A mature balancing act despite deficit

The Union Budget is an act of deft draughtsmanship. There has recently been an all-too-discomforting air of tension in political economic policy formulation within the two principal policy spheres in the country.

There is little doubt that Prime Minister Manmohan Singh as well as most of his closest policy advisers have been raring to go back for quite some time onto the disrupted reform path. 

But the events on the ground, with daily doses of new scams and unconscionable situations of government deficit, would seem to have put them on the backfoot.  Pitched on the other side is the National Advisory Council chaired by Sonia Gandhi, which has been taking bold positions which go contrary to the tenor of the reform minded and typically vested interest driven politicians and bureaucrats.

In his essential political make-up, finance minister Pranab Mukherjee is a great realist, who has not been known to sing laudatory songs for the market mechanism.

He is only too aware of the ground conditions which tell him that anything like half to three quarters of the population of the country has been completely left behind in the 8% to 9% annual growth of GDP in the past decade.  He knows only too well that the political fortunes of the Congress Party are intimately linked to how he can relate to the bottom half of this huge 1.2 billion population base.

His own top advisers, though brilliant, are so much sold on the reform mantra that one often wonders whether there could possibly be any meaningful meeting ground between the thoughts of the leader, the finance minister and his advisers. The paradox, however, is that the answer is in the affirmative. Clearly, Mukherjee has been able to reconcile the seemingly irreconciliables.

Even though, as per the Economic Survey, the GDP growth in the past year has been as high as 8.6%, there clearly have been issues of great concern confronting the economy. 

Heading the list has been the high and rather unprecedented inflation that has plagued the most vital — the food sector this past year.  The response of the government so far has been weak and unconvincing.  The logic in the Economy Survey seeks to offer the view that high growth necessarily comes with inflation.

But inflation in the food economy that immediately hits the real incomes of the bottom half? 

Surely, this is one sector where the government must be morally bound to immediately intervene by way of imports as well as releasing buffer stocks and generally being strict with hoarders.  In any case the service sector led growth is heavily concentrated within the top 10% of the population.

If the bottom half were to be bystanders in the growth story and have to bear stiff food inflation to boot, maybe we should ask whether this high growth path is the only path that is feasible, or desirable.

The crying need of the hour is much more pumping of resources into agricultural infrastructure that would release the supply constraints in the medium and long run. 

Essentially, it is this which can help us tide over the spectre of back breaking food price inflation.  Technological innovation and purposive and mature economic policymaking have kept the dire Malthusian prognostications at bay for the past two centuries. 

There is no need to accept a defeatist position just yet.

Let me make four specific comments on the budget proposals, all of which are in the right direction.  First, I think it is fair to say that through a variety of schemes and programmes, including substantial allocation for Nabard, expansion of agricultural storage capacity, and interest subvention for small farmers, among others, the finance minister has shown that he is sensitive to the prime need for substantially supporting the agricultural sector.  Second, there is greater allocation for infrastructure development in the roads, rails, and the port sectors.  Third, the finance minister has substantially expanded allocation for the social sector, including a doubling of remuneration to anganwadi workers. Fourth, the increase of the exemption limit from Rs1.6 lakh to Rs1.8 lakh is very much welcome, keeping in view the recent spate of inflation.

While the finance minister has on the whole moved rightly and boldly in most spheres, there are some areas of concern.  One particular issue deals with paying the minimum wage to workers in the MGNREGA programme. Merely acceding to increasing the wage in line with the consumer price index shows a weak and unconvincing support to workers in the bottom most rungs of society.  This approach particularly rankles in an era where literally thousands of crores of public funds are being swindled openly, where members of the political class, the bureaucracy, and the top corporate honchos are all seen to have their hands in the public exchequer till.

Pulin Nayak is professor, Delhi School of Economics