NEWS
INTERVIEW
SPECIALS
CHAT
ARCHIVES

Dream Budget does not mean dream economy

Now that P Chidambaram is back where he belongs -- in the finance ministry -- his dream budget should go through, with perhaps a few amendments. The stock market had apparently discounted the news of his return and has reacted to it without much enthusiasm.

Does this mean that the Gujral government, barely a week old, can look forward to a long tenure in South Block? It can and it cannot. The compulsions that brought Gujral to power still persist. But other forces are also at work and they can destabilise the government without notice.

A dream budget does not translate into a dream economy. Manmohan Singh's first few budgets were all dream budgets and the man became a hero overnight. Where is he now? He is not even the spokesman of his party's economic policies and has not been heard of for the last few weeks.

The economy did look up under Singh, but the prosperity was limited to a tiny section. Businessmen, exporters and investment bankers did well, but most of the others did not. I have a hunch that Chidambaram's budget may end the same way.

For the last three years, the economy has been sliding down. GDP growth rates have come down from seven per cent three years ago to perhaps as low as six per cent in 1996-97. Industry too is languishing. Exports are down to a growth rate of six per cent, against an average of 20 per cent since 1993. Something has obviously gone wrong. But will Chidambaram's budget get the economy going again?

There are two reasons for the slowdown. One, political, the other, economic. The political reasons is obvious, the government is not stable enough. Within a week of Gujral being sworn in as PM, his party boss in Bihar was in deep trouble. Laloo Prasad Yadav is not only chief minister of Bihar but also president of Janata Dal, the biggest party in the United Front.

Laloo's downfall will almost certainly trigger off a crisis in Delhi, the kind of crisis that may bring down the Gujral government, which means Chidambaram too. What then happens to the budget? Will there be a fresh election? And who will replace Gujral and Chidambaram?

Then there are economic problems. It is obvious that the economy cannot go on at its present clip unless there is a great deal of improvement in agriculture. Farmers in the country, especially in Punjab, have refused to sell wheat to the government, and are asking for higher prices. The government has threatened to import wheat -- it has already done so -- but you cannot go on importing wheat to feed millions of hungry mouths all the time. Unless the country comes to terms with its food problem, there are going to be big problems.

If wheat prices are raised from Rs 475 to Rs 700 a tonne, as the farmers are demanding, there will be a cascading effect all round. Then there is the deficit on oil pool account, a deficit of nearly Rs 200 billion. Petrol and diesel prices are waiting for a hike after the current session of Parliament.

There is yet another problem, exports. Exporters have officially asked the government to devalue the rupee immediately as exports are affected. This is a very funny situation. The rupee is getting stronger because of large inflows of foreign money and this has added a cool $5 billion to the foreign exchange kitty, breaking all records. But the strong rupee is holding back exports. How does one get round this problem?

Thus there are three problems, foodgrains, oil prices and devaluation. If you add them all up, they will add three to four per cent points to the inflation rate.

Don't forget that it was the Narasimha Rao government's inability to curb prices that led to its downfall. If there is anything the middle class dreads it is inflation, and it was inflation that undid all the good work done by Manmohan Singh and company.

Is history going to repeat itself? The dream budget puts thousands of rupees into the pockets of the better-off sections of society. But if inflation is not curbed, it will take away thousands of rupees from the poorer sections. And it is they who decide elections, not the rich, who rarely bother to vote.

It's going to be a tough year which explains the long faces in the Gujral entourage in Delhi.