Thursday, March 02, 2006

Budget 2006 - Marvellous for a different reason

Background to Budget 2006-07
GDP growth 8.1%,
Manufacturing sector at 9.4%
Agricultural growth bounced back to 2.3%
Inflation, as on February 11, 2006 4.02%.

Most critics say of P chidambaram that he missed on an opportunity to present another path breaking dream budget when all things were going right for the economy. J Mulraj in DNA money writes
"When the economy is firing on all cylinders, and when there is no significant political danger, he ought to have delivered a speedboat budget, charging ahead on reforms with visionary fervour. Instead, he chose to cruise along with a paddle, on a gondola, serenading taxpayers and investors with soft words."

True - this analysis. We all did expect another dream budget from him given the charged up state that India seems to be in, however the budget is a marvellous one for an entirely different reason. It does not do anything wrong - no wrong signals. If at all any signals they are the right ones although less impactful. Even the social spending that he has increased is either well targetted or more a result of better packaging of existing schemes. There aren't any NEW money guzzling schemes being offered as sops to win elections.

But why such a placid budget?? The answer is clear to everybody - political compulsions. His dream budgets has made him a hero for corporate companies, financial wizards, economists and what have you. But do remember he is a finance minister of a government who won election against a "shining India" campaign. And how did they counter that campaign? With an "aam Aadmi" campaign. Whether he liked by the aam aadmi (the common man) in the same way is a million dollar question to this government.

Now don't get me wrong. His policies, dream budgets, great growth, is surely benefitting the common man. The question is that percieved so by the common man. Our Finance minister faced a situation where the left was eagerly waiting to spew anger and leverage it politically if he takes a few bold steps. Internally within the congress there is discomfort about allowing the initiative for the "aam aadmi" to be ceased by the left. So what does a FM do in such a situation? The best he can do is let a performing economy keep performing on its own by ensuring that he does not derail the process in any way. He has done just that.

Former finance minister yeshwant sinha says in the Times of India 1st March 2006
"The economy is already on autopilot. But the FM has certainly missed a golden opportunity to make a paradigm shift from 8 to 10% annual growth rate. Alas, he has proved to be a God of small things. There is no big piture in this Budget."

So you see there is nothing that opposition has to bang on the Government's head. Suddenly the left has been left speechless. They cannot claim much that they brought to the people through demands in the budget because actually there is nothing that the FM does through this budget. He has just disarmed everybody. He did not give in to any demand that results in any reversing the economic reforms. And he keeps everyone happy by focussing better on Agriculture, Indstry and social infrastructure - exepenses which no one will disagree.

J Mulraj however says in the same piece
"Part of this is because we, the people, are tolerant and accept the excuse of inability to act due to ‘political expediency’. By doing so, we only give politicians more wiggle room for inaction................The government, by cowing to Left pressure, is doing the nation a disservice. We, the people, by accepting the excuse of political compulsion and by not protesting loudly enough, are doing our children a disservice..."

This is passionate and comes from a person whose heart is in the right place - but then let me ask a question wouldn't all of us want the current dream team to govern us for more than this term? Wouldn't it be appropriate that they sold themselves to electorate too? If they do that without hurting the economic process - what more can one ask for?

Lets not make this sound as if a very big opportunity has been lost - its been delayed by a year. We can wait - the economy can sustain & even grow on its own for some time - if its not messed up with. Thats what the FM seems to have done.