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Precariously Balanced

As the finance minister prepares his second Budget, he learns to tackle fractious UF partners

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Precariously Balanced
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All ministers derive their power and patronage from spending. But the finance minister’s job is difficult. If he spends, he’s hauled up. If he does not he loses patronage and earns wrath.

—Manmohan Singh in 1996.

PERHAPS no one would agree with this more than Finance Minister P. Chidambaram as his second Union Budget draws nearer. The fiscal deficit situation is still wobbly, the oil pool deficit is at record levels, government expenditure shows no signs of ebbing, inflation is creeping up. And these are just the economic problems. For, Chidambaram’s real challenges are political.

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"It is striking to note that on major economic issues, all the three political formations— United Front (UF), Congress and Bharatiya Janata Part y — are either con-fused or divided both internally and externally, and this is manifested through inconsistency and difference of opinion," says Jaipal Reddy, leader of the Janata Dal in the Rajya Sabha. "This lack of consensus across the political spectrum is making the finance minister’s job difficult."

Chidambaram’s troubles began the day he took over at North Block. With the economy walking a tightrope and each of the U F ’s constituents constantly pouncing for its pounds of flesh, he may have had little of the sort of freedom he would have liked to tackle India’s economic problems. Added to this has been the severe criticism of his policies by supporters - f rom-outside Congress, which, as initiators of the economic reforms, has always tried to have the upper hand. Industry and stockmarkets too have been up in arms, demanding the repeal of the Minimum Alternate Tax (M AT). Prime Minister Deve Gowda added his own twist when he indicated that the Budget would carry a lot of sops for the lower castes.

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But the heaviest millstone around Chidambaram’s neck has been the Left, which has attempted to block any policy which it felt could be even remotely construed as ‘anti-poor’ or ‘anti-people’. "To deal with outside pressure is one thing but to face pressure from home quarters is extremely difficult," says a UF leader who feels that most of the Left opposition and pressures are motivated by trade union interests.

Enraged by ‘hard’ measures starting from the hike in petroleum prices last year to the proposed reduction in government jobs in the latest Pay Commission recommendations, the Left has been lobbying hard to make the Budget proposals as ‘soft’ as possible. The bottom line: the rich should be made to pay more so that the burden on the fixed income group, primarily government servants, who are taxed at source, can be reduced. With the Budget looming, the Left parties are set to con-front the UF leadership with some tough choices. They feel that this Budget is the first test of the Deve Gowda Government’s political will to translate its promises into action. Anyway, while presenting his first Budget, Chidambaram had given the strong impression that that was a stopgap one, and the 1997 Budget would be the real thing.

What the Left wants from the Budget is that the finance minister should reflect the spirit of the Common Minimum Programme (CMP) with its emphasis on protecting the interests of the vulnerable sections of society. "What is surprising is that the CMP, which is the blueprint of the UF plan of action, is not being adhered to. It is important that the Budget remains pro-poor and reflects the concerns brought out in the CMP," says CPI leader D. Raja.

While Left pressure is omnipresent at all UF gatherings as well as at the steering committee meetings, sources say that the Left parties are working on some concrete proposals which would help mobilise additional resources without having to resort to measures like raising petroleum prices and hurting the common man and the poor. Amongst other things, the Left is likely to make a strong case for taxing rich farmers, and for stricter monitoring of the earnings of professionals, which according to them can bring in enough revenue to give some tax relief for the salaried class.

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"Why can’t the government increase direct taxes?" asks Raja who thinks that there is no proper rational roportion between direct and indirect taxes and that there is enough scope to tax the rich and rofit-making institutions even more. The government, he says, has shown its vulnerability by retracting its steps on the M AT issue. "There is absolutely no basis for the government to bow to pressure from the industry. After all, why should a pro fit making blue-chip company not pay any taxes?"

While a blanket protest over the opening up of the insurance sector and increasing petroleum prices have been longstanding issues of the Left, some of the other areas on which it is now putting pressure on the government include stepping up outlays for the public distribution system and social services and higher subsidies for the agrarian sector, especially the small and medium farmer. Says a UF leader: "Much of the Left arguments do not always make economic sense. In any case, insurance sector reforms and petroleum price hikes have nothing to do with the Budget. In not effecting these measures right at the beginning, the finance minister has missed the bus."

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THE ditherings over allowing foreign investors in key areas such as the aviation and consumer sector will send wrong signals to foreign investors and undo much of what we had worked hard to achieve," says a Congress leader. And clearly, the Congress is not buying the much touted pro - people stance of the UF. "The UF is going gaga over the so-called ‘pro-poor Budget’ but can anyone say that our Budget was "anti-poor’?" asks Manmohan Singh. He believes that despite the macro - economic compulsions, the Congress always had the common Indian man in contention while framing its policies.

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Growth, says Singh, should be the key objective of this Budget: "The economy has to grow at a minimum of 7 per cent to 8 per cent. Economic growth has not been sufficient over the last year and the government needs to work on this." He claims that despite the pressures, any finance minister has the liberty to design policies without forgetting the aspects of economic integrity of the country.

With the Left lobbying for a Budget which is friendly enough to be used as a USP in the event of early elections, the Congress lobbying for further liberalisation and growth, industry seeking more concessions, plus the apparently unavoidable economic compulsion of raising petroleum prices for the second time in a year, Chidambaram will have to perform the tightrope act of his life when he stands up in Parliament to present the Budget on February 28.

But don’t underestimate the man. In January alone, the government announcedm o re than 30 major policy measures in a variety of areas, from establishing the Telecom Regulatory Authority to approving private local area banks, from decanalising sugar exports to expanding the list of industries eligible for automatic approval of foreign investment. Chidambaram’s strategy may be to take all the important economic decisions outside the Budget process, and let the Budget make all the right noises for the coalition’s fractious partners to hear.

As things stand, high-level UF sources indicate some proposals likely in the Budget: MAT may be repealed and replaced by another corporate tax which will maintain revenues. Customs duties are likely to be further reduced. Subsidies may be raised notionally, and farmers will continue to get the best deal. But what does seem certain is that as far as the Union Budget 1997 goes, pressure tactics rather than the pressing needs will determine the order of the day.

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