Populist Budget? I say, its just the Elections!

bud.jpgThere were so many quotes that were running through my mind when I first started writing this piece, but then I thought the following suited it the best-

Politics is the guiding light of economics…

I do not know who said this but I think it’s very correct.

At the outset, I should also mention I have absolutely nothing against populism. In fact, swallowing two populist budgets in the space of 3 days was a pleasure.

Election years seem to bring out the best in our ministers. What would we do without them? (I mean the elections!)

This was the case as Lalu Prasad Yadav presented his Railway Budget for the fiscal year 2008-09 on the 26th of February and the Finance Minister Chidambaram presented the Union Budget on the 29th. The message that “THIS IS A POLL YEAR” was written all over both of them and both packed in (or at least tried very hard to pack in) something for everyone.

The 1st rule, to prepare a election year budget, is to be inclusive. And both Chidambaram and Lalu pulled it off with élan. Just have a cursory look at the Union Budget and what I say will be clear. It has something for everyone- from the farmers to the corporate hotshot.

Critics may say that the loan waiver creates a problem of moral hazard (as in banks not giving loans to farmers in future) or question how much of the loans are given out to the farmers by banks anyway (indicating the menace of the local moneylenders), but the fact of the matter is that in this period of farmers’ distress some unorthodox step was needed and that is what the Finance Minister delivered. The government also made it clear that all banks would be duly compensated.

For the corporate sector, the Finance Minister had goodies like excise duty cuts in areas with flagging growth rates like automobile and paper, and tax breaks for the hotel and hospitality industry plus reduction in Central Sales Tax (CST). Also, excise duty cuts and personal income tax benefits should boost consumption demand.

And now, for the middle class man. Tax exemptions should keep him happy till at least the next elections.

Besides all of this, regular allocations to areas like science and research , cultural development, wildlife conservation, defence, health and education, minority development, even certain states (Northeast states) have been increased or kept constant.

All in all, Chidambaram has delivered the budget every government would die for in an election year!

Ona personal note, I feel, it was the railway budget by Lalu which set the ball rolling as far as populist budgets are concerned in this Election year.

Here too, inclusivity was the keyword. Passenger fare cuts across the board while keeping the freight rates constant, introduction of 10 new garib raths, facilitating mobile booking of tickets, bringing in technological upgradation in the working of the railways through the Automatic Ticket Vending Machines, green toilets, electronic display boards on board and stations –all promising a whole new riding experience!

For the passengers he has more good news lined up like increasing the existing discount rates and introducing discounts for new categories like the AIDS patients, on-board cleaning facility, new designs for Rajdhanis and Shatapdis over the next few years along with stainless steel coaches for mails and expresses, developing world class stations over the next five years, increased security at stations and a variety of initiatives to improve railway safety.

If you want to keep the passengers happy, you have to take care of the staff. So the ten fold increase in contribution to Staff Benefits Fund and the improvement in the health care facilities for the staff won’t go unnoticed.

The Railways has been doing very well financially for the past few years (especially after Lalu took over). It saw its highest profit ever of Rs. 25000 crores in 2007-08 at the operating ratio- ratio of expenses over income- expected to be around 76 .3%. Similar is the case with the whole economy. It has been doing great in the last couple of years with a growth rate of around 8%. What remains to be seen, however, is that if this growth rate is sustainable or tougher yet, will it be possible to improve upon it? And if the respective budgets for the Railways and the Economy good enough to take their respective areas to newer heights?

As far as Lalu’s critics are concerned they are convinced that all the figures Lalu has come with in the past few years aren’t for real. They are of the opinion that Lalu’s successor may need to pay a heavy price for the flowery present of the Railways and so was the case with this years budget too, with a few sections complaining about the lack of transparency in the railway’s functioning.

When the Union Budget came, the critics were now up in arms against the loan waiver questioning its economic rationale when India wants to attain double digit growth rates. Also, the budget was said to lack enough fiscal stimulus to insure the Indian economy against the slowing global economy. Chidambaram brushed aside the worries saying that the loan waiver was necessary while claiming that there were enough fiscal initiatives.

If you ask me, I would say I liked both the budgets. They both stood testament to my quotable quote which goes like…

Budgets are made in the Parliament and the Parliament is made by the people!

The very moment I started researching for this article, I felt thankful that India is a democracy. Just one complain though –why cant we have general elections every two years or so?

Purav Goswami

[Image courtesy: http://www.flickr.com/photos/prakhar/408940921/]