finance Minister observed that history will be kinder to them than their contemporary critics. Will this be true?

It is unlikely that any proper history-writing will let off the UPA2, characterised by scams and indecision which have lowered the morale of the economy and the people. Recent years have witnessed an erosion of confidence in economic activities at the mass level. The sagging sentiment has taken a high toll on the growth momentum.

UPA2 couldn’t live up to the benchmark set by UPA1. The excuse of the Finance Minister that it still performed better than the six years of NDA rule is an eyewash through data. In the NDA Government, average GDP growth rate and inflation stood simultaneously at six per cent and around 4.5 per cent. Under UPA1, average GDP growth shot higher at 8.4 per cent but inflation too rose to 6.6 per cent, and UPA2 ends with an average GDP growth of 6.7 per cent and inflation surging over eight per cent.

Astonishingly, the UPA2 has no patience to recall the good work of its own preceding Government. Instead it is comparing its performance with the NDA Government even though the fundamentals for it were different compared to the previous decade which was known for the rise of emerging economies like India.

It is undeniable that the global economic crisis of 2007-2008 messed-up the external environment. The economic slowdown has severely damaged the rising momentum in emerging economies but India has suffered more through the sustained high inflation, supported by impractical policy planning.

The UPA’s much celebrated commitment to inclusive growth made on modest gains on the ground. In 2003-2004, Gross Tax Revenues stood at 8.8 per cent of GDP — this figure witnessed a vertical growth under UPA1 to 12 per cent of GDP in 2008-2009 but came down dramatically to near 10 per cent of GDP under UPA2. Capital outlay and subsidies have modestly risen under the UPA rule but whether the funds were delivered for intended purposes remains a concern.

On the public expenditure front, the NDA Government spent around 2.6 per cent and one per cent of the GDP, respectively on education and health. Under the UPA rule, total public expenditure on education and health, respectively stood at 3.3 per cent and 1.3 per cent of the GDP. This clearly marked the violation of Common Minimum Programme of the UPA1 Government, which had promised spending six per cent of GDP on education and three per cent of the GDP on health facilities.

Mr P Chidambaram, who has presented many Budgets, failed to clean up the indirect taxation regime since 1991. Only Messrs Manmohan Singh and Yashwant Sinha, as Finance Ministers, tried to reform import duties and excise. So, Mr Chidamabaram’s claim to be a progressive mover of the public finances seems unbelievable. This last one was an interim Budget and he may have bound by electoral compulsions but the same was not true in previous years.

The interim Budget estimates fiscal deficit for 2013-14 at 4.6 per cent of the GDP, over-performing the target of 4.8 per cent of the GDP and projects next year’s deficit at 4.1 per cent, again better than the projected 4.2 per cent. But these do not including the pain of carrying revenue deficit at 3.3 per cent.

Time and again, Mr Chidambaram has shown his articulate command over pure economics and political economy. However, his understanding hasn’t translated in macro-economic health of the nation.
-Atul K Thakur
(Published in The Pioneer on February25,2014)

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