Budget by trickyblogger06

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									Budget:more than a mere accounting
                        statement
                                                             A panel discussed the
                                                             relevance of the Union Budget
                                                             at the Mint Conclave

                                                             new Delhi: A panel comprising
                                                             Amit Mitra, secretary general,
                                                             Ficci; Ajai Chowdhry, chairman,
                                                             HCL Infosystems Ltd; Sanjay
                                                             Kapoor, chief executive officer,
                                                             India and South Asia, Bharti Airtel
                                                             Ltd; R. Sukumar, editor, Mint;
                                                             Tathagata Satpathy, member, Lok
                                                             Sabha; Pratap Bhanu Mehta,
                                                             president and chief executive,
                                                             Centre for Policy Research; Ila
                                                             Patnaik, professor, National
                                                             Institute of Public Finance and
                                                             Policy (NIPFP), and N.K. Singh,
                                                             member, Rajya Sabha; discussed
                                                             the relevance of the Union Budget
                                                             at theMint conclave on Budget
                                                             2011, in New Delhi on Wednesday.
                                                             Economist Haseeb Drabu
                                                             moderated the session. Edited
                                                             excerpts:


                                                             Drabu: We will try and understand
                                                             how relevant the budget is for
                                                             (the) Indian economy. There has
                                                             been (a) feeling that it has
become marginally irrelevant. If you look at the numbers, it is not what it used to be in the
’80s. Post-reform, there has been a significant disempowerment of the budget. That’s not
necessarily bad. At one point, the budget would account for almost 80% of the total
investments in the economy. Today, it is less than 18%. Purely in terms of the strengths of
the budget, it has gone down in its importance.


Also, the government overtime has shed a lot of regulatory powers and policy making powers.
In that sense also, it has reduced in its significance. Nevertheless, it continues to be a major
media event and also one platform where the finance minister does speak about the economy
once in a year. Also, overtime one has felt that there is some sort of a consensus on the
direction of economic policy. And to some extent one feels that good economics has subsumed
the politics of the budget...
Singh: ...I think one of the main challenges before the finance minister is to reinvent the
budget. You are absolutely right that budget was the principal instrument of economic policy
when economic liberalization began in 1991, and it’s part of the index of the success of our
reform strategy. The budget became comparatively irrelevant as the tax rates became more
simple, as policy direction became more predictable, and the burden of the carrying of the
economic reform agenda shifted from the North Block (finance ministry) to other ministries
and other departments.


Unfortunately, what has happened is that perhaps it may have swung to the other extreme.
Well, I think that what happened in the last few budgets is that the finance minister accepted
that why should I take the burden of what my colleagues should be doing. The result was
neither he did nor his colleagues did. So, I think this is a good time to reinvent that and to
reset the primacy of the budget beyond a mere accounting statement into not only the
direction of the economic policy but, in fact, to articulate the economic policy into several
areas, where I think that economic policy direction needs to be deepened.


Mitra: I think that a lot of people think that this is the accounting budget. But I must confess
that this is the political economy budget and it has to be. There are areas of the budget which
require continuity and invariably will be so. You take agriculture, there are allocations there.
You take food security as part of the process. That’s not what private sector necessarily will
have to do in terms of specific types of allocations. You take infrastructure, 46% of the total
plan expenditure was infrastructure. Then you take social inclusion, there are various types of
social justice and empowerment issues, which need to be debated.


These are constituencies of voters. In a democracy like ours, can we do without them? But the
debate is the instrumentality… instruments through which you go into these constituencies
and efficiently allocate those resources. So, I think the debate in my view is no more whether
the budget is important or not. It is important because it is partly political economy statement,
partly a tax statement. But the key issue is, is the budget going to produce instruments of
allocation of these resources effectively? That’s where I have concerns.


Mehta: It depends on what you are looking at. Let’s start with two topics that are on our
mind—governance and corruption. What has the budget got to do with those? How can you
have effective governance if the budget does not invest in the judiciary? How can you think of
tackling corruption if sectors like real estate do not come under GST (goods and services tax),
discretionary powers in taxation do not decrease? These are central aspects of the budget. The
budget is terribly exciting for all the things we are getting excited about—not just the
economic issues...


Satpathy: Earlier, we used to think in India that a state like West Bengal might progress
because they have political stability. But whether it is West Bengal or Libya or Egypt,
everywhere it shows that stability is not the issue. The issue is the bottom up issue—whether
you are addressing the real people. We talked about infrastructure, companies taking up
airports, six-lane flyovers etc. But what happens to drinking water in the villages? We lack the
ability of good economists in this country—people who actually know the country as it is now—
when you take bureaucrats and put them as economists...
Patnaik: It sounds very arcane to talk about macro stabilization policies but we really have to.
It’s especially relevant in this budget. We don’t even know the kind of macro stabilization
policies India needs.


We don’t understand what counter cyclical fiscal and monetary policy are. So when prices are
rising, I find a lot of people saying if taxes are increased, prices will go up, so the budget
deficit should be allowed to be expanded and taxes should not be increased because that will
raise prices.


There are very few macro economists, and those who are there don’t understand what needs
to be done. India has moved so fast in the last 15-20 years, growth has doubled, growth rates
are high, business cycles have emerged. We are still trapped in the old system where we don’t
understand where we have to do counter-cyclical macro policy. The result is the kind of high
inflation that you have.


Kapoor: I think what touches my heart and mind the most in strategy, after (World Economic
Forum at) Davos, is that economies in future will compete not only on the physical
infrastructure but also on the virtual infrastructure that the countries create. This is about the
knowledge economy.


This is about the connectivity to the broadband. This is about the data and information that
you will consume. The world believes that in the next 10 years, your consumption of data will
multiply into at least 1,000 times. If that is true, is the government planning for all that? Are
we moving towards that path? Or are we going to be delineated from the rest of the world?


Chowdhry: What are we going to do with the issue like manufacturing? It’s been discussed
for many, many years. There is the national manufacturing competitive council that’s been set
up. There are areas that clearly identified for the focus on manufacturing. I think
manufacturing needs to get that impetus and direction and we would really like to see the
finance minister talk about what they are going to do about manufacturing and how do they
create more jobs through manufacturing and how do they involve all the ecosystem of
manufacturing?


Sukumar: As we stand in 2011, we probably have very little expectation of what this budget
will hold, because we think it’s going to be the budget for the ’80s, the ’90s or even the
2000s. It doesn’t really take a lot of factors into account. I think the structure of the economy
has changed, which points to what Ila said about economists not really understanding a lot of
things. I think the nature of manufacturing has changed. It’s a good point because these
decisions that we take on manufacturing now prompted by the budget will decide how
investments will be made 2-3-5 years from now. Jobs will be created. How the economy will
grow. So, I think that situation has changed

								
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