Indian Budget & Myths

Big Myth.

The stock markets have consistently disappointed people. There have been series of scams. Right from Harshad Mehta to Ketan Parekh; people have caused huge losses to the small investor.

In between, so many company promoters have looted the investing public. These were aided and abetted by their merchant bankers and auditors; and people have lost confidence in all systems.

What can the poor Finance Minister do?!

In the last ten years, so many dream budgets have come. The moment, there is a favourable sentiment, markets go up; some cheaters come out in the field; skim the milk and disappear.

When these cheaters are skimming the milk; our media is broadcasting interviews with them and eulogising them as the biggest financial wizards.

Our investors are greedy. They want 50% returns per year.

There is no business where the company can earn enough money to pay a return of 50% per year. So when an investor wants to earn 50%; he is inviting cheaters.

This question invites further queries.

"Isn’t budget a mere piece of paper!

"Isn’t it a statement of objectives and performance in financial terms!"

"Would it not be better to say –

"The economy will improve if ALL OF US start working for building our nation.

Finance Minister alone; or even the Central Government alone cannot improve the economy. We, the people of India have to act together.

We have to take our share of responsibility.

As Dr. Abdul Kalam has said in his widely spread speech, we have to stop blaming Government, stop asking what the Government can do; and take our share of responsibilities.

(A copy of Dr. Kalam’s speech with Rashmin’s comments is given on our web-site.)

In our note on Budget – 1997; we had stated that the Central Government of India is insolvent. Hence our investments in PPF and — LIC are not safe.

Repeated symptoms of this disease keep appearing. Consider the following:

U.P. Government does not have the money to pay electricity bills. Hence the electricity supply to the whole state was disrupted.

Mumbai municipality has no money to pay bonus to its employees. It was Mrs. Indira Gandhi, who, as a Prime Minister, had made bonus, a compulsory payment.

Maharashtra Government did not have the funds to pay salaries to its own staff. Funds received on issue of debentures by a State Government Corporation were used for payment of Government staff salaries.

Following are the figures from the Budget 2002.

All current expenses of the Government – including staff salaries, defence expenditure and Ministers’ foreign trips are financed by fresh borrowings. The annual deficit as projected for the current year – 2002-03 is Rs. 1,35,500 crores; or Rs. 3.71 billions per day. This does not include the deficits by the State Governments and other statutory bodies.

And yet, the fact remains that :

We are very rich in natural resources. Our country can very well support the entire population at a good standard of living. If we manage our natural resources well enough, there need not be any poverty.

Even internally, the Government is constantly trying to reduce the debt. Hence it is reducing the rates of interest and the incentives available on Government securities. By reducing the interest rates, Government is reducing its budgetary deficit. However, this strategy is causing serious difficulties for all those who live on interest and pensions.

Consider U.S.A. As per latest figures, its trade deficit is more than $ 400 billions per year.

For the last twenty years, it has trade deficits and it has been a consistent borrower country. In the eighties, huge expenditure on defence required borrowings. After the collapse of U.S.S.R. and automatic end to the "Cold War", the U.S. expenditure on defence reduced. It was possible that the U.S. borrowings would stop.

However, the trade deficits have continued.

In these twenty years, USA has seen share market booms and busts; economic growth and recession. Through all these, the value of the U.S. dollar has remained steady or has risen.

Laws, they say, apply equally to all.

How is it then, that for India, the law of Economics is different and for U.S.A., the law is different!!

Briefly –

Economics works on sentiments. Confidence or the lack of it determines a country’s economic working.

People who matter in the world finances, have a confidence in the U.S. economy. Hence they keep investing in U.S.A. Their investments finance U.S. borrowings. Hence U. S. $ remains steady.

If and when the confidence is shaken up; U.S. will not be able to continue the miracle of strong $ in the face of continued borrowings. When the $ crashes, it will be as big a crash as that of the World Trade Center. All people dependent on or connected with the dollar will get the hit.

We are now seeing new problems; or
New dimensions of existing problems.

We have huge stocks of food.
The surplus food is rotting in the godowns.

And there are crores of people who do not have two square meals a day.

In some areas, we do come across the poor people who do not want to work. But there is a large number of people who really want do some work, earn their livelihood and get food. An effective programme of "Food For Work" is being implemented by an NGO.

India has rich, abundant natural resources.
Indians are poor.

Because we have not managed our resources well.

And the distribution of our national income and wealth is not fair.

Neither subsidies; nor pre-1991 socialistic regulatory system; nor current "liberal" system have been able to solve the problem of ‘hunger amongst plenty’.

And our natural resources remain unutilised or inefficiently utilised.

There are several people all over India, who are working sincerely to remove hunger by managing the natural resources. Most of these people never appear in the media. No one knows about them. For one such tremendously successful exercise, on "Food For Work" see our web-site under the title " Dharampur Development Abhiyan". It is the success story of tribals living in the mountain–top forests of Valsad district in Gujarat.

May the tribe of these unsung heroes increase and may India enjoy the riches that it already owns.

Naresh Ajwani