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Mukherjee has little room for path-breaking budget

Mukherjee has little room for path-breaking budget
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First Published: Fri, Feb 11 2011. 11 40 AM IST

Debating growth: (Left to right) Hemant Kanoria, chairman and managing director, Srei Infrastructure Finance Ltd; Saugata Roy, Union state minister for urban development; Haseeb Drabu, former chairman
Debating growth: (Left to right) Hemant Kanoria, chairman and managing director, Srei Infrastructure Finance Ltd; Saugata Roy, Union state minister for urban development; Haseeb Drabu, former chairman
Updated: Fri, Feb 11 2011. 11 40 AM IST
Kolkata: Thirty-five kilograms of cut-price foodgrain for each of India’s below poverty line, or BPL, families is about all that one should reasonably expect from this year’s Union budget, according to Saugata Roy, junior minister for urban development and a key leader of the Trinamool Congress—one of the biggest allies of the United Progressive Alliance (UPA) government at the Centre.
Debating growth: (Left to right) Hemant Kanoria, chairman and managing director, Srei Infrastructure Finance Ltd; Saugata Roy, Union state minister for urban development; Haseeb Drabu, former chairman and managing director, Jammu and Kashmir Bank Ltd; Somobrata Dutta, managing consultant, PricewaterhouseCoopers; Anil Padmanabhan, deputy managing editor, Mint. Indranil Bhoumik/Mint
Describing India’s finance minister Pranab Mukherjee as “conservative”, Roy said all budgets presented by him since 1983 were about “balancing figures”. Much of the annual expenditure is already committed—on heads such as defence, subsidies, interests and salaries—so there was little that Mukherjee could do with his traditional “accountant’s budget” to launch new policy initiatives, or to remove regional imbalances in growth, he added.
Roy was speaking at a seminar organized by Mint in Kolkata on Wednesday, on how the Union budget could address regional growth disparities.
Moderated by Haseeb Drabu, a Mint columnist and former chairman and managing director of Jammu and Kashmir Bank Ltd, other speakers at the Mint’s Budget Agenda 2011 seminar were Hemant Kanoria, chairman and managing director of Srei Infrastructure Finance Ltd; Somobrata Dutta, managing consultant, PricewaterhouseCoopers; and Anil Padmanabhan, Mint’s deputy managing editor.
The cost of providing 35 kg of subsidized foodgrain to each BPL family is going to be huge, according to Roy. There were about 35 million poor households in India in 2009, according to estimates of the National Council for Applied Economic Research. This, according to it, translated into a BPL population of about 200 million people.
“It may not be possible to provide so much to so many people in the first year itself, but allies such as the Trinamool Congress have secured a commitment from UPA chairperson Sonia Gandhi that a beginning will be made this year towards creating food security for the poor, even if in a small way,” he said.
Edited excerpts:
Saugata Roy: Much of the expenditure under the Union budget is already committed: (on heads such as) defence, subsidies and interest. Expenditure under (other) non-Plan heads, such as salaries, are also pretty much fixed. So, there is not much play left in the budget.
Secondly, budgets are not meant to address disparities. For that, the finance commission, which is set up every five years, recommends on how to allocate resources between the Centre and the states, and on concessions to be given to the weaker states.
In the last 20 years, following economic reforms, the importance of public investment has diminished progressively. Now, much of the investment is expected to come from the private sector and from foreign investors. But if we talk of infrastructure as a whole in the form of roads, railways, ports, airports and power, public investment still has a major role to play.
My impression is Pranab babu’s budgets, since he became finance minister in 1983, have always been accountant’s budgets—just balancing figures, a statement of income and expenditure. They weren’t ever path-breaking budgets. However, he has been blessed with a robust rate of (economic) growth which may reach 9% this year, or at least 8.5%, and double digits in a year or so.
According to me, in the last 20 years, there were only two path-breaking budgets: one was Manmohan Singh’s budget in 1991, and the other, P. Chidambaram’s dream budget in 1996, but the dream could not be fulfilled because the government fell within a year.
I am not expecting any breakthrough in this year’s Union budget or any policy initiative to address regional (growth) disparities. States will have to depend on themselves to attract investments.
Haseeb Drabu: Once upon a time, the Union budget was very important, simply because the government was the largest spender in the country. The amount spent under the budget was more than twice the private corporate and the household sectors put together. Today, it is less than 20% of that. In terms of investment, the government was the single biggest spender in the form of public investment. But public investment has come down from 12% of GDP (gross domestic product) to just 4%.
Somobrata Dutta: The budget makers this year should devise policies to ensure an equitable reallocation of resources and to increase the level of public expenditure—less on bureaucracy and more on social infrastructure. Because, unless we have a stable backbone, which for the Indian economy is still the agriculture sector, we cannot sustain growth. Therefore, the budget should address more and more the concerns over inclusiveness and equity. With economy growing at 8-9%, the time is right to make policy corrections to see that investments reach areas of denial.
Hemant Kanoria: About $500 billion of private investment is expected to flow into the infrastructure sector over the next five years. But do we have a proper policy framework to invite this investment? If there is any announcement at all for the infrastructure sector in this year’s budget, it should be for the long term—not tinkered with for at least 10 years.
Haseeb Drabu: So what should be the model for infrastructure financing if public investment is not available?
Hemant Kanoria: This can be done through public-private partnerships (PPPs). But, unfortunately, in West Bengal, not many roads and power projects have been built under PPPs. Even while banks are lending to the sector, what is required is a long-term corporate bond market.
Haseeb Drabu: With the entire onus shifting on the states now, where does West Bengal stand? Could it become the entrance to the east?
Hemant Kanoria: For this to happen, we need both urban and rural infrastructure to be developed. We are still waiting for a new port to be built as the Kolkata and Haldia ports are riddled with draft problems.
Somobrata Dutta: What ails West Bengal is the lack of good governance. We need a consensus on alternative sources of income for the population living in villages and small towns while agricultural land is converted into industrial land. That West Bengal has lost its attractiveness as an industrial destination is because of lack of proper homework on ways to bring about a change.
Saugata Roy: While the present Left Front government, especially in its last term, did try to improve the investment climate in the state, they did not build a land bank, and faced resistance for giving away fertile land to industry. The route we are looking to take will start with infrastructure. The idea is to improve investment climate by improving infrastructure.
Haseeb Drabu: So what is your advice for the finance minister?
Saugata Roy: I will tell Pranab babu to give more budgetary support to the railways. It is good ministers take certain decisions to benefit their own states. For instance, Bihar has benefited in the past from having railway ministers. If there was a rotation of the ministers, all the states would have benefited in the process.
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First Published: Fri, Feb 11 2011. 11 40 AM IST