dna edit: Chidambaram's interim budget projects UPA's achievements amid imbalances

As expected, finance minister P Chidambaram’s presentation of the interim Union Budget for 2014-15 was a defence of the UPA-II government’s economic policies. With no changes in direct taxes and a raft of conciliatory measures for some sections of the population, the FM’s attempt was to paint a picture of economic recovery and stability. Much of the UPA-II’s time and energy was spent firefighting a dangerous slide downwards on most indicators. The phrase “policy paralysis” was used to describe the UPA-II’s inability to force the pace of economic reforms. The GDP rate, inflation, current account deficit, fiscal deficit and the Index of Industrial Production have all recorded dismal figures between 2011-13 giving ample proof of a grim recessionary scenario. To Chidambaram’s credit, some of the firefighting measures since he took office have yielded results but the inability to stem price rise and kickstart manufacturing indicate a deeper rot.

While the measures to curb fiscal deficit from ballooning seem to be working, at 4.6 per cent it remains too high for comfort. The government will have to borrow over Rs4.5 lakh crore from the market this year to bridge the fiscal deficit. A strong case for better targeting of fertilizer and diesel subsidies and measures to curtail leakages in the PDS and MGNREGA exists, considering the huge outlays on these heads, if only to curb wasteful public expenditure. But with general elections looming, Chidambaram has decided to err on the side of populism. The steep cut in excise duties in all car segments will provide a breather to the struggling auto sector. Rahul Gandhi’s hand is clearly visible in the acceptance of the longstanding one-rank one-pension demand of the armed forces. Chidambaram’s announcement came soon after Rahul met retired defence personnel on this issue. Chidambaram, however, resisted UPA chairperson Sonia Gandhi’s call to reduce import duties on gold. This is proof that the current account deficit, down now to $45 billion from $88 billion last year, is still in the red. He also resisted the immense pressure to wind down the 10 per cent surcharge on the super-rich, earning over Rs1 crore annually. Initially introduced for one year in 2013, in view of slipping revenue receipts, the surcharge on rich individuals and companies will continue into 2015.

As with other developing countries, the India story has come with its own growth pangs. The economy has grown significantly in the 10 years of the UPA government. But the UPA failed to nourish it through creating strong regulatory structures, rectifying supply-side bottlenecks, or efficient poverty alleviation techniques. In election season, the UPA’s attempt to cushion the blow dealt by food inflation on household budgets by hiking the number of subsidised gas cylinders to 12 is yet another kneejerk measure. The reliance on subsidies indicates the government’s appraisal of the weakened purchasing power of people amid sustained price rise. While most social schemes have seen a significant hike in absolute amounts allocated, the growth in allocations on public health and education have lagged other heads like planning, petroleum and civil aviation. State spending on health and education is a constructive expenditure that aids in human resources development. Unfortunately, the focus on GDP growth — without linking it to outcomes in human development — forces the increased reliance on subsidies to appease citizens. Perhaps, the next government will do a better job at the efficient delivery of public services.