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|March 1, 2001||Feedback|
'The Budget will accentuate unemployment instead of creating jobs'
Dr Jay Dubashi
I found on television that most businessmen were rating the Budget 9 out of 10. Even my friend, Rahul Bajaj, has given it the same marks. My reaction is rather different. I am actually looking at the Budget as a whole, not just industry or manufacturing. If you look at its impact on the economy as well as all classes of Indians, I think it is biased towards the organised sector and has very little for the informal sector. That is why I would give it 6 out of 10.
It is good for industry and also to a certain extent for agriculture. But as far as the common man is concerned, I don't think it is good. The Budget will accentuate unemployment instead of creating jobs, which in a country like India should be the highest priority.
I am also not very sure about some of the figures in the Budget. The Gross Domestic Product growth rates have been coming down for the last three years and the general expectation was that the finance minister would try and reverse this trend. Instead, I have a feeling that the present decline in growth rates will continue, which will be disastrous for the economy as a whole including industry on which the Budget has focussed.
Sometimes you have to be critical, even of your own party, if you find that some of the things which ministers do or profess in the name of the party are not in line with its policies.
The Budget is very good for agriculture and farmers. He has given many concessions including interest rate cuts for loans from agricultural financial institutions like NABARD and also tax holidays for rural godowns, grain storages and other rural assets.
The interest rate cut, cuts both ways. It is good for industry because it reduces their costs. But at the same time it is not good for savings because if interest rates go down savings also go down. And if savings go down GDP growth is affected. So on one side you have industrial growth because of more investment in industry but on the other side you have a decline in savings which can nullify growth.
A decline in savings means more spending. Technically, spending means an increase in aggregate demand and should lead to high levels of production. If this is achieved through economies of scale, prices may actually come down. The real problem with cutting savings is that it affects the standards of people with fixed incomes such as pensioners etc and also leads to a fall in gross savings, which ultimately may affect economic growth.
The benefits accruing to the common man are all indirect. If there is growth as the finance minister hopes it should raise incomes all around. The organised sector and industry have received many concessions, which should lead to an increase in industrial growth. Thirdly, the fact that the fiscal deficit is expected to come down from 5.1 per cent of GDP to 4.7 per cent should also help bring down inflation.
This business of perks not being taxed happens only in India or some Asian countries. Most perks are taxable in other countries. In fact, in America there are very few perks except at very high levels of management. My view is that all income should be taxed but the tax rates should be radically reduced.
There is only a marginal increase in the defence budget. Considering the security environment in our region, setting aside 3 to 4 per cent of the GDP is not really high.
The government is going to downsize its staff by about 2 per cent every year or 10 per cent in five years. That will reduce non-plan expenditure to a certain extent. Secondly, because of interest rates cuts, the interest bill will go down.
I find the Budget includes a number of items meant for socially disadvantaged sections of society, which means that the government is conscious of them also.
The finance minister has set the economic course with this Budget. But I have a feeling that certain political compulsions arising out of the fact that there will be elections in some states may force the government to change course, if they do badly.
You cannot compare the Union Budget with the railway Budget. Budgets are the ultimate responsibility of the Union Cabinet but the ministers in charge are to a certain extent responsible for their formulation. Railway Minister Mamta Banerjee is a highly political minister and she has framed a Budget that seems more political than economic.
Dr Jay Dubashi is a BJP member and wellknown economist