Comments on the Budget
by the noted economist and market strategist Mr. Chandrakant Sampat
(In his own words and without any editing or comments.)
I had the privilege to be with you on 12.6.98 while the subject matter happened to be the budget. My response was on altogether different lines. May I take this opportunity to reiterate what I had to say.
The budget can only become a meaningful instrument if it can focus itself on these points.
1. In what condition the society is at present.
2. What crucial challenges will mark our future.
2. How must we respond to these challenges.
These premises have been stated by Rita Sissmuth, President of the German Bundestag (parliament) in a publication by the Drucker Foundation titled, `The Community of the Future.'
As far as the first point she made, I have to say that our GDP is around USD 350 billion and 50% of our population is below the poverty line.
The second point is "What are the challenges before us?" What I am visualizing is the changes that are around on account of explosion of information technology. The instance that I gave was that the computer will become 100 times faster by 2000. Perhaps computer will become 1/10th today's price. That the networking society will dominate if it does not take over. By 2003, it is visualized that the net trade will be worth $360 Billion USD. Banks will not exist in their present form. Perhaps in an networking society, we will have to communicate with them through networking of computers.
Basic question is, what do we do with the 1,80,000 people working in SBI. This is only one of the instances of the challenge of technology. This will mean that we will have to have a vision to provide the alternative jobs or think of a migration from today's jobs to alternative jobs. Protection will only create further unemployment and would weaken us immeasurably in the global economy. How do we respond to this?
Another instance could be the challenge of making India, "the food factory of the world." Inspite of tremendous natural advantages, 7 billion USD worth of fruits and vegetables are spoilt every year in the country. 8% of the total wheat crop is wasted. And only 20% of the selling price of fruits and vegetable reaches the ultimate producers.
Another challenge is that the government's interest payments are compounding at 17%. In the budget itself, Rs.75,000 cr is provided as interest. The road map to the future shows that by 2001, the entire revenue income would be equivalent to interest payments.
This would mean that we will have to close down what is bad and open what is good. In other words, it is the challenge of production and innovation, to live in the globalised world. As Peter Drucker puts it, "If we achieve profit at the cost of downgrading or not innovating, they aren't profits. We're destroying capital. On the other hand, if we continue to improve productivity of all key resources and our innovative standing, we are going to be profitable. Not today, but tomorrow."
China is closing down the entire public sector. If it succeeds, it will be very difficult for our country to think of any exports, unless we become productive and innovative. If it doesn't succeed, there is a possibility of the yuan getting devalued – The result is the same.
The entire SE Asia is in crisis and is cleaning up. What happens if we don't –i.e. what happens to our foreign exchange reserves which is 80% made up of NRI deposits and portfolio investments. What type of currency valuations are we looking at? What will be the future rate of inflation and interest rates? All these questions remain unanswered by the budget.
Coming to the last point, the basic question is How do we respond to these challenges? If I had my own dream, I would say that I am destroying all the nuclear weapons and will never again go near them. That I will totally close down all defence expenditure worth Rs.45,000 cr. Use this resource for a very liberal VRS to close down all PSUs which are 40% of the gross fixed assets of the nation. Only 1.1% of the organised labour force is with the public sector. Once this unproductive sector is off the economic map. What we are stiffling is entreprenuership, innovation and productivity. I'll use the Rs.45000 cr to payback Government debt. I will remove all barriers to FDI inflows. In light of the above FDI inflows of Rs. USD 30 billion within no time can be expected to flow into India, boosting infrastructure development and productivity in the economy. In short, with the productivity and innovation revolution, I would dream for 11% GDP growth and by 2015 to bring the country to a greater GDP on PPP basis, on the doorstep to a greater economy than the US. There will be no one poor, and since we become rich, we will move to a pre-independence era wherein India, Pakistan, Bangladesh and Sri Lanka will all become one nation. Is our leadership invested with the wisdom, humility and courage to perceive these new realities.