No Economic Logic

Your editorial on the Union Budget 2013 “At the Feet of Rating Agencies” (EPW, 9 March 2013) is well-balanced and discusses the hard realities of the Indian economy. The policymakers in North Block seem to have forgotten the basic logic of economic management. While there is slow growth and reduction of investment, the government has reduced the plan expenditure resulting in a decline in public investment. The total Plan expenditure in the fiscal year ending 31 March 2013 is Rs 90,000 crore less than the budgeted amount. Both revenue and capital expenditure have felt the axe and obviously no sector has been spared. Agriculture, rural development, energy, transport, and social services which are considered to be crucial for creating income and employment in a state of slowdown have suffered from this reduction. Total capital expenditure according to the 2012-13 (RE) is as much as 18% less than budgeted, and central assistance to state Plans is also 14% less than budgeted. Thus there was an obvious reason for lack of investment and income and the result was slow growth. The tax collection in such a situation will not be much higher and if the projected collection on public sector undertaking disinvestment and other sources falters, we will again have a ruthless slash of planned expenditure. Economic logic demands that if there is a lack of private investment there should be more public investment. The Reserve Bank of India will not come out from its tight monetary policy stance as there is not enough evidence of fiscal consolidation and a slowing down of inflationary pressure. Thus there is a remote possibility for private investment to go up and government’s commitment to maintain a fiscal deficit of 4.8% of gross domestic product will surely bring down public investment as well.

Your editorial has rightly pointed out that the purpose of the government’s entire fiscal exercise is to woo foreign capital and the credit rating agencies and not to raise output, income and employment in the true sense.