|Growth in sight, no path|
|Tuesday, 13 March 2012 00:00|
President’s address glosses over tough decisions
Not surprisingly, given what various government officials have been saying all along, the President’s address to Parliament begins by saying though growth has slowed, a 7% growth is healthy by global standards. What is worrying, for those looking for Budget signals from the speech, is that while the President says her government is confident of steering the country back to an 8-9% growth path, the speech gives no indications as to how this will happen. Higher growth is not possible till savings levels look up—if by some miracle, the Budget enthuses investors to start investing again, without a pick up in savings, this will lead to a balance of payments problem. Decompose the fall in savings levels, from 36.8% of GDP in 2007-08 to 31.6% in 2011-12, and you see the biggest culprit is the huge fall in public sector savings, making it important that the government sketch out a path to increased public savings—removing oil subsidies borne by oil PSUs, currently around 1% of GDP, has to be a major part of that.
The Food Bill, curiously, is not listed in the Bills the government seeks to pass in the current session—it is before the Standing Committee—but the President’s address mentions this as an initiative of the government. Though it is not clear if the Budget will provide for the Bill, any delay in its implementation is to be seen as a positive from the point of view of controlling expenditure (the Bill is expected to cost R6 lakh crore in 3 years when fully rolled out). The President’s speech mentions some other entitlements that can be quite costly—a higher education credit guarantee authority and extending the rural health mission to urban areas—but it is not necessary the Budget will make provisions for any of them. The President’s speech does well to highlight the initiatives taken by the government to clean up the system, and it is hoped some of the Bills will get cleared in the current session, though the heat over the Lokpal Bill can well result in another logjam. If so, other Bills like on pensions and insurance could once again get delayed.
While most expect the Budget to begin using the UIDAI to make direct cash transfers in a limited number of districts, the President’s speech is silent on this. It is just as well that the ban on cotton exports was lifted on Monday, else it would have made a mockery of the pro-farmer policy the speech talks of—the larger issue of subsidies crowding out government investment in agriculture is a serious bottleneck, but no mention was made of trying to rectify this. Equally worrying was the focus on railway modernisation and increased power capacity without any mention of the serious financial crisis here and the need to fix that. If the speech is an indicator of the Budget, the signs aren’t encouraging.