Commentary/Yazad Darasha

Sealing the Black Hole: Why P Chidambaram needs to cut government spending

A politician is a strange animal. S/he will lie, cheat, steal, bribe, twist and turn to stay in power. But s/he refuses to do the things. That will guarantee another term in office.

We (the media are major culprits here) have made politics into such an arcane and esoteric art -- even a quasi science -- that we seem to have lost sigh of the base reality. That a politician can remain in office as long as s/he gives the people what they want.

How does this apply to an economic column? Well, isn't Finance Minister P Chidambaram a politician?

Chidambaram seems confident that his government will complete its entire term in office. He gives no reasons for this confidence. He just smiles enigmatically.

Perhaps he has something up his sleeve. Something that we have not yet seen -- perhaps ever in India. Perhaps he has a new kind of five-year plan.

Perhaps this five-year plan relates to the things that plague the Indian economy the most. Things like the high level of the government's housekeeping expenses: like the high interest rates that, according to National Stock Exchange managing director R H Patil, militate against a high rate of household savings: like enabling a higher inflow of foreign direct investment.

The list is actually pretty long. Giving us an idea of the myriad facets that, like a rough diamond, could do with some polishing and fine-tuning.

Perhaps Chidambaram plans to begin this crusade with the one thing that is pretty close to any Indian economist's heart -- government spending. And maybe the finance minister, just to spite all the Cassandras, has a ten instead of a five year plan to seal this black hole.

Let's try to figure out how this plan will work. Maybe Chidambaram will offer the nation a revolutionary proposal at the next annual Budget presentation. Can you picture him telling us, to thunderous applause from the public and a glum silence from the rest of the politicians in the House: 'Ladies and gentlemen, I plan to put in to effect an austerity programme that is result-oriented. Over the next ten years, I plan to effect a 10 per cent cut in the government's housekeeping and other non-revenue-generating expenses. That is the target. However, to show that this government means business, I am setting a yearly target of 2 per cent for the next three years and thereafter a rate of...'

You get the picture. Chidambaram sets a ten-year target of a 10 per cent cut in expenditure, but, more importantly, begins to meet the target from the first year onwards.

He draws up a plan that will impose restrictions on the monthly budgets of each and every member of the government -- ministers as well as bureaucrats. Yes, monthly! At least for the first two years. And he sees that expenditure remains within these budgets, or he will want to know why.

He reviews each and every project of each and every public sector undertaking to see where there is a delay that implies a cost overrun. And he scraps that project summarily. This in fact was one of the promises Chidambaram had made in the Budget for 1996-97. But we have not heard a peep about the results since.

He makes sure that every committee he sets up for review of performance in different segments has a rigid time frame that is adhered to. A mid-term progress review of every committee is conducted to see that there actually is progress. Or the committee is, again, summarily scrapped. Every delay does, after all, mean more resources being gobbled up by that committee.

This will also make committee members more dedicated to their tasks -- if not for love of India, then at least for love of their own jobs!

Wherever possible, the finance minister himself holds informal meetings with all concerned (instead of setting up time and resources gobbling committees) and announces policy decisions himself. A saving of time, money and attrition.

And the money raised from PSU disinvestments too may -- just may -- go toward regeneration or expansion within the PSU, rather than into the black hole again.

These are the smallest things that a finance minister can do to cut expenditure. The beautiful part is: if the result show within the first year itself, the confidence of the people in the government is going to grow leaps and bounds.

Will it make any difference to the staggers that the economy is experiencing?

A 2 per cent cut in the government's household and non-revenue-generating expenditure will release upwards of Rs 20 billion each year. This can be utilised for either segments that create capital, or simply allowed free rein in the money market.

In a cascading effect, stock markets will be 'recapitalised', industry will have access to more resources, the nation's internal debt burden will be reduced, and, most importantly, the people's confidence in the government's willingness and ability to work for the national good will be rejuvenated.

Will it happen?

Well, what's wrong with dreaming?

I have serious doubts Chidambaram will do anything of the sort, but then, as I said, a politician is a strange animal. Self-aggrandising, yes. Self-justifying, yes. Self-defeating. Yes, that too.

Do we deserve such politician? Yes. We probably do.