On The Union Budget

Tuesday, February 29, 2000

Press Statement

The Polit Bureau of the Communist Party of India (Marxist) has issued the following statement:

On The Union Budget 2000-2001

In a context of growing rural poverty and bountiful food stocks, the Finance Minister has chosen to sharply curtail food subsidies in the Budget for 2000-2001 by over 1100 crores or 12 per cent. This attack on the poor is sought to be camouflaged by his claim that subsidies are now to be targeted at the population below the poverty line. In fact, however, households below the poverty line would now have to pay Rs.4.10 per kilo of wheat and Rs.5.10 per kilo of rice, as against Rs. 2.50 and Rs. 3.50 respectively, which amount to increases of 64 per cent and 46 per cent respectively. The doubling of the PDS quota for these households from 10 to 20 kgs. means very little, since at the new prices their real purchasing power would be sharply cut. Prices paid by the population above the poverty line would also go up because of the decision to charge economic cost for PDS foodgrain.

These measures amount to penalising states which have been successful in setting up a comprehensive public distribution. This happens in two ways: first, even if they pass on the higher prices to the consumers, they would face a fiscal burden since their actual BPL population is higher than what the centre admits; and second, if they wish to offer some relief against these price increases, their fiscal burden would be even greater.

The budget not only erodes the public distribution system, but it further undermines the growth prospects of an already lagging foodgrain sector. The Economic Survey has pointed out a decline of 4 million tonnes in the current year. Thus, it hikes fertiliser prices to cut subsidies, reduces public outlays on agriculture and rural development and seeks to introduce cost-based user charges for infrastructural services in the rural areas. Further, in a situation where most agricultural products are to be put on the free import list from April 1, 2000 the maximum import duty has been unwarrantedly reduced from 40 to 35 per cent.

The rise in food prices will be accompanied by an across-the-board increase in the prices of many essential commodities, which were earlier attracting an excise duty of 8 per cent, but would now have to bear a 16 percent rate of CENVAT. The increases in prices of kerosene and cooking gas, which had been deferred because of local body elections in some States, would now be implemented and add greatly to the burden on the people.

While engineering inflation in essential goods in this manner, the government has chosen to limit growth by holding back capital expenditure in crucial areas like agriculture and rural development. Not only have there been significant short falls in plan outlays relative to budgetary targets in most sectors during 1999-2000, but of the Rs.6513 crore increase in capital expenditure budgeted for during 2000-2001, more than 80 per cent (or Rs. 5292 crore) is devoted to Defence, leaving little for the rest of the economy.

The adverse consequences for growth of this shortfall in development expenditures would be aggravated by the inevitable displacement of domestic production by imports in the wake of the import liberalisation and customs duty reductions reflected in the budget. It is not only the industrial sector which is being further opened up to unequal international competition but agriculture as well.

The attack on the poor and the curtailment of public investment are both natural consequences of the liberalisation agenda. That agenda is now to be imposed on the states, through devious means. The Finance Minister has offered to "securitise" the dues of the state electricity boards to central power enterprises, provided that they accept "reform" of the power sector. It is now clear that such reform, involving the division and privatisation of the sector, would not merely threaten employment, but result in large increases in power tariffs because of the inflation of capital costs by private operators, especially multinationals.

It is not only the public sector at the state level which is under attack. The budget resorts to disinvestment as a means of dealing with the fiscal problem. Retiring public debt with the proceeds from privatisation actually worsens the fiscal problem since the sales of public equity, of profitable enterprises which provide revenue to the government, occur at throwaway prices. In addition, it has grave employment implications, which would be compounded by the proposed closing down of the so-called "sick" public enterprises.

Financial liberalisation, an important component of the liberalisation, has contributed to the huge increase in the government's interest burden by raising interest rates. This is a major cause of the fiscal crisis at the centre, with interest payments alone amounting to nearly one third of the total expenditure of the central government. Almost all the net borrowing of the government is now used to pay the interest on previous debt.

And yet the present budget carries financial liberalisation even further. The rules governing outflows of financial capital from India, as well the inflow of financial capital from abroad are being liberalised. Major concessions, including tax concessions, are being offered to financial firms specialising in high risk and speculative investments. Foreign Institutional Investors investing in India's stock markets can now acquire upto 40 per cent equity in domestic units. And to aid these financial manipulations, equity from public sector banks would now be put on sale to the extent of 67 per cent of the total. This is nothing but the privatisation of public sector banks.

This loss of public ownership and control over the banking system together with the autonomy sought to be given to the Reserve Bank would release the financial sector from any accountability to the parliament and people of the country.