New Delhi: A panel comprising Amit Mitra, secretary general, Ficci; Ajai Chowdhry, chairman, HCL Infosystems Ltd; Sanjay Kapoor, chief executive officer, India and South Asia, Bharti Airtel Ltd; R. Sukumar, editor, Mint; Tathagata Satpathy, member, Lok Sabha; Pratap Bhanu Mehta, president and chief executive, Centre for Policy Research; Ila Patnaik, professor, National Institute of Public Finance and Policy (NIPFP), and N.K. Singh, member, Rajya Sabha; discussed the relevance of the Union Budget at the Mint conclave on Budget 2011, in New Delhi on Wednesday. Economist Haseeb Drabu moderated the session. Edited excerpts:
Drabu: We will try and understand how relevant the budget is for (the) Indian economy. There has been (a) feeling that it has become marginally irrelevant. If you look at the numbers, it is not what it used to be in the ’80s. Post-reform, there has been a significant disempowerment of the budget. That’s not necessarily bad. At one point, the budget would account for almost 80% of the total investments in the economy. Today, it is less than 18%. Purely in terms of the strengths of the budget, it has gone down in its importance.
Also, the government overtime has shed a lot of regulatory powers and policy making powers. In that sense also, it has reduced in its significance. Nevertheless, it continues to be a major media event and also one platform where the finance minister does speak about the economy once in a year. Also, overtime one has felt that there is some sort of a consensus on the direction of economic policy. And to some extent one feels that good economics has subsumed the politics of the budget...
Singh: ...I think one of the main challenges before the finance minister is to reinvent the budget. You are absolutely right that budget was the principal instrument of economic policy when economic liberalization began in 1991, and it’s part of the index of the success of our reform strategy. The budget became comparatively irrelevant as the tax rates became more simple, as policy direction became more predictable, and the burden of the carrying of the economic reform agenda shifted from the North Block (finance ministry) to other ministries and other departments.
Unfortunately, what has happened is that perhaps it may have swung to the other extreme. Well, I think that what happened in the last few budgets is that the finance minister accepted that why should I take the burden of what my colleagues should be doing. The result was neither he did nor his colleagues did. So, I think this is a good time to reinvent that and to reset the primacy of the budget beyond a mere accounting statement into not only the direction of the economic policy but, in fact, to articulate the economic policy into several areas, where I think that economic policy direction needs to be deepened.
Mitra: I think that a lot of people think that this is the accounting budget. But I must confess that this is the political economy budget and it has to be. There are areas of the budget which require continuity and invariably will be so. You take agriculture, there are allocations there. You take food security as part of the process. That’s not what private sector necessarily will have to do in terms of specific types of allocations. You take infrastructure, 46% of the total plan expenditure was infrastructure. Then you take social inclusion, there are various types of social justice and empowerment issues, which need to be debated.
These are constituencies of voters. In a democracy like ours, can we do without them? But the debate is the instrumentality… instruments through which you go into these constituencies and efficiently allocate those resources. So, I think the debate in my view is no more whether the budget is important or not. It is important because it is partly political economy statement, partly a tax statement. But the key issue is, is the budget going to produce instruments of allocation of these resources effectively? That’s where I have concerns.
Mehta: It depends on what you are looking at. Let’s start with two topics that are on our mind—governance and corruption. What has the budget got to do with those? How can you have effective governance if the budget does not invest in the judiciary? How can you think of tackling corruption if sectors like real estate do not come under GST (goods and services tax), discretionary powers in taxation do not decrease? These are central aspects of the budget. The budget is terribly exciting for all the things we are getting excited about—not just the economic issues...
Satpathy: Earlier, we used to think in India that a state like West Bengal might progress because they have political stability. But whether it is West Bengal or Libya or Egypt, everywhere it shows that stability is not the issue. The issue is the bottom up issue—whether you are addressing the real people. We talked about infrastructure, companies taking up airports, six-lane flyovers etc. But what happens to drinking water in the villages? We lack the ability of good economists in this country—people who actually know the country as it is now—when you take bureaucrats and put them as economists...
Patnaik: It sounds very arcane to talk about macro stabilization policies but we really have to. It’s especially relevant in this budget. We don’t even know the kind of macro stabilization policies India needs.
We don’t understand what counter cyclical fiscal and monetary policy are. So when prices are rising, I find a lot of people saying if taxes are increased, prices will go up, so the budget deficit should be allowed to be expanded and taxes should not be increased because that will raise prices.
There are very few macro economists, and those who are there don’t understand what needs to be done. India has moved so fast in the last 15-20 years, growth has doubled, growth rates are high, business cycles have emerged. We are still trapped in the old system where we don’t understand where we have to do counter-cyclical macro policy. The result is the kind of high inflation that you have.
Kapoor: I think what touches my heart and mind the most in strategy, after (World Economic Forum at) Davos, is that economies in future will compete not only on the physical infrastructure but also on the virtual infrastructure that the countries create. This is about the knowledge economy.
This is about the connectivity to the broadband. This is about the data and information that you will consume. The world believes that in the next 10 years, your consumption of data will multiply into at least 1,000 times. If that is true, is the government planning for all that? Are we moving towards that path? Or are we going to be delineated from the rest of the world?
Chowdhry: What are we going to do with the issue like manufacturing? It’s been discussed for many, many years. There is the national manufacturing competitive council that’s been set up. There are areas that clearly identified for the focus on manufacturing. I think manufacturing needs to get that impetus and direction and we would really like to see the finance minister talk about what they are going to do about manufacturing and how do they create more jobs through manufacturing and how do they involve all the ecosystem of manufacturing?
Sukumar: As we stand in 2011, we probably have very little expectation of what this budget will hold, because we think it’s going to be the budget for the ’80s, the ’90s or even the 2000s. It doesn’t really take a lot of factors into account. I think the structure of the economy has changed, which points to what Ila said about economists not really understanding a lot of things. I think the nature of manufacturing has changed. It’s a good point because these decisions that we take on manufacturing now prompted by the budget will decide how investments will be made 2-3-5 years from now. Jobs will be created. How the economy will grow. So, I think that situation has changed.