'The Budget is inflationary and will hit the poor sections'
Madhu Dandavate
This Budget which was presented by the FM this evening is intricately connected with the recent nuclear tests in India and Pakistan, and the
subsequent decision of the US to apply economic sanctions against these
countries. The finance minister, while commencing his speech, admitted this
relationship between the nuclear test on May 11 at Pokhran and the
presentation of this Budget on June 1.
In his introductory remarks he said, "May 11 was the first step, today is yet
another." Having admitted this relationship, though in a subconscious
manner, the FM did not take cognisance of the economic sanctions
on his Budget proposals.
I have no doubt that in view of the increase of
the fiscal deficit from Rs 654.54 billion in
1997-98 to 910.25 billion in 1998-99 proposals. Similarly, in this span, the
revenue deficit rises from Rs 302.66 billion to Rs 480.68 billion. Thus, there
is a clear indication that the Budget will be an inflationary one, and will hit the poor and the social sectors.
On whether the Budget will boost foreign investment, the answer will
depend
upon the impact on economic sanctions
by the US and other countries and also
on the manner in which we in India
will do everything possible not to build
any euphoria on the issue of nuclear
tests and generate the spirit of
jingosim that will further alienate us
from some nations...
The White House publication on
May 13, 1998, has estimated that as a result of the economic sanctions,
India will incur a loss of about $ 20.7
billion. On the other hand, the officials of the Government of India
have made an assessment that the loss will be anywhere between
$ 3 billion to $ 5 billion. To take an objective view, the truth must be in between these
two extreme estimates.
Now the important aspect is that in
the international financial institution
like the World Bank, the voting share of the
countries which fully back up the US
plan for economic sanctions is only
33.41 per cent... There are countries whose
representatives on the Board are
either opposed to economic sanctions
or are sitting on the fence. The
government must eschew any
euphoria on the issue. It must not help
build up a war psychosis. This way
those who are neutral on the question
of sanctions can be won to the side of
India. This work is urgent.
With this environment, India may not
get the necesary loans or financial
assistance. The response to foreign
direct investmet will not be
adequate. The assistance from
international financial institutions
may be lukewarm and as a result there
will be resource and investment
crunch that will badly affect the
infrastructure sectors like power and
thereby industrial development may
be slowed down.
If there is inflation which is of a
high order, it will act as a disincentive
for saving. And therefore I do not
expect substantial increase in the rate
of saving as a result of the approach of
the Budget.
In the previous government, a
white paper was published on the
merits and demerits of subsidies. On
the question of subsidies, I would not
like to take a dogmatic attitude of
either abolishing the subsidies or
retaining it. What is needed is the
rationalisation of subsidies so that it
reaches the targetted group for which
the subsidy is meant. Of course, the
increase in the price of urea fertiliser
will reduce the quantum of subsidy.
Merely through the Budget,
the situation created by US sanctions
cannot be neutralised. What is needed
is the mobilisation of public opinions
from international fora to assure
that India wants harmonisation of
relations with her neighbours and not
any confrontation. if we succeed in our
efforts in this direction, the economic
sanctions may disappear earlier than
expected. At least, in the land of
Gandhi and Buddha, the instrument of
persuasion should have some efficacy.
Yes, in the present crisis
preceded by currency crisis in South
East Asia, it is necessary to ensure
that India has substantial foreign
exchange reserves. This cannot be
done merely by borrowing foreign
exchange through loans from financial
institutions. Such results are volatile
and therefore the only alternative is to
boost up our exports. We are
disturbing the needs of the indegenous
consumers.
When I was the finance
minister, I handled the problem of abolishing subsidy on diesel in a
selective manner. I found that
fishermen on the coastal areas need
diesel for their shipping vessels. I
therefore abolished the duty on deisel
oil used by fishermen provided they
purchased it through fishermen's
corporative societies. When they
produced evidence that the deisel was
purchased through corporative
societies, the duty paid by them was
reimbursed. This avoided the misuse of
concessions to the fishermen by big
truck owners and others. This also
encouraged the fishermen to join the
co-operative movement and strengthen it.
Whether socialism will survive depends upon how you
define it in the present context. If socialism is not turned into a
dogmatic instrument of mere statism
and the content and direction of
socialist ideology is in tune with the
ground realities and legitimate
aspirations of the people, socialism will
continue to be relevant.
Professor Madhu Dandavate, former finance minister of India, spoke on the Rediff Budget Chat.
Budget '98
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