The 'main hun na' school of budgeting

Arun Shourie: Saturday, March 29, 2008

Arun Shourie puts the Budget to the aam aadmi test and argues why the UPA fails miserably

In the Budget for 1990/91, the VP Singh Government announced a loan waiver of Rs. 10,000 crore. The Government was soon out. I am not on the precedent, but on the accounting! The waiver had been included in the Budget.

Soon, a new Government was in office. Delivering the Budget speech on 24 July, 1991, the then Finance Minister was as stern as he was scornful about the loan waiver, and about the way it had been budgeted.

‘There is one large component of non-plan expenditure that is a burden on the exchequer,’ he told Parliament. ‘I refer to the Government’s obligation under the Rural Debt Relief Scheme. Unfortunately, there was a gross under-estimation of the total fiscal liability under this scheme which was introduced last year. In addition to the sum of Rs. 1500 crores provided in the revised estimates for last year, we have to provide Rs. 1500 crores in the current year. But this is not all. We may need a similar provision in the next year.’

Guess, who was so punctilious then. The words constitute paragraph 39, of the Budget Speech delivered that day by the then Finance Minister, Dr. Manmohan Singh.

And now? No provision at all for the Rs. 60,000 crore that the loan waiver is supposed to cost. ‘Main hun na’… ‘Credit me with some intelligence...’ ‘Funds will be found...’ ‘Modalities are being worked out…’

After much bewildered talk, the Prime Minister and Finance Minister did hit upon one source for financing the waiver: we may sell Public Sector equity, they suggested. On behalf of the CPI(M), Brinda Karat shot that down with one sentence. Chidambram then told Parliament – and this is after two weeks of confusion -- that he was confident that he would be able to carve Rs. 40,000 crore out of buoyant revenues this year, and that he was equally confident that it would not be difficult for whichever Government is in office next year to find the remaining Rs. 20,000 crore.

Take him at his word for a minute. If it is possible to be so confident on 14 and 17 March when he said as much to the two Houses of Parliament, why it could not have been said while announcing the waiver a fortnight earlier?

Here is Parliament being asked to approve a scheme of Rs. 60,000 crore with no inkling of where the money will come from, and, hence, with no idea of what its impact will be – on prices, on interest rates… Even of whom the waiver will benefit. Is this ‘accountability’? ‘Transparency’?

And this is just a typical omission.

The Sixth Pay Commission is to report soon. Given that election loom, the Government will certainly implement the pay hikes. The Fifth Pay Commission had increased emoluments by 35 per cent. There will be cascading effect for state governments, for municipalities, indeed for each and every institution even vaguely linked to the State machinery. There is no provision at all for this certain outlay in Chidambram’s Budget. When it is prudent to include Rs. 5,000 crore in the Railway Budget as the likely outflow on account of the Sixth Pay Commission increases, why is prudent not to make a provision for the same contingency in the General Budget?

Similarly, subsidies on petroleum products, on food and fertilizers are mentioned, but not included! The latter two alone are estimated to be over Rs. 63,000 crore. The Fiscal deficit is put at 1,33,287 crore in this Budget. Once you include the four items that have been left out – the loan waiver, the subsidies on petroleum, food and fertilizers -- plus the impact of the 6th Pay Commission, it is liable to be double the figure that has been indicated. Fiscal responsibility?

A reform they were to institute

‘Seven years ago, I placed before Parliament the first paper on subsidies,’ Chidambram said in the Budget for 2004/05. They need to be sharply targeted at the poor and the really needy. So? He has, he said, initiated a new study on them!

By the next Budget, he had taken further action: he had placed the study before Parliament. Subsidies are necessary, ‘However, we must now take up the task of restructuring the subsidy regime in a cautious manner and after a thorough discussion.’

Nothing was done even by the 2007/08 Budget. ‘The issue of subsidies is proving to be a divisive one,’ Chidambram said, ‘but I would urge Honourable Members that it is imperative that we make progress on this front if we are serious about targeting subsidies at the poor and the truly needy.’ It isn’t that he had done nothing: ‘My Ministry has held extensive discussions with stakeholders on three major subsidies, namely, food, fertilizer and petroleum. We have also sought the views of the general public. Working groups/committees have gone into the question of fertilizer and petroleum subsidies, the latest being the Dr. C. Rangarajan Committee. I would urge Members to help the Government evolve a consensus on the issue of subsidies.’ Another consultant to Government.

