Opinion Hop,skip and jump

But Manmohan Singh will be remembered as the original reformer and we will continue to associate lower import duties,opening up to foreign investments,end of industrial licensing,rupee convertibility and beginnings of service sector taxation with him. That was a big bang,at least till 1993,and it was an idea whose time had come. The second jumper was Yashwant Sinha and he never quite got his due as FM. He wasn’t a jumper because he moved Budget presentation from 5 PM to 11 AM,but because he cleaned up excise duties. What Manmohan Singh did for import duties,Yashwant Sinha did for domestic indirect taxes,paving the way for VAT and an eventual GST. There was FRBM too.

Jaswant Singh was a hopper and left no clear legacy,barring reduction in interest rates that triggered higher GDP growth from 2002. P Chidambaram was a mixed bag. There was the dream Budget during United Front. It lowered direct tax rates. However,there were three reasons why P Chidambaram hopped backwards. First,he also cluttered up direct taxation,by taxing items that weren’t income. Second,in both his stints,he was associated with increased expenditure and widening deficits. Third,he resorted to sleight of hand in reporting deficit figures.

Where does Pranab Mukherjee fit into the hop-skip-jump category? Before that,Mukherjee is pre-1991 vintage,as FMs go. He was FM from 1982 to 1984,and according to Euromoney,was voted best FM in 1984. Nor is the style flashy. Manmohan Singh’s style isn’t flashy either,but opportunity to flash presented itself in 1991. What has Pranab Mukherjee done so far? His reporting of Budget numbers is more honest. The offensive FBT and CTT (legacies of P Chidambaram) have gone. What do we expect India’s next jumping FM to do? First,we want tax exemptions to go.

We want tax rates to be standardised and unified. That’s a pending agenda in DTC and GST. We want that jumping FM to stand up and say that this will be the last Budget,because tax rates won’t change from year to year.

Pranab Mukherjee hasn’t done that so far (not even on 28 February 2011) and let’s not pretend this is because there is lack of consensus on DTC and GST and both have been effectively postponed till 1 April 2012. There’s more to it than that. Both on DTC and GST,removal of exemption clauses have been diluted.

There is yet another thing we can expect a jumping FM to do,since Budgets are about Central government’s annual receipts and expenditure. We can expect a focus on improving efficiency of public expenditure. Both P Chidambaram and Pranab Mukherjee,during UPA-I and UPA-II have presided over increases in public expenditure. Chidambaram talked about an outlay-outcome exercise that vanished like the smile of the Cheshire cat.

It was a bad exercise to start off with,because social sector outlays-outcomes are determined at level of states,and even lower down in government delivery machinery. Until a FM has guts and political support to stand up and say that Central ministries and/or departments will be abolished,Central schemes scrapped and funds directly transferred to ULBs/PRIs,we won’t get far on that. Then the artificial distinction between Plan/Non-Plan and Revenue/Capital will also cease,without having to refer it to C Rangarajan.

But in the Budget for 2011-12,that didn’t happen. It’s premature.

Yet a nagging question remains. Is present FM far more astute than one gives him credit for? Is it about more than flashiness in style and pre-1991 vintage? Surely,FM knows perfectly well that such speeches,without clear focus and agenda,don’t convey any significant message. In a speech that lasted 1 hour and 45 minutes,we got down to nitty-gritty of the Budget in last 20 minutes,not earlier. Before that,there was a plethora of schemes,with token sums allocated. A few small-ticket reforms were thrown in,but without any highlighting and interspersed with irrelevant trivia.

Admittedly,big bang reforms should occur outside Budget speeches,though since 1991,one often looks for these in Budget speeches. Barring Jaswant Singh and Pranab Mukherjee,all the other three FMs had big bang policy announcements that didn’t materialise later. Present FM seems to be conscious with two agenda items. First,make Budget irrelevant by shaving off big bang reforms from it. Second,satisfy everyone with a plethora of schemes,so that no one remembers a focus. You make no one happy,but you don’t make anyone particularly unhappy either.

While the world concentrates on what it gains on direct taxes,it doesn’t notice what it loses on indirect taxes. That’s a stealthy way of making Budget irrelevant. It is perhaps hopping of a different kind. But it isn’t a legacy that will be remembered. For jumpers a la Manmohan Singh or Yashwant Sinha,we will have to wait for a new generation of FMs.

Manmohan Singh was 58 in 1991. Remember that the definition of senior citizen has now been lowered from 65 to 60. We won’t have the jumper until a non-senior citizen presents a Budget.

1 hour 45 minutes
The total time taken by the FM to deliver the Budget speech. However,only the last 20 minutes had any substance

Since 1991
One often looks for big bang reforms in Budget speeches. Barring Jaswant Singh and Pranab Mukherjee,three FMs,from 1991 till now,had big bang announcements that didn’t materialise