As I write this piece, the finance minister has dispatched the Union Budget 2011. The press is busy reflecting the views of business and industry lobbies, as they quibble over duty exemptions, insist on financial stimulus and other incentives, and cry for big-ticket reform—foreign direct investment in retail and insurance. The only other discussion is about the growing fiscal deficit: will the finance minister give in to populism while extending the programmes for the poor? Or will he raise taxes to pay for the growing developmental needs of the country? The finance minister, it would seem, is caught between two battles: of checking the bulge in fiscal irresponsibility and of meeting the need for delivering governance.
But remember, this budget is coming at a time when the world food prices are spiraling, this time because of unusual and variable weather events. Oil prices, too, are rising, triggering fears of a full-blown crisis in West Asia. In this age, it is clear that fiscal prudence must take new forms of balancing books that are not cooked. The budget must respond to this uncertain future. How?
First, it must get serious about agricultural growth. Indian agriculture has suffered because of lack of investment. We talk about infrastructure for industrial growth, but how many times have budget pundits stopped to check how farmers irrigate their land. If they do, they would find that the bulk of irrigation facilities in the country have been created thro ugh private investment—dugwells and tubewells provide water to over 60 per cent of irrigated crops. Farmers have invested money; borrowed from financial institutions and paid hefty interests because of the high risks and lack of benefactors in high places (unlike many industries, where loan default is astoundingly high). The budget must reflect the need to invest big time into building agricultural security. This is about fiscal prudence.
Second, let’s get serious about paying the real price of growing food, particularly in times of weather uncertainty. The government expenditure increases as the cost of food increases, particularly because of high procurement of food for distribution. In the past, governments have balanced budgets by squeezing profit margins of food growers so that government or consumers pay less for food. But this policy must change, particularly in times when growing food itself is becoming risky because of erratic weather. One instance of extreme cold, heat, rain or drought can wipe out crops, impoverish people and push them deeper into debt and despair. We need strategies to keep up with these changes.
This will require doing much more and much differently. Farmers must be paid higher price for food. The minimum support price must be raised to the maximum. It must reflect the ecological cost of food. Crops that use less water must be paid more and included in government’s food procurement basket. It also requires investment in ecological regeneration—building soil, forest and water assets—for coping with adverse weather. Ecological prudence must be part of the fiscal responsibility package.
Thirdly, the budget must build the foundations of social security so that people can cope with uncertainty. We desperately need to spend more on health, public services and education. No questions or cuts here.
Fourthly, governance of public-sector spending must also improve; merely spending is not enough. But how can services be efficiently delivered to the people? Impression is created that all will be well once we can identify people who need the service and give them unique, secure passkeys for identification. This may well be important. But in my view it is equally important to fix the broken systems of governance and delivery in the country. The budget must emphasise this and demand accountability.
Fifthly, it is equally important that spending and subsidy are targeted at the poor, and the rich do not siphon them off. Take diesel. Its price is kept low for the poor even in times of high oil prices. But it is being used to drive the vehicles of the rich. Government’s own estimate is that more diesel is used in private passenger vehicles (15 per cent) than in agriculture (12 per cent). This, when we know that there is huge under-recovery in the price of every litre of diesel sold in the country. We also know that the growing and deliberate price differential between petrol and diesel is tempting more Indians to drive fuel-guzzling SUVs. The use of diesel in private automobiles was never mandated.
Most in government today will accept that this use is wrong. But they will do nothing. The “reformers” will talk about withdrawing subsidy on all fuels, while well aware of the fact that a large number of people in India cannot even afford the cheap and subsidised kerosene. The poor need access to subsidised fuel; its diversion to cars is pilferage. So target its use and ban its misuse. Budget 2011 can fix this by putting a massive and crippling tax on private vehicles running on subsidised fuel.
Clearly, budget 2011 must do more than what’s easy and ordinary. This is the age of uncertainty. Small changes will not do.