Budget 2013 | Chidambaram’s tryst with destiny

First Published: Wed, Feb 27 2013. 

 

 Finance minister P. Chidambaram has implicitly committed himself to presenting a responsible budget in the course of his international roadshows.

 

New Delhi: Only two Union budgets, in 1990, and 1980 before that, have been presented against a gloomier macroeconomic backdrop than the budget that finance minister P. Chidambaram will present on Thursday.

Everyone is unhappy.

Consumers, at the receiving end of joblessness and continued double-digit inflation for over three years, are unhappy.

Businessmen, buffeted by the new-found volatility in the global economy and hit hard by the Reserve Bank of India’s high interest rate regime, are unhappy.

And investors, domestic and international, small and large, and witness to a spate of undelivered promises by the government, are unhappy.

Over the past four years, the Congress-led United Progressive Alliance (UPA) has presided over an economy where inflation and growth seem to have traded places. If it was 9% growth and 5% inflation in 2009, when the UPA took charge for the second time, it is exactly the reverse now. Investment tapered off a long time ago, and now consumers are beginning to hold on to their money.

Budget 2013 can turn the tide if it does two things—revive growth and generate jobs.

To be sure, one budget cannot provide a quick-fix solution to what is, essentially, a structural problem, but it can provide a credible blueprint.

If Chidambaram presents this blueprint, it will address the twin concerns of growth and jobs.

It will provide political succour to the Congress.

It will calm the jitters of foreign investors and send out the message that India is back in business.

And it may even work wonders on the sentiment of consumers.

I have separated the two objectives of growth and jobs, although one would assume that any growth that is based on fresh investments and higher consumption should generate jobs.

That’s because the reality in India, especially based on recent experience, is that job creation has been decoupled from growth: the phenomenon of jobless growth.

As reported in Mint previously, India generated a million jobs in the five-year period ended 2009-10, while economic growth over the same period averaged 8.7%; the previous five-year period ended 2004-05 saw 58 million jobs being created.

In three of these years, 2005-06, 2006-07 and 2007-08, growth was 9.5%, 9.6% and 9.3%, respectively—returning an average rate of growth of 9.5%.

Worse, about 12 million people are joining the workforce every year.

The task before the finance minister is clear.

Irrespective of the tone and tenor of the budget, it will have to be a credible vision statement. Consumers, financial markets and investors, both domestic and foreign, have repeatedly been disappointed by the government’s inability to walk the talk—and they are understandably at the end of their tether.

The finance minister has also implicitly committed himself to presenting a responsible budget in the course of his international roadshows. So presumably, he will both showcase a vision and set out immediate steps, and, like his colleague railway minister P.K. Bansal, let economics and not politics dominate the strategy.

After all, good economics can be good politics, too.

The good news, from all available signals, is that the economy has either bottomed out or is very close to doing so. In other words, the economy is primed and just needs a nudge from policy manoeuvres to start chugging again. According to a recent investor advisory issued by Yes Bank Ltd, the investment pipeline is promising. The note said more greenfield projects have been announced or are under implementation in 2013 than last year. It added that there are at least 100 projects each in transport, power generation and housing.

It is obvious that the constraints on the economy far outweigh the options that the finance minister has at his disposal. But every challenge, to resort to a cliché, is also an opportunity. That presumably will be the focus of the finance minister, who is already halfway into writing his enviable legacy by fast-tracking the single goods and services tax; he is one credible dream budget away from sealing it.

Will he do it? He owes it to Gen-X, who have already overwhelmed the demographic numbers.

Let us not forget that it was Chidambaram who said in his 2006-07 budget speech, “It is our duty to put the foundations on which the young can build their castles.”

 

ADITYA KUMAR SINGH

PGDM 2nd SEM