February 17, 2014

My response to the finance minister's Vote on Account speech

Was this an interim budget or the death rattle of a dying government? The finance minister spoke of the “Idea of India”. To me it sounded more like the UPA’s Ides of India project.

Don’t go by the exalted title of “interim budget”; this was a vote-on-account, no more. How could indirect taxes such as excise duty on capital goods and consumer non-durables (cars, mobile phones and soaps) be reduced in a vote-on-account? Shouldn’t these decisions have been left to the next government? Couldn’t P. Chidambaram have resisted the temptation to hand out election sops.

While the UPA and the Congress will go to the people claiming credit for their so-called flagship welfare programmes – such as NREGA – the fact is Mr. Chidambaram has ensured the burden for these programmes now passes to state governments. The Centre has deprived states of this chunk of their revenues by transferring spending to them, while freeing funds for the Defence Ministry and Indian Railways. The latter exercise is being window-dressed as reformist and security-oriented spending by the outgoing UPA government. Actually, it has taken place at the expense of the states.

Mr. Chidambaram claims the Food Security Act is providing food for 67 per cent of the population? How is this possible? The UPA government’s official figures say only 22 per cent of Indians live below the poverty line. So 45 per cent of the Food Security Act is devoted to families above the poverty line? Who are these people? Have they been identified? How great is their need for subsidised food? How many can actually afford to pay for it? The inconvenient questions are left for the next government.

Ever a clever camouflage artiste, the finance minister says inflation was reduced to 6.2 per cent in January 2014, forgetting it was 13.6 per cent in December 2013 and 11 per cent through 2013. Yet, he quotes only one month’s figures, and out of context.

He says he’s happy that the current account deficit has been reduced. Is this really an achievement? The current account deficit can be reduced either by growing exports or shrinking imports. In this case reduction happened because manufacturing growth stopped and low domestic demand led to 10 per cent reduction in oil imports and 22 per cent reduction in non-oil imports. If manufacturing picks up – and we hope it does, once the UPA has been sent back to the pavilion – the current account deficit could go up again.

The key issue is: what has the finance minister, and what has the UPA government, done to grow exports? In the end, that is the answer to the current account deficit. It is an answer Mr. Chidambaram has deftly avoided. Instead, he’s happy playing Santa Claus – using the successor government’s credit card.

In four months we hope a better, more enlightened and more honest government will give the country a better, more enlightened and more honest budget. It must adhere to good economics, to development priorities and to principles of operative federalism that treat the states as partners to be nurtured, not adversaries to be cheated.

By then Mr. Chidambaram will be a former minister and former MP, probably busy practising in the Supreme Court. I hope he finds time to turn on his television and watch the real budget speech.

Derek O’Brien
MP and Chief Whip in the Rajya Sabha, Trinamool Congress