Back To Reforms, Are We?

Finance Minister Yashwant Sinha describes his fourth budget as "a new deal". To Indian citizens, the 2001-02 Union Budget almost seems written by a new finance minister.

But if Sinha needed three budgets to come into his own, his fourth has certainly made up for all the delays and frustration. In a wide-ranging attack on price and distribution controls, behind-the-times labour laws and investment norms, and the cost of money, Sinha has set a scorching pace for the long-flagging second-generation reforms.

Cynics may privately, and unkindly, thank the Gujarat earthquake. It may not have been a catalyst for the revolutionary budget proposals, though it certainly managed to garner Rs 1500 crore and save the revenue deficit target of Rs 77000 crore in a year of lacklustre tax flows. But that was the year that's about to go by. Fiscal 2001-02 is poised to open in a vastly improved, even euphoric, atmosphere.

Industry and capital market have been generous with their compliments for the budget: very positive, investor-friendly, growth-oriented, win-win... The sensex went up by 177 points (till 5.30 p.m.) and the NSE by 60 points. The UTI chairman P S Subramanyam said that Sinha's removal of all the surcharges imposed by him, except for the last 2 per cent, would change corporate India's bottomline. As well as those of the 2.3 crore-and-increasing number of taxpayers.

That alone would have been enough to get Sinha most of urban Indian votes. But to his credit, he went ahead and announced more reforms: changes in Sick Industrial Companies Act and the Industrial Disputes Act, with generous compensation for workers as well as a special insurance scheme threatened by the reforms. And a scheme to phase out urea retention price scheme, what we loosely call fertiliser subsidy; pushed food subsidy management to the states; made state fiscal reform mandatory; announced price reforms in sugar and drugs; promised to review user charges for government services; and cut administered interest rates for small savings by 1.5 per cent. Bold economic steps, yes, but with precarious political ramifications.

Alongside, he also gave a few sops: protected a few sectors from imports, gave liberal incentives for farmers and education, encouraged all infrastructure especially core sectors like power by tax holidays, streamlined excise rates, and, most important, came down heavily on government expenditure. He promised to adopt the Fiscal Responsibility Act, downsize six ministries with about 2700 to be axed from his own, reform pensions for government servants, to borrow less and peg the fiscal deficit for the year at an even lower 4.7 per cent.

Still, the Opposition parties managed to read the message: some prices, especially of those used by the common men and the poorest, would go up, they screamed. Anti-people budget, they cried. They are to some extent right: all postal stationery and charges are up steeply, over 150 new items have come under excise slabs and only a few popular goods like soft drinks and processed fruit-vegetable items will finally become cheaper. Inflation is assumed at seven per cent--and growth, a modest 6.5 per cent--compared to close to nine per cent now, so is this budget expecting to give a general push-down to prices, despite an investment and borrowing-oriented growth strategy?

Despite the confusing growth economics, Sinha's fourth budget seems to have met the primary challenge before the finance minister of a disparately-grouped government with conflicting interests--that of balancing economic aspirations and crude political ends. Keep it up, Mr Sinha.