UPA govt’s last budget chooses to blow no poll bugle

In presenting the last full budget of the UPA II government before the 2014 general elections, Finance Minister P Chidambaram has defied all expectations that he would come up with a dream budget as he had in 1997. Even when his budget speech made it clear that the government would complete its term, it was by no means an end-of-the-term budget as it did not sound the poll bugle. He did not let populism get the better of him and resisted all temptation to hand out big freebies.

What the opposition parties thought was that the Congress would present a populist budget and then go for polls. They accordingly have been urging their party cadres for the past few months to gear up for mid-term polls. But the ministrations of the finance minister are of the sensible kind. He placed fiscal responsibility over the temptation to please the electorate with blowout schemes. He must have thought the elections are still 14 months away and the economy has time to recover.

Chidambaram had a tough act to perform. The circumstances surely were not auspicious in not being overly populist in a pre-election year. The economy is in free fall. Growth has almost halved; inflation and particularly food inflation is rampant; savings have fallen sharply, as has investment; the current account deficit is at a record high; the threat of downgrading Indian debt to junk status was very real; government borrowings, and hence deficits, have returned to 1991 levels.

Buffeted by strong headwinds of multiple demands blowing from several directions, Chidambaram has had very little room for manoeuvre for major new initiatives while fashioning the budget. He had to squarely balance the competing claims of economics and politics. In the context of the fiscal deficit, the former suggested austerity while the dictates of the latter indicated a loosening of purse strings. The ensuing balancing act explains why there are no headline grabbing revenue or expenditure measures in the budget.

This is Chidambaram’s eighth budget. No other finance minister has presented more, or watched budgeting at close quarters for more than two decades. The vast experience shows. He has displayed a sure touch in pressing the right buttons. He has had to juggle between acts to woo investors and exhibiting fiscal rectitude, all the while resisting pressure to succumb to reckless populism that party activists believe can win elections.

Yet the budget is not devoid of any political message. It addresses the new core sectors identified by the Congress Party at its Jaipur conclave in January. The budget speech makes it clear that the Congress is interested in targeting three constituencies - women, youth and the poor - who Chidambaram believes represents the “vast majority of the people of India.” So the budget does make an effort to hand out concessions to these sections through the proposed women’s bank, the Nirbhaya Fund, jobs for youth and direct cash transfer of subsidy for the poor. The saving grace is that this is not at the expense of fiscal discipline.  

Still the populists who had expected a massive allotment for the proposed Food Security Act were disappointed that the finance minister kept aside a token sum - an indication that the legislation will probably be enacted in the final months of the government. There was disappointment too that the monetary allotment to the other flagship programme - MGNREGA - was actually decreased, an admission, perhaps, that this great act of rural empowerment was yielding diminishing returns.

So the budget, presented in macroeconomic circumstances, both global and domestic, is sadly no firecracker that displays Chidambaram’s trademark aggression and imagination. The fiscal prudence he aims at is not the kind that would raise toasts at home and overseas. It will not help the Congress much in fighting the coming elections either. Still optimism, especially when it radiates from the smiling face of the veteran finance minister, does cheer up a worried people.

Rail on the loop line

The Indian Railways has been a behemoth running on broken wheels for a long time. Yet the annual rail budget, presented last week, was devoid of any big ideas and reforms to put the maverick network back on solid track. It was perhaps unrealistic to expect the incumbent government facing a general election to tread any unbeaten path or introduce revolutionary concepts.

After a gap of 17 years, a Congress minister - Pawan Kumar Bansal - preparing the budget had evoked a strong sense of expectation since regional leaders who had served as railway ministers during successive coalition governments had used their budgets to pander to their localised political constituencies, announcing projects that had little economic or commercial viability. Bansal had a historic opportunity to change tack.

Nobody would have expected him to come up with anything out of the box, but his paying scant attention to extricating the system from the “sick line” proves his priorities are skewed. The railways fell short of almost every target it set for itself last year in terms of improving infrastructure - doubling tracks, changing gauge or adding new tracks or services. Bansal admitted in his budget speech that the ministry has been unable to find timely funding for 347 projects.

Railway projects and trains are often announced liberally and with fanfare. Bansal too has promised 500km of new tracks and 106 new trains in the next fiscal year. But where is the fund? The railways has accumulated losses of Rs2,500mn. There was not even a hint of how the dismal finances would be redeemed, the operating ratio reduced, and persistent plagues like the tardy renewal of track, rolling stock and locomotives would be tackled.

As a measure of his seriousness, Bansal has outlined eight steps for safe operation of trains and 12 steps to achieve cleanliness-related objectives. With an eye on youth, he seeks to introduce longer hours of Internet ticket booking and free wi-fi on select trains. This will be a boon to Net-savvy travellers, but falls far short for those who want the railways to grow fast, offer world-class facilities and super-fast trains.