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BW Businessworld

The Bad, The Ugly & Some Good

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 My initial reaction to the Vote on Account that Union Finance Minister P Chidambaram has just presented in Parliament is that the “bad” and the “ugly” far outweighs the “good”. There are things that should have been done long ago, which he has done – or at least made noises about. And then there are things that he has announced that are likely to become a nightmare for his successor, when the new government is formed. And finally, he has played with numbers much the same way that many corporations do to present a better picture than reality.
 
Take the things he has done which needed doing. The excise cuts he has announced should have actually been done four or five years ago. Even if his excuse is that he was not in charge of the finance ministry five years ago, he did present the budget last year – and he could have taken some of these steps then. The excise cuts will help in making things ranging from medium sized and big cars to consumer durables quite a bit cheaper (assuming the manufacturers pass on the benefits). If the sales in these product categories take off because of these excise cuts, fresh investment will start coming into these sectors. Jobs are likely to be created, and over all, a virtuous cycle will start in some of these sectors at least.
 
The statement he has made about the importance of manufacturing is again a no brainer. True, pundits have written reams about how the service economy drives growth in India just as the manufacturing sector drives growth in China, the truth is that you need both. The growth in services does create many new jobs. But ignoring manufacturing also ensures that many people in the job market remain without any real work. The issue that too many politicians and economists seem to miss is that the service economy, no matter how well it is doing, cannot create all the jobs necessary for the number of people coming to the job market in India. Also, a long-term negligence of the manufacturing sector has hurt every country – from the US to Japan. And in the long run, you need both the manufacturing and the service sectors to work in tandem if you plan to grow quickly. The problem is that the UPA has done nothing to spur manufacturing seriously in the past 9 years.
 
Then there are the other things that Chidambaram has done which are hard to fault in terms of principle – but are nevertheless going to create a financial nightmare for his successor. The one rank one pay rule and the moratorium on certain educational loans are two of them. The educational loans repayment will perhaps not have an immense impact – because the quantum of such loans is relatively low. But the one rank one pay decision will certainly create a big liability for his successor, especially because the UPA government is unlikely to really implement it in the short time left to it. If his successor tries to roll back this decision, it will be hugely unpopular. But given the shape of the economy, the decision was again taken more with an eye to gain some votes than what fiscal prudence dictated.
 
Finally, there is the financial finesse that the finance minister has shown. He has carried forward some expenditure to the next year in order to stick to his deficit targets. Corporations do this all the time – they recognise revenue which is not yet accrued while deferring recognition of expenditure – in order to make a bad annual result look good. Chidambaram has done exactly that. The problem is that the expenditure will still take place – and it will mess up the next year’s finances. But then, that is not really this government’s headache, is it...
 
Twitter: @prosenjitdatta