Commentary/Yazad Darasha

Beyond the Euphoria

Let's go a step beyond the euphoria.

As a vote-catcher, Palaniappan Chidambaram's Budget for 1997-98 is non-pareil. The finance minister has done everything he possibly could to ensure that the people (read voters) do not allow the 13-party government at the centre to be toppled at the whim of any major party (read Congress). On the other hand, he has also ensured that, in a scenario where the United Front finds itself on its face on the floor of Parliament and a general election is called, the party that contains Mr P Chidambaram has a good chance of coming to power.

Cynicism aside, look at the Budget once again. And then look at the people who are cheering so lustily. Those who will benefit the most are the common people, small and big business and industry, the stock market, and the perennial carpers (number this writer among them) who want more thrust on education and employment.

The common person -- especially the salary earner -- will earn the benefit of lower taxation. With tax slabs brought down to 10, 20 and 30 per cent, there is no longer any reason not to pay taxes. With the breaks already available, it would be a relatively simple matter to bring tax payable down to zero, even in the highest zone. Will the honourable FM next impose a Minimum Alternate Tax on individuals?

The common person has also benefited from the freedom from tax on the dividend earned from companies. This will not only ensure more purchasing power but also a higher savings rate from the household sector.

Business and industry have gained in no small measure. For one thing, the conversion of MAT into a 'credit policy' -- or MAAT (Minimum Alternate Advance Tax) -- has killed two birds with a single stone. It has killed the criticism that MAT had attracted as an unfair form of taxation. And it has ensured that the money keeps flowing in to the exchequer, at least in the medium term.

With the interest tax being slashed to 2 per cent from 3 per cent, the benefit will, hopefully, be passed on to the borrowers. This would mean a substantial reduction in the lending rate. And the scrapping of the 7.5 per cent surcharge (reduced from 15 per cent in the last budget) will make for healthier corporate bottom lines.

But the most heartening news is the cut in import duties to a maximum of 40 per cent, and on capital goods to a maximum of 20 per cent. This will make all projects cost less, and, hopefully once again, bring down the overall prices of manufactured goods.

The reduction in import duties and lending rates will also make sure Indian industry operates on a more level playing field than hitherto with its multinational counterparts. And buyback of shares will soon become reality, once the modus has been worked out. This will provide our companies with an effective shield against hostile takeovers. Bombay Club, are you listening?

The stock market has already welcomed the Budget with a rise of more than 500 points in the three post-Budget trading sessions. It is so happy that people are going around calling Chidambaram the new bull. With reason. Buyback has been allowed; the double taxation on dividend has been withdrawn; the FII investment limit in a company has been raised to 30 per cent of the equity; and brokers have been given a one-time holiday from capital gains tax if they go corporate.

The small investor has been told that, in future, any company that issues shares will have to file yearly statements detailing how the issue proceeds have been spent. Small comfort, but it's a start, and should prove beneficial for the primary market.

And finally, the FM has unequivocally said Eff 'Em to all the cribbers who insist that India spend more on education and employment than on consumer goods, by announcing subsidised lending policies. Whether the benefit will actually go to the unemployed is moot.

So that in a nutshell is what the cheering is all about. Populism has never been more welcome. Anyone who has approached the FM with a begging bowl has received a few rupees. In exchange for electoral support, no doubt.

But where are the hard decisions? Where is the Great Long-Term Plan?

The FM has said he will keep the fiscal deficit to 4.5 per cent of GDP in 1997-98 and under 4 per cent in 1998-99. The former target seems achievable, especially because an estimated Rs 48 billion will flow in to the exchequer from the disinvestment of shares of public sector undertakings.

So it is the same old story. The government is selling its shares in the PSUs to fund its expenditure. Shouldn't these funds go in to national development -- in to education and employment generation? Yes, but not before sealing all the holes in the system that drain funds away from where they are supposed to go. Besides disinvestment -- and identifying companies for same -- there seems to have been little thought given to the subject. The liberalisation here is again in dribs and drabs.

PSU boards have been given a little more freedom to make investment decisions. The Nav Ratnas-- nine exemplary PSUs -- have been identified for the extra freedom. What about operational freedom? What about freedom from political muscling? Can a PSU board actually function independently? What about reconstituting the boards so that there is more representation of the people who can make a difference -- private sector barons?

In the short term, the promise of restricting money supply growth to 16 per cent may appear to be a great short-term solution for an anti-inflationist (and we are told that the government and the Reserve Bank are staffed only with anti-inflationists of every hue). However, will it not also slow down industrial growth in the long term?

And finally, the great bugbear. Thank you Mr Chidambaram for reducing revenue expenditure from the estimated level of Rs 2.0466 trillion to Rs 2.02298 trillion. A drop of 1.15 per cent. Enough, do you think? Enough, I think, to probably make everybody concerned rest on this glorious reduction and take it easy with the purse-strings for two years. What that will do to the deficit three years down the line is anybody's guess.

Okay, that's all the carping for now. Strangely, I also feel this is one of the best Budgets ever presented, by one of the best finance ministers we've ever had. Does that sound two-faced? Wait till next week to find out.

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