#dnaEdit: Tempting options

How fast should we assume we can grow? The question has become relevant in the context of the revised GDP estimates put out by the Central Statistical Organisation (CSO) last week. Particularly in the context of the budget-making exercise which is currently on. 

Budgets have to assume a certain growth rate of the economy to work out their mathematics for revenue and expenditure projections. We have seen earlier that even when rates have been marginally adjusted down, overall revenue collections have increased in times when the economy has grown faster. By way of a circular economic logic, growth can pick up momentum when taxes are cut and vice versa. Depending on the revenue trends, the expenditure budget is worked out. From there the deficit or surplus is simple deduction.

What should the finance minister Arun Jaitley do for his budget this year? The broad numbers must have all been worked out by now. In the next fortnight these would possibly be fine-tuned. Jaitley’s budget sums must have taken into account the GDP growth potential based on the earlier national income statistics. Now that the CSO has redone its national income account calculation and disclosed much higher growth potential, what should the finance minister do?

If he wants to be more ambitious, he might just as well take into account the new figures and do his maths a little differently. With a higher growth assumption, his deficit should come down ordinarily. With larger revenues from a growing economy, he can be more expansive and grant more money for many schemes. The urge to give a populist turn to the budget could become irresistible. Above all, the finance minister might simply attempt to egg on the economy to stretch a little more to hit a higher growth trajectory. 

Such an exercise might look very tempting for the minister to try. But then, as a cautious and conservative finance minister, should he? Should he assume a 8% growth rate and do his sums? The new GDP growth projections at 7.5% make such assumptions the right choice. 

There was another growth debate but in the context of plan formulation. Rajiv Gandhi had just become the Prime Minister. The Planning Commission was reconstituted and the new commission was grappling with the task of Plan formulation. What should be our growth target?  Dr Raja Chelliah, member and every inch a hard core economist, had advocated a lower growth target for the plan. But irrepressible and flamboyant Abid Hussain, member, who was a career administrator, wanted to stretch and opt for a much higher growth rate. Hussain’s higher growth plan had appealed so much to young Rajiv Gandhi he had used awfully harsh words for conservative commission members. Higher growth assumption then did not result in very pleasant consequences later and few targets were met.

So then, in the current context, what should the finance minister do, with his budget presentation just about a fortnight away?

It might just well be that it is too late for any drastic change and incorporating the new numbers. In such a situation, surely the finance minister would keep to his counsel and peg his budget to a lower growth assumption. That way, the chances of slippages are fewer. Growth, hopefully,  will happen, despite a conservative budget.