Interim Budget’s hidden text

The interim Budget presented by the acting Finance Minister, Pranab Mukherjee, has been roundly criticised for its lacklustre quality. Self-congratulatory in tone, the last budget of the UPA Government did not contain the much-hyped third stimulus; instead the most abiding memory of the speech remains the rise in the fiscal deficit to 6 per cent from a noteworthy low of 2.5 per cent last fiscal.

Yet on deeper reflection, Mukherjee’s speech, rich in the details of his government’s policies and programmes, poor in original ideas provides an awesome legacy for the next government to follow, a testament of responsibilities that the new policymakers, regardless of their predilections, will have to shoulder over the medium term.

That legacy is located in the fiscal deficit that has risen to 6 per cent of GDP from 2.5 per cent last year. As the sum of so many additional commitments assumed by the UPA Government since the Rs 60,000 crore farm debt waiver, the fiscal deficit’s departure from prudential targets coincided with the global crisis and the liquidity squeeze and the gradual unwinding of the growth process.

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Whether the Indian economy’s slowing pace had anything to do with the global meltdown or not, one thing is pretty clear: Governments around the world moved away from the balanced budget dictum and the idea that public investments should not crowd out private investments to the belief that public money should substitute private funding.

As Indian industry began its output cutbacks, the policymaker had to act quickly on two fronts like his counterparts in the rest of the world: Reduce the cost and increase the quantity of capital available domestically and, two, increase government spending to fill the gaps created by industry’s trimmed capex plans.

Since September, the UPA Government has tried both; the RBI in a series of rapid cuts reduced the benchmark rates and injected more liquidity. In December and in January, the Government followed up with two stimulus packages; an amalgam of tax cuts that will cost Rs 40,000 crore in revenues and increased public spending on infrastructure that has raised government spending some 20 per cent over budget estimates.

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Sums are substantial

Add up the total sums committed by the UPA Government since the farm waiver and it becomes evident that the Government has had not one but several stimulus packages since last March.

In the first stage, the debt waiver, the Sixth Pay Commission awards and the fertiliser and food subsidies were a form of public spending. The two packages of December and January were growth-stimulating measures in the classic sense just as the RBI’s easing monetary policies were meant to increase credit.

Mukherjee’s list of public spending, is, therefore elaborate and showcases commitments to the common man if one were to assume that allocating huge sums of public money is the same as actually getting it to create jobs and incomes.

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Since it is not, one should look at the dull interim Budget as a laundry list of duties for the next government. For the vast sums allocated by the UPA Government to various sectors from rural roads to health and Defence to work as catalysing agents of revival in demand and further investments, the next government will have to make sure that things work in a way that no government in the past was called upon to do. History will not be a favourable guide since the very government that has been so generous with allocations has also had a patchy record of delivery on its projects.

The Project Status Implementation report by the Ministry of Statistics and Project Implementation makes dismal reading. Of the 981 centrally-sponsored projects it monitors, just 43 were on schedule, 13 were ahead of their target dates while the rest were behind or had no dates assigned for completion.

Chidambaram’s last budget for 2007-08 contained a vital paragraph about monitoring and evaluation of projects that included a Central Plan Schemes Monitoring System, a sort of Management Information System. The Planning Commission has begun work on it along with the Office of the Controller of General Accounts (CGA). A MIS database would give a more comprehensive record of the finances of some 1,200 centrally-planned projects.

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That is on paper. The CGA lists some difficulties in the collection of data that would be required to introduce a comprehensive MIS, hindrances arising out of the complex flow of funds from the GoI down through multiple implementing agencies to the grassroots.

The lag between the release of funds and expenditure builds a “float” in the channel system that involves a “carrying cost”. The CGA guesses that cost somewhere near Rs one lakh crore.

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Reforming accountability

Getting over the basic data hurdle prior to creating an effective MIS is only part of the delivery and accountability system that has to be put in place.

The Planning Commission and the CGA’s focus is on financial management. It would be even more appropriate to create a physical database of the time schedules for projects at each tier of implementation and governance, the details of contractors assigned jobs and their work schedules.

For a system of this kind, the States would have to be roped in to represent every level of an implementing agency’s commitment. This, in turn, would involve the expansion of the current limits of e-governance to include every level of governance with the Planning Commission and putting together the final picture of transparency and accountability.

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The budget’s implicit message

In effect, the interim Budget’s un-stated message is that spending, or, promising to spend public money, is easy; for the next government, the sub-text is an agenda for reforms of the kind never contemplated before.

Governments have spent public money wastefully, some have asserted the need for evaluation and timely execution of projects; some desultory efforts to force the pace of delivery have been in evidence off and on.

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