On the Interim Budget

The Finance Minister’s Speech presenting the Interim Budget for 2014-15 was more of a political statement aimed at the forthcoming elections rather than an effort to overcome the current challenges faced by the Indian Economy. On the contrary the manner in which the economy has been managed suggests the worsening of our economic fundamentals. This will mean imposing further burdens on the people who are already groaning under severe hardships, through continued price rise and contraction of employment opportunities.

The GDP growth rate has been estimated at 4.8 % and could grow up to 4.9 %. Agricultural growth is estimated at 4.6%. This means that the non-agricultural economy has stagnated at best.

The claim that there has been a fiscal consolidation with the fiscal deficit pegged at 4.6% of the GDP below the estimated 4.8% is untenable. This has been achieved by a gross reduction in budgetted expenditures, particularly in social sectors.  The revised estimates show the total Central plan outlay is Rs. 66,000 crores less than the budgetary estimates. The budgetary support for the Central plan was Rs 63,575 crores less. Likewise the central assistance for plan expenditure for states and Union Territories was Rs. 17,215 crores less. Thus, the fiscal deficit has been contained through a severe squeeze in expenditures. In other words, through a budgetary contraction of the economy.  The announced nominal increase in major subsidies is actually less in real terms if the inflation rate is taken into account. It is at the same proportion of 12% as in 2013-14 budget. All these means that over 2013-14, job opportunities have shrunk significantly with no increased financial support to the beleagured people.

This fall in employment combined with the rise in prices of essential commodities will impose further severe burdens on the people. The Consumer Price Index for food items continues to hover around double digits.

The cut in excise duties in order to give a boost to the manufacturing sector, particularly, the automobile sector can only be very transient unless the domestic demand rises significantly. On the contrary, the efforts of fiscal consolidation have led to sharp contraction of domestic demand. The announcement of further reduction of tariff protection will affect the domestic manufacturing sector adversely.

The emphasis on containing the Current Account Deficit (CAD) through attracting greater foreign investments and not through restricting unnecessary luxury imports is bound to make the Indian Economy further vulnerable to international speculative capital flows. In fact the marginal success in containing the burgeoning CAD has been mainly through hike in the import duties on gold. Overall, instead of expanding public investment thus expanding employment generation leading to a growth in domestic demand which in turn would provide the required impetus to revive the manufacturing sector and propel industry growth, this Interim Budget only compounds the crisis by contracting the economy and imposing greater burdens on the people.

In the global situation of continued economic crisis, the anticipation of further foreign capital inflows is not merely unrealistic but would mean a slew of measures for attracting foreign capital, undermining domestic manufacturing and further mortgaging India’s economic sovereignty.

In fact, the crisis in the Indian economy which is destined to further compound, is not due to any policy paralysis. It is precisely due to the policy of appeasing international finance capital at the expense of undermining India’s domestic economic fundamentals and imposing greater burdens on the people.