NO FULL STOPS IN INDIA
Economic Times, May 5, 2014
Recast Budget 2014 numbers but don’t let recast be driven by political vendetta
GDP growth at sub-5% for the
second year running, high and persistent consumer price inflation at
close to 10% for more than four years running, savings and investment
ratios that are lower than the highs reached less than five years ago,
an artificially-suppressed current account deficit, an
artfully-contrived fiscal deficit and, now, the possibility of El Niño
in 2014. On the economic front, all the ingredients for a perfect storm.
The only thing keeping the storm from
breaking over our heads is the hope that after May 16, we’ll see a
stable, credible political formation at the Centre. In any other
circumstances, overseas investors would have turned tail and fled our
shores, leaving the rupee to sink like a sack of potatoes. Instead,
investor sentiment is cautiously optimistic.
There is one thing that could change
this, and with disastrous consequences: the prospect of political
instability, of short-lived governments like A B Vajpayee’s 13-day
government in 1996 and the H D Deve Gowda and I K Gujral governments
that followed. The challenge is to ensure we don’t do anything to
dispel the optimism the investor community seems to have reposed in us.
How can we do that?
In two ways. First, parties must show
the necessary political maturity to sink petty differences and work in
the larger interest of the country. Regardless of the precise number of
seats won by the BJP and the Congress, it is a foregone conclusion that
alliances will have to be cobbled together to arrive at a credible
majority. This is not going to be easy, when we have so many parties,
some with few seats to their name, but with bargaining power far in
excess of numerical strength.
Rusty to Trusty Numbers Second, assuming
we do vote ourselves a stable government, the next challenge, after the
scramble over Cabinet berths is over, is to present a “credible” Budget
in Parliament; one that not only sets out the government’s economic
roadmap but, more importantly, gives a correct picture of the
government’s finances.
Almost no one expects the fiscal deficit
for 2013-14 to be 4.6%, as stated in finance minister P Chidambaram’s
vote-on-account in February this year. Or the deficit for the current
fiscal to be remotely close to 4.1%, minus the generous dollops of
financial engineering that marked the February exercise.
According to the Controller General of
Accounts, by February 2014, the fiscal deficit-to-GDP ratio had already
exceeded the target for the entire year, while the primary deficit was
close to 200% of the target. It is no secret that the smoke-and-mirrors
game resorted to by past governments, albeit to a small degree, has been
perfected by Chidambaram.
So, the Budget gives an excessively rosy
picture of government finances. In the unlikely event of the Congress
having a voice in the new government, that charade might continue. But
not otherwise.
The danger is that an alternative
political configuration might be tempted to try and get political
mileage by going to the other extreme and painting the fisc in far worse
light than necessary. The parallel with what happened in Greece in 2009
might seem a bit far-fetched. But we live in troubled times, when
parties are more intent on scoring brownie points against each other
than in the long-term interest of the country.
For those who might not remember, the
Pasok government that was elected to power in Greece in October 2009
reported a deficit of 12.7% (later revised to 15.7%), up from the
previous government’s 6-8%.
Greek tragedy
It is a different matter that the
accuracy of the revised figure has since been questioned. Indeed, the
Greek Parliament called for an official investigation in February 2012,
following accusations that the deficit had been artificially inflated in
order to justify harsh austerity measures. But the damage had already
been done; with disastrous consequences for the Greek economy. Faced
with the temptation to discredit his predecessor, the new finance
minister might be tempted to re-enact the Greek drama. But that would be
catastrophic. It would confirm what rating agencies have long suspected
and give them a reason to downgrade us, adversely impacting overseas
capital flows that are critical for financing our current account
deficit.
Damn truth and statistics
Smoke and mirrors has long been a part
of government accounts. Unfortunately, the present cash system of
accounting facilitates such subterfuge by requiring government to book
expenditures only when they are paid out, not when they are incurred but
payment is deferred. The best thing the new government could do would
be to announce a shift to an accrual system of accounting that
eliminates this loophole once and for all. And then, slowly but surely,
work to presenting a “true and fair” picture of government finances.
As Mark Tully once put it well, there
are no full stops in India. Every government builds on the work of the
previous; the legacy is like the curate’s egg, good in parts, but sharp
breaks, especially if driven by narrow political ends, are inadvisable.
The comprehensive ‘note’ which
will be ignored by the political leadership that comes to power post-May 16
only at its peril, carries a message much deeper and louder than the written
words in the article. It is not just the jugglery of figures in the budget or
blurred vision of the political leadership about handling of pressures, both
internal and external cause worry. The conduct of the previous Lok Sabha and
the pre-election rhetoric across political affiliations do not assure a
post-election consensus on national priorities. If politicl stability with an
assured continuity of pragmatic policies can be ensured, the country has the
resources and workforce which can bring back normal health to the economy. This
is the godsent opportunity for the political leadership to prove to the world
that Indian democracy has matured. The rich, the powerful and the families
which are rich and powerful should participate in the present re-emergence of
India Growth Story with an approach of ‘Give and Take’ which, incidentally, is
imperative for the survival of the nation.
M G Warrier, Thiruvananthapuram
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