Economist’s Perspective (March. 08,2007)

Economist’s Perspective

How do you look at the Union Budget 2007-2008?

Before I attempt an answer to your question, let me re-phrase it in a more general way. How do we look at any budget? A budget, in the ultimate analysis, is a statement of income and expenditure. In short, how to generate income and where to spend it. A budget may belong to a family, to a firm, to an institution or to a government. Our immediate point of reference is the Union budget, that is, the statement of income and expenditure of the Government of India. A government raises its income from taxes and spends it on certain items of social welfare and development. Hence, the annual budget of the government gives the programme of the government for the next fiscal year. That is the significance of the Union budget in any given year.

Another thing we have to keep in mind is that each budget incorporates a philosophy. The budgetary philosophy of the Government of India has changed since 1991 when policies of liberalisation and globalisation of the economy were put into effect. At that time, socialist philosophy of an omnipresent and omnipotent government was abandoned and more liberal philosophy of an open, permissive government was adopted. The present budget also reflects the current economic philosophy of the government. It puts into effect the non-interventionist role of the government.

Furthermore, we must remember that any government, and I repeat, any government, cannot make its programme of income and expenditure disregarding the current economic conditions of the nation. That is why the Union budget is preceded by an economic survey each year. The economic survey of the year 2007 reported that the state of the economy was good. Hence, the budget 2007-2008 reflects an optimistic view of the economy, which had been presented in the economic survey.

We are told that it is good for rural India

I think you have been told correctly. I was talking about the economic survey, which has indicated that the manufacturing sector has been growing at the rate of 11 percent per year. But agricultural sector has been growing at the rate of 2.3 percent per year. The significance of the agricultural sector is twofold for the economy. On the one hand, it supplies foodstuff and agricultural inputs for the rest of the economy, on the other, it generates demand for industrial products. If the agricultural sector does poorly, the industrial sector would also face a demand barrier sooner or later. Further, if agricultural production is poor, the demand for agricultural products increases because of growth in the manufacturing sector, and prices in agricultural sector are likely to rise. This would generate inflationary pressures in the economy.

That explains the rationale for added emphasis on the rural sector in the current budget. All allocations dealing with the rural sector have been increased. Rs 11,000 crore has been proposed to be allocated for irrigation schemes. A new Rain-fed Area Development Programme has been launched and Rs 100 crore has been allocated for it. Steps have been announced for repair of water bodies, ground water recharge, training of farmers, extension systems, fertiliser subsidies, agricultural insurance schemes, etc. The government is also placing special emphasis on rural infrastructure. In a nutshell, it may be said that the rural sector has been made a priority sector.

The budget envisages a trebling of allocation to the Minority Affairs Ministry to Rs 500 crore. How would it help?

I do not know your source of information. However, I believe that if you say so, it must be correct information, although it was not mentioned in the budget speech of the finance minister. Nevertheless, it is common knowledge that a ministry of minority affairs has been recently established. Newspaper reports have it that a ministry was created to accommodate a person as a minister. Even an office has been provided to the ministry very recently. The allocation of a budget to a ministry may be viewed as a routine matter to meet its administrative expenses. Personally, I do not attach much importance to it.

Then, there is that promise of a special plan for districts with high concentration of minorities. What does it really mean for Muslims in concrete terms?

I do not know much about this either. The finance minister has in his budget speech announced Rs 108 crore for infrastructure and overall development of the high-minority concentration districts. What districts are those? Where are these located? We have not been informed. Some years ago, the ministry of home affairs had identified 40 districts as minority-concentration districts. The Sachar Committee had come up with an updated list based on the 2001 Census. It is not clear whether the ministry of finance proposes to use the list prepared by the Sachar Committee or it would prepare some other list based on some other attributes. The finance minister had only two sentences in his speech, which I quote here, "There are a number of districts with a concentration of minorities. I (the finance minister) propose to make a provision of Rs 108 crore for a multi-sector development programme in these districts." Unless that programme is made and revealed, it would be premature to say anything.

So do we go up or down?

Only God knows whether we are going to go up or down. Economists are not astrologers. They cannot make predictions like that. The Union government has presented its proposed allocations and budget proposals acting upon an optimistic scenario. The optimistic scenario is based on certain assumptions. Nobody knows whether those assumptions would turn out to be correct or not. If those assumptions are correct, the going would be good. Otherwise, probably the going will not be that good. Nobody would be able to tell you what is going to happen. Whether we are going upward or down the hill. You need astrologers and not economists to tell you that.

Economists usually rely on the indicators. The present indicators look good. However, the policy makers are watching the inflationary pressure building up in the economy. If it builds up further and inflation gets out of hand, thing may go awry.

Then, there are random factors. Unforeseen and unanticipated factors may appear and throw everything out of gear. Such factors could neither be predicted nor taken into account. But everything depends on them.

There are some apprehensions Muslims again may not get anything substantial from it. People comparing the allocation for minorities to those for SC/ST find it a mere pittance.

Total allocations announced in the Union budget 2007 amount to just Rs 381 crore. This includes Rs 108 crore for minority-concentration districts and Rs 63 crore to the corpus of the National Minority Development and Finance Corporation. This is just 0.059 percent of the total budget which stands at a staggering Rs 680,521 crore.

 In my judgment, one should not compare the allocations for minorities with SCs and STs. There is a consensus in the society that special efforts must be made for SCs and STs. Nobody objects to that. The case of minorities, particularly of Muslims, does not enjoy that unanimity. I suspect that after the bold approach of the Sachar Committee, the Union government is toying with a go-slow policy. It is afraid that any bold approach may land it into political doldrums, out of which it may not find an easy way out.

Disappointments are a function of expectations. Higher the expectations, greater the disappointments. I mentioned earlier that in the present political climate the government has probably decided to go slow on the issue of minority development. It is not reasonable to expect any substantial favour at this stage. Indian Muslims have developed the bad habit of looking towards the government for each and everything. Instead of expecting favours from the government, they must look at themselves and stake their claims as citizens of this great country and not exclusively as a minority. We must stop seeking favours.

 The finance minister thinks he has taken into account Sachar Committee recommendations, but others are not convinced.

I think this issue has already been answered in your earlier question. I do not have any thing to add to it.

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