The BT Budget MM special: Debates; Expenditure: Cut!..No, Uncut!

Budget:2000 tries to cut expenditure, posits the BJP's Jay Dubashi, but what we really need is greater efficiency in the government...

Yashwant Sinha has done his best. If you think that is not enough, that is certainly not his fault. Finance ministers are not free spirits-not in coalition governments, anyway-and there are limits to what they can do or cannot do even with the best of intentions.

Going by the expenditure figures, Sinha has tried to play it safe, and refused to take any chances. This is what I would call a babu approach to budget-making since Budget 2000 is, essentially, a babu budget. A few subsidies off here, a few taxes there-and it's done. That way, you can keep everybody happy-except that small minority which is never happy about anything.

Take expenditure, which, after all, sets the pace for the government's activities in the economy. In 1999-2000, its total expenditure came to 15.60 per cent of GDP according to the revised estimates in the budget. In 2000-01, the government will step into the first year of the century with almost exactly the same percentage, viz. 15.50 per cent. Interestingly, the break-up between capital expenditure and revenue expenditure is also the same, viz. 83 per cent on the Revenue Account and 17 per cent on the Capital Account. Why, even the shares of Plan and non-Plan expenditure are the same, viz. 74 and 26 per cent, respectively, of total expenditure. It is as if the finance minister and his babus in the North Block have discovered a golden formula that they are loath to let go of.

Last year, the biggest item under non-Plan expenditure was interest-payments, which added up to Rs 91,425 crore. Or 30 per cent of total expenditure. Lo and behold, interest- payments next year will also be 30 per cent of total expenditure, almost to the decimal point. Why has Sinha stuck to the same formula as last year? He is either being too cautious, or plain prudent. He, probably, feels that, at a time when the economy is changing so rapidly, he should not take any chances that he might later live to regret.

It's all very well to argue that non-Plan expenditure should be reined in because it is unproductive, and acts as a drag on the economy. But, in India, where government-spending is a key factor in aggregate demand, and sets the tone for the entire economy-not just the public sector-it can be argued that too drastic a reduction (as a proportion of GDP) might impact the economy adversely, and interfere with the recovery. The ghost of John Maynard Keynes still haunts North Block. Remember: inflation is in check, and there has been a recovery in industrial growth as well as exports. It would have been different had prices started shooting up, but they haven't although there is much more liquidity in the economy and the stockmarkets are soaring too.

Government expenditure, at 15 per cent of GDP, is not all that high. There are countries like Sweden, where it is as much as 44 per cent. What is high, however, is unproductive expenditure on interest-payments and subsidies as also the establishment, which eats up more than Rs 25,000 crore in salaries and perquisites. There is certainly scope for cutting down spending in these areas, but Sinha says that he appointed a committee that recommended a huge hike in pay although, at the same time, also asked for the reduction of staff by 30 per cent. Let us see what the new committee or committees will do, and whether the government has the guts to act on what they say.

Subsidies, a politically controversial item, are budgeted to go down to Rs 22,800 crore in fiscal 2000 from Rs 25,700 crore in 1999-2000-a drop of nearly Rs 3,000 crore. Food subsidies will go down from Rs 9,200 crore to Rs 8,100 crore-not really all that much, but see how it is going to affect the people at the receiving-end. Those below the poverty-line will have to pay Rs 5.80 per kg of rice instead of Rs 4.20-a hike of more than a third. Then, there is the hike in urea-prices. Will Sinha be able to go through with it? He should, but I have my doubts.

Ultimately, what matters is not only how much you spend, but whether you are able to stay within the budgeted limits. This is where the whole exercise breaks down. For instance, non-Plan expenditure was budgeted at Rs 206,882 crore last year, but it shot up to Rs 224,904 crore. This time, Kargil and Orissa may be the main culprits but, surely, other spending could have been held down for the duration. We have a huge government, but not a very efficient one. And there is nothing in Budget 2000 to indicate that that is going to change in the near future.

..No, Uncut!
..Sure, counters JNU's Jayati Ghosh, particularly since only outlays that directly impact the common man have been sacrificed.

by Jayati Ghosh .

While government expenditure-and especially interest payments-will, certainly, not be curtailed because of Budget 2000, that expenditure which directly affects India's citizens will, indeed, come down. While this Budget claims to increase Plan outlays by 13 per cent over last year's Budget Estimates, and 22 per cent over the actual spending in 1999-2000, the outlays in many crucial sectors of the economy-agriculture, rural development, and irrigation, to name but a few-have actually been lowered by the finance minister.

In addition, the actual spending by the government may turn out to be less. In the last two fiscal years, for instance, the government actually spent much less than it had budgeted for in almost all these crucial sectors-including agriculture, rural development, irrigation, energy, industry, and minerals-thus depriving them of sources of growth. There have also been shortfalls in the expenditure on social services in both these years. The only major increase in expenditure provided for by Budget 2000 is defence, which accounts for 80 per cent of the increase in capital expenditure this year.

To my mind, the striking feature of these proposals is that Finance Minister Yashwant Sinha has chosen to make the poor and the farmer pay for this in a variety of ways. He has taken a swinging cut at the food-subsidy at a time when there is evidence of growing rural poverty and real declines in per capita consumption expenditure in the urban areas. And he has cut the fertiliser subsidy, and reduced the public expenditure that will help our farmers. At the same time, he has increased the threat of import competition by reducing the peak rate of the Customs duty to 35 per cent despite the fact that the production of many of the items that will be in the free imports list from April 1, 2000, continue to be highly subsidised abroad.

Our poor will be hit by both the expenditure-cuts and the attempt to raise indirect taxes. Consider the reduction in the food subsidy. At present, we have a situation of rising foodstocks with the government, sluggish agricultural growth, and falling employment-opportunities, especially in the rural areas. If the government was really concerned about its citizens, it would use these foodstocks to embark on rural employment schemes that would improve the state of the rural infrastructure as well as provide more food to the growing numbers of rural poor.

Instead, not only have such employment-schemes not been expanded, the Public Distribution System (PDS) has come under fire. Sinha has claimed that he is helping those below the poverty-line by increasing their quota of foodgrains from 10 kg to 20 kg per household. However, what he did not mention in his speech is that the poor households will be forced to pay much more for such foodgrains because of the decision to charge them half the ''economic cost'' of the Food Corporation of India (FCI). This amounts to large price-increases-of around 64 per cent in the case of wheat, and 46 per cent for rice.

Even people above the poverty-line, many of whom are poor in a wider sense, will have to pay between 10 and 15 per cent more for foodgrains because they will now be charged the full economic cost. The irony is that while this will hit ordinary people hard, it may not lead to a decline in the food subsidy bill at all! That is because, as prices rise, the offtake from fair-price shops tends to decline, and the FCI is left holding even more stocks, with high carrying costs that add to its losses. This is one reason why foodgrain-stocks are already so high in our country.

Most developmental and welfare expenditure will continue to lag behind in the future, with adverse implications both for growth and the material welfare of our citizens. The only item of expenditure that is likely to continue to rise next year is interest- payments, which already swallow up more than half the government's revenue receipts, and are almost as high as the fiscal deficit.

If the government is borrowing simply to repay debt, that is not only because of fiscal profligacy in the past; it is also largely due to financial liberalisation, which has led to high interest rates. As long as this is the pattern, changes in government expenditure will continue to be for the benefit of financiers, and to the detriment of the real constituents of the Indian economy.

Jayati Ghosh is Professor, Jawaharlal Nehru University