Yesterday once more: Shortest FM marks budget long haul
February, 16th 2009
When Pranab Mukherjee finished presenting his first budget for one hour 35 minutes as finance minister in 1982, Prime Minister Indira Gandhi remarked, "The shortest finance minister has delivered the longest budget speech".
That evoked a quick repartee from Speaker Balram Jakhar: "This is a long and short story."
In 1984, Mukherjee presented what many thought was the end of his budget-making story. The man, who jokes about his own height, however, has turned out to be a long-distance runner and will carry the budget papers again into the Lok Sabha after a quarter of a century.
His last budget, as distinct from the one he would present on Monday, was a regular one. But there are important points of similarity between 1984 and 2009, including the fact that both are election years. That was, like 2009, a bad year for the country's economy as well.
Blighted by a drought and poor crops in two seasons before that, the prospects were bleak. The FM mentioned the decline in agricultural production and said, "The gross domestic product this year will be lower than in the two previous years." The GDP growth rate was less than 5%.
Like 2009, there was tension in the relations with Pakistan. Mukherjee's budget speech referred to the "increasing burden cast upon us because of the threat to our national security", a euphemism for tension with Pakistan, which recovering from the humiliation of 1971, had gone back on its promise of friendly ties. The neighbour's hostile intent was obvious from the support for insurgency in Punjab.
While presenting the interim budget on Monday, Mukherjee will most likely refer to national security and terrorism and echo what he said 25 years ago: "No sacrifice is too great where the nation's security is concerned."
But there is a basic difference between then and now. In 1984, Mukherjee was presenting the budget in the backdrop of a "strong recovery". Today, the tell-tale signs of a slowdown get stronger by the day. While Mukherjee was talking about achieving a 7% growth rate for "exploiting the potential of industry and create jobs", this time his endeavour will be to hold on to that growth rate and save jobs.
The 1984 budget, however, as former RBI governor Bimal Jalan points out, anticipated quite a bit of the reforms that would sweep the Indian economy in less than a decade. "It was a landmark budget initiating much of the reforms in indirect taxes, simplification of the tax structure and making the process taxpayer friendly," Jalan told TOI on Sunday.
Recalling the context, Jalan said that the adverse impact of a high tax regime in the past made the government think of reforms. No wonder, one of the major highlights of the 1984 budget was the FM's proposal to split the initial tax slab and give some relief for those coming under the Rs 15,000-20,000 bracket.
That apart, Mukherjee proposed that "the ceiling of standard deduction be increased from the present Rs 5,000 to Rs 6,000". The relief resulted in a revenue loss of Rs 35 crore for the government in a year.
These figures, however, would not convey the full import of the measures today because of the massive increase in the government's revenue earning. Rs 35 crore in 1984, however, was a lot of money even for Bharat Sarkar.
This time, too, many expect the finance minister to offer similar relief to tax payers. Notwithstanding propriety, which expects governments not to offer sops in an election-eve interim budgets. But presenting an interim budget at a time when handouts can be justified as stimulants for the recession-hit economy, may be tempting.
Economist Bibek Debroy feels the FM might take the populist route as far as indirect taxation is concerned. "He will be revisiting familiar terrain," Debroy said.
In 1984, the imperative was to get people to save and put money in the government's kitty. This was aimed at raising resources and avoid any balance of payments crunch which the government had experienced a few years before 1984. Mukherjee floated the National Deposit Scheme for this in 1984 and had got interest on deposits raised.
With a comfortable payments situation and a fat forex reserve, the imperative this time round is to get people to spend to spur demand. For that, the government will have to put money in people's pockets. Some steps have already been taken. The two consecutive cuts in motor fuel prices have brought some relief, lowered inflation and will help deepen the impact of the fiscal and economic packages. To that extent, some personal tax benefits and excise tweaks to shave pricelines are in order and will bring back the buyers -- perhaps with a little help from bank finances.
With a good harvest expected to take care of demand from consumer side, the second line of spending can be seen in the government splurging on infrastructure projects besides rural, social and agricultural sector programmes. One can safely see substantially higher outlays on these sectors, just the way it happened in 1984.