The Prime Minister, of course, alternates his emphasis: reforms one day; reforms with a human face the next! And yet, at least on occasion, he has spoken clearly. The Gross Budgetary Support for the 11th Plan is going to be double of what it was during the 10th Plan, he told the Planning Commission last November. ‘These are large increases by any reckoning,’ he continued. ‘This will only be possible if we have strong growth, if tax revenues remain buoyant as they have been in recent years and if non-Plan expenditure is checked and checked effectively. We need to address the problem of mounting subsidies in food, fertilizers and now, in petroleum which is a recent phenomenon. Over Rs. 1 lakh crores are going to be spent this year alone on these three items. I would like my cabinet colleagues and the Planning Commission to reflect what these mean for our development options and what development options these subsidies are shutting out. Do they mean fewer schools, fewer hospitals, fewer scholarships, slower public investment in agriculture and poorer infrastructure? It is important that we restructure subsidies so that only the really needy and the poor benefit from them and all leakages are plugged.’

The warnings having been given, the task is done – what more are consultants to do, after all? There is no mention of the subject in Chidambram’s Budget speech this year.

But there is mention of one of these subsidies – that on fertilizers – in the document distributed with the Budget, Implementation of Budget 2007-2008. In the Budget for 2007/08, Chidambram had emphasized the need to distribute fertilizer subsidies by some alternate way – so that they reach the farmer directly rather than being eaten up by fertilizer companies. So, what is going to be done? ‘The fertilizer industry has agreed to work with the Department of Fertilizers,’ he told Parliament, ‘to conduct a study and find a solution.’ And what will happen once the study has been done? By now, you should be able to guess: ‘Based on the report, Government intends to implement a pilot programme in at least one district in each State in 2007-08.’

That was the last Budget. And what are we told now about what has been done on this matter? ‘The modalities for providing an alternative method of delivering the fertilizer subsidy directly to the farmer are being worked out. The proposal was examined by a Group of Ministers (GOM) and the Report is being finalized.’

In the meanwhile, all the ills continue: the industry does not get reimbursed in time; the farmer does not get the full benefit; the application of fertilizers remains distorted and our land is harmed.

Exactly the position in regard to the other subsidy, of Rs. 32,600 crore – that on food: the 61st Round of the NSS reveals that one half of the poorest quintile do not have either a BPL card or one for the Antyodaya Anna Yojana. On the other hand, more than a sixth of the richest quintile have BPL cards!

The Italians have the right expression for it

‘The Eleventh Plan target for additional power generation capacity is 78,577 MW,’ Chidambram told Parliament while speaking on this new Budget, adding, ‘which is more than the total capacity added in the previous three Plans.’ In the 10th Plan the target was 41,000 MW. Additional capacity that got commissioned was just about 21,000 MW. But why be niggardly in setting targets? John Galbriath had a word for Indian Planning: ‘therapeutic targetry’! But the sentence that scores for gall is the next one: ‘By end March 2008, we will achieve Commercial Operation Date (COD) on about 10,000 MW, marking the best first year in any Plan period.’

Just pause for a moment, and read that sentence again: ‘By end March 2008, we will achieve Commercial Operation Date (COD) on about 10,000 MW, marking the best first year in any Plan period.’ The trick in it is the benchmark that has been used, ‘Commercial Operation Date (COD)’ – a plant that has been completed is said to have attained ‘Commercial Operation Date’ once it has been in operation at full load for at least 72 hours. Ten power plants contributing 3020 MW were included when totaling up the achievements of the last year of the 10th Plan on the ground that they had been ‘commissioned’. They have been counted again among the achievements of the first year of the 11th Plan – on the ground that in regard to them ‘Commercial Operation Date’ has been achieved! The plants are the same ten. Nor is it just that: among these ten, is Ratnagiri CCPP (Dabhol) II, a plant that was completed in the Ninth Plan; among them is the atomic power plant at Kaiga – which is virtually shut for want of fuel; among them is Karbilangpi, a plant of the Sixth Plan! Nor indeed do the remaining ten plants – accounting for 3090 MW of the 10,000 MW for which Chidambram takes credit – testify to either reforms or execution in the power sector having improved. Each