Economic explanations abound for the revenue, expenditure and deficit pattern of the 2009-10 Budget. In the end, however, only political reasons can explain the gigantic deficits incurred by the government. The question is: what factors lie behind this massive risk-taking exercise?
Illustration: Jayachandran / Mint
The total expenditure and fiscal deficit figures are astounding: The estimated total expenditure for 2009-10 is Rs10.2 trillion and the estimated fiscal deficit is Rs4 trillion.
The Budget proposals have been made against the backdrop of two related factors.
First, India is now perennially in election mode: In any given year, one or another state faces state legislative assembly elections. For example, Maharashtra goes to polls later this year. In the next two-three years, there are other state elections due.
The result is that it now makes more sense to keep up populist spending across the five-year term of the United Progressive Alliance (UPA) instead of keeping the powder dry for a big binge in the fifth and final year of the government. The unprecedented global economic crisis provides a good cover for big spending. No government in the last two decades has had such a constellation of political and economic factors favouring an expenditure pattern such as the one road-mapped in the Budget.
Two, it makes little sense to target spending at the poor and underprivileged or to limit it. As spending is primarily political, the more the number of persons who benefit, the better it is electorally. In fact, the very obverse of targeting is needed for political success. That is the reason for the proliferation of subsidies (estimated at Rs1.11 trillion for 2009-10), the enlargement of the National Rural Employment Guarantee Scheme (Rs39,000 crore and perhaps more in 2009-10) and a slew of other social sector spending programmes. These lie at the heart of the ballooning fiscal deficit.
When viewed together, they make a lot of sense. Unfortunately they represent a poor economic calculus.
Will things change? It is difficult to say. It is in the nature of such spending that once unleashed, it is politically unpopular in the extreme to bottle it. In 1990-91, for example, it took a balance of payments crisis to change a similar pattern of splurging resources. Let’s hope that story will not be repeated.
Politics or economics: what explains budget spending? Tell us at email@example.com