Budgeting for better governance

Budgeting for better governance
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First Published: Thu, Mar 01 2007. 01 15 AM IST
Updated: Thu, Mar 01 2007. 01 15 AM IST
History has shown that the government that does best in India is the government that does nothing. P. Chidambaram’s Budget has stuck to that winning formula. It has sought to do very little. Previous governments, wherever feasible, have gotten out of the way of industry and private sector mostly. That has worked wonders for the country. This government cannot do much in areas where it still wields unnecessary influence. Its coalition partners have seen to that. So, it has chosen to let the private sector get on with it and do the fashionable thing by talking of inclusive growth. If that is what the UPA government had set out to do in this Budget, then it has executed it rather well.
Unfortunately, the future of economic growth depends not just on government standing aside, but government standing up to the challenges of providing a platform for growth in terms of hard and soft infrastructure. That comes through better, more efficient and more responsive governance and not through bigger government. The Budget is geared to deliver the latter, but not the former. That is not the failure of the finance minister, but of the government as a whole.
This government promised administrative reforms to ensure that the pipeline for delivery of government services is unclogged. That has been conspicuous by its absence in the last three years. Therefore, one is unable to cheer all the goodies.
The additional 1% cess for secondary and higher education may not ensure that teachers in government-run schools turn up more regularly than students do, nor is it likely to ensure that schools with girl students have functioning toilets with privacy. That requires a mindset change.
Similarly, the Budget is content to plead the case for more effective and direct delivery of fertilizer subsidies and has appointed a committee to go into it. The initiative for policy change has to come from elsewhere. On the Pension Fund Regulatory and Development Authority Bill, the minister has to hope for better sense to prevail in the ruling coalition. The finance minister could have devised incentives for the various ministries to disclose more to the public under the Right to Information legislation on how they spend their allocations and how much they spend of them.
Given the compulsions of coalition politics, the finance ministry has been forced to shape its fiscal management around revenue optimization measures. As much is admitted in its medium-term fiscal policy statement. Both strategically and tactically, the ministry has taken many steps to extract more revenue out of economic growth. There must be one grievance for the finance minister. In his revenue-gathering zeal, he has been unable to extract much from disinvestment or privatization. In fact, the Budget contains no expected realization from disinvestment proceeds. But reformers must keep alive the reform issues in the public domain, if not in the policy domain.
Otherwise, focus on revenue collection has clearly resulted in improving deficit parameters. The government is on track to eliminate revenue deficit in 2008-09 and the primary deficit is all but eliminated. In fact, the government projects a primary surplus in 2007-08. The assumptions for nominal GDP growth for the next three fiscal years has been kept conservatively at 13% and that provides a certain cushion to the government if GDP growth is near 15% as has been the case last financial year and likely this year.
The message from the government to the country is that it knows it needs to do a lot more, but it will do only as much as its leader and partners permit it to, and that the country should be grateful. On that score, the country does have reason to feel grateful.
V.A. Nageswaran is head, investment research, Bank Julius Baer (Singapore) Ltd. He writes a column for Mint every Tuesday. These are his personal views.
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First Published: Thu, Mar 01 2007. 01 15 AM IST
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