First Published on 28.02.2013
I have no doubt that this year’s budget speech is very biased. The speech starts with a defensive statement that, given the serious current account deficit problem, there is no choice but to welcome the foreign investments – and, therefore, when he mentions the CAD figure, he mentions it in the USD, clearly indicating the intention to mortgage the Indian sovereignty to fund the CAD. However, any novice in finance will tell that the best, and the only way, to balance a negative P&L account is to reduce expenditure and increase revenues. Government gets its revenues from taxes: so why not garner taxes from those who have extraordinary incomes? And why grant unnecessary exemptions to those who don’t deserve any? And why not cut defense expenditure, esp when, anyways, the sovereignty is being mortgaged? (By the way, the figure quoted for financing the current account deficit is USD 75 bn.) If it is not possible for you to do any of the above, then, for goodness sake, print more money than mortgage sovereignty – I agree sovereignty is a collapsing concept but not for a mere USD 75 bn.
Further, I fail to understand this affection for growth. I think the FM is still under the influence of the Malthusian Theory of Population Growth, so he is preoccupied with the economic growth; somebody tell him that the Malthusian Theory was formulated over a dinner table, and many have shown thereafter that a few people can easily grow food for all with a little use of technology; so, the real booster of growth is technology; grow technology if you want to grow economy, which innovative growth can’t come without satisfied labour; so, if you want innovation, satisfy labour by improving their living and working conditions before you satisfy capital by lowering its cost; in other words, attack inflation without worrying about growth, and fund the needs of the poor with the money of the super rich by levying taxes, not only surcharges, on them.
Any sane economist will tell that the biggest negative ramification of growth led economy is deteriorating environment; it is a cost which is never accounted for in the balance sheets of the corporates, but the budget speech devotes only three paragraphs to this section and provides only Rs 800 crore to the Non-Renewable Energy Ministry; it talks of waste-to-energy projects in the PPP mode, not in the purely public sector, and obviously doesn’t allocate any amount for it — I think a minimum 10 year residence in a slum near a garbage dump should be the necessary pre-qualification for becoming a finance minister, so that he may empathize with the problems of those who suffer because of the industrial and urban growth.
Another disappointment in the budget is not much increase of excise duty on diesel cars and SUVs: Though the excise duty on SUVs has been increased from 27% to 30%, but why not make it 40% or more in the case of diesel SUVs? And, at the same time, why not give further incentives to the electric vehicles’ manufacturers so that they can sell cheap (the extension of concession to electric vehicles is not enough)?
Last but not the least, there is an extremely irresponsible proposal in the budget speech with respect to radio broadcasting. The auctioning of 839 private FM channels covering all cities above 100,000 population is an extremely dangerous proposal – I think the FM has never heard an FM channel. The contents on FM channels are completely unregulated and their reach is highly penetrative. The FM channels, at present, are only working as the agents of the neo-liberal conservative ideologists; they are subtly promoting the subordination of women by men by biased promotion of the item numbers and by loose sleaze talks of the radio presenters; they are projecting Bollywood as an ultimate source of entertainment and spiritual needs of the people; and they are promoting an environment of distrust and paranoia in relationships and a complete disregard for moral values. I wonder what effect the wide-scale penetration of the FM channels in the smaller cities will have on the Indian culture.
The FM, in his budget speech and the press conference, says that the only way to finance the current account deficit is through foreign investment. This is diversionary: The real question is what percentage of the CAD financing is actually the revenue deficit financing, which is getting financed by the foreign investment. If any big part of the revenue deficit is getting financed by the foreign investment, it is a serious issue. Moreover, even if the CAD is majorly because of the high imports, then also why can’t there be a revenue generation to fund imports? If I want to buy an imported good, I have to finance it from my own pocket; when I don’t get loans from the US to buy Gucci, why should the government get foreign investments to fund oil imports? And even if the loans have to be taken, why not take it from the domestic business (which is anyways not ready to invest in spite of so many tax exemptions)?
Comment dt. 01.03.2013
However, I find the idea of all women’s bank pretty good not because the bank will employ women but because it will cater to the women’s needs. Presently, a woman is completely dependent upon the male member of the family for all financial decisions, and, ironically, though the property is bought in the name of the woman, she herself doesn’t make the decision mainly because the financial structure of the society doesn’t favour women’s participation in financial negotiations and decision making. If a mechanism can be created where women can join in the financial decision making process by controlling the flow of money — which has become a big source of power in the capitalist world — women can get inherently empowered at the grass root levels.
Comment dt. 02.03.2013
I think I have not well articulated the relationship between the CAD and the revenue deficit. The CAD, simply speaking, is the money we pay foreign countries on current account (let’s assume for simplicity that all countries have same currency, say rupee); to balance the accounts, we need to arrange for this money; in the budget speech, it is mentioned that the money will most probably be arranged through foreign investments; it’s like saying that, for buying my Swiss chocolates, I will either borrow money from my Swiss friend or ask him to invest money in my blogs, but I needn’t do this if I earn enough from my blogs (which I don’t do for professional reasons) and pay for the Swiss chocolates from my own pocket. This incapacity to pay is my revenue deficit; basically, I am not earning anything but still buying Swiss chocolates, which puts me into deficit. So, the relationship is clear: I am actually financing my revenue deficit by financing my CAD. In the case of a country, there is an additional element of private imports and private investments. If the residents, instead of helping the government finance the revenue deficit from their savings, buy gold and, in turn, make private investments abroad, they leave the government with no choice but to seek the investments from abroad to finance their revenue deficit; but the moot question: why should there be revenue deficit at the first place? If it is because of oil and other subsidies, the government needs to generate equivalent revenues or cut expenditure to take care of the subsidies. The crux of the matter is that, till the time the amount of foreign investments financing the CAD is more than the amount of revenue deficit, the foreign investments actually finance the revenue deficit, irrespective of whether people buy gold or not — even if they buy government bonds, not gold, but from the money borrowed from abroad, it’s only the foreign investments that finance the revenue deficit. The FM has, sans occasion, mentioned the CAD figure in his budget speech for the reasons best known to him; all he had to do was to explain the government’s deficits, especially the revenue deficit; and, the moment he does that, the questions arise with respect to the defence expenditure, the tax exemptions to the corporates, the poor revenue generation from the super rich, and, of course, the subsidies per se.
©2013 Ankur Mutreja