A precursor to the Budget

By S. Swaminathan

Why is the Government's Economic Survey placed in Parliament before it is made public? Is it a Constitutional requirement or a colonial tradition unquestioningly adopted in Independent India? These questions are important because, in itself, both in its content and imprimatur, the Economic Survey is partly a compilation of official statistics and largely a disinterested assessment of economic trends at work. It is not itself a policy declaration nor is it even remotely a constituent of the Government's ``Annual Financial Statement'' (the Constitutional term for the budget). The long-established habit of the Government of releasing the Survey on the eve of the formal unveiling of the budget in Parliament explains the popular use of the term ``Pre-budget Survey'' although there is no necessary linkage between the drafting of the Economic Survey and the formulation of the Budget.

Backgrounder mistaken for touchstone

The value of the Survey as an assemblage of official statistics relating to the various segments of the real economy as of the financial system endures even though thanks to IT, there is flow of economic data into the public realm these days at regular intervals throughout the year. The supposition that the Survey enables Members of Parliament to understand the budget and its rationale much better than would be the case otherwise, may be hard to verify. In Jawaharlal Nehru's days, he is said to have acknowledged that speeches of some MPs on the budget were valuable sources of education for the ministers themselves. One such MP, the late Dr. A. Krishnaswamy, confided once to the present writer about the ministers being unaware of the statistics relating to their own ministries contained in the Economic Survey.

That apart, the media habit of interpreting statements in the Economic Survey as the forerunners of budgetary announcements to follow is as illogical as it is unfounded. Budget-commentators and analysts over a long period would know that the financial projections and tax proposals contained in a budget usually are generated by the Finance Ministry, independently of the Department of Economic Affairs that is entrusted with the responsibility of getting up the Economic Survey.

In a way, the Survey indicates the imperatives of policy while the Budget sets out the actual executive choice of instrumentalities for policy intervention by the Government.

Economic Survey 2000-01

In its broad overview of the macro-economy, the Survey notes the deceleration in the GDP growth rate (``mainly due to a decline in the growth rate of service sector''), the rising trend in inflation (``due to pressure from energy prices''), the growth in exports but the widening of the deficit on the BOP current account owing ``to the surge in India's oil import bill'' nevertheless with a build-up in forex reserves thanks to the India Millennium Deposits.

In its assessment of the current economic situation, the Survey gives priority to the evident slackening of the growth momentum deriving from a combination of adverse factors - agricultural stagnation, industrial slowdown, a vitiated investment outlook and high international oil prices - and compounded by the slowdown in the U.S. economy and the dislocation of the domestic economy caused by the earthquake in Gujarat. To say that Mr. Sinha's budget will be expected to address the need for stimulating economic growth will be to point to the obvious even though the devices which he will choose for the purpose can only be known on February 28.

Fiscal policy choices

The Economic Survey 2000-01, very much like its predecessors in recent years, regards ``the persistence of high fiscal deficit at the Central and State levels,'' as the key problem affecting the Indian economy.

The decline in tax revenue as a percentage of GDP mainly arising from a decline in customs revenues is only one aspect of the problem. As the Survey looks at it, the high rates of interest on pension and provident funds have also put pressure on the fiscal situation.

There is no easy way out. There are many ways of attacking the problem although it is not for the authors of the Survey to evaluate from among these different possibilities of containing the fiscal deficit. Much is expected from expenditure management although the Survey seems to discount a general downsizing of government as an effective method.

It is significant that the Survey maintains that much of the flab in the Central Government actually resides in the Central departmental public enterprises. A whole new approach to corporatisation and commercialisation of these enterprises and not the discredited route of disinvestment is what the Survey recommends. On subsidies, the Survey, as in the past years, pleads for reduction through efficient targeting of beneficiaries and goes as far as recognising the need to disband fertilizer subsidy. So is Mr. Sinha's hard option already decided?

For those who would be looking for signals in the Survey regarding the taxation package in the budget, there is this simple message about the recognition of stability in the tax regime as a vital ingredient in tax-compliance. The Survey talks about ``weeding out unjustifiable exemptions and deductions''. If this process is adequately attended to, who knows whether the hybrid arrangement called ``Minimum Alternative Tax'' (MAT) for successful corporates enjoying zero-tax status, should at all linger in the tax regime? All this apart, the Survey, in no sense, offers a conducted tour for the Finance Minister on the topography of tax reforms. What is Caesar's will, of course, belong to him!

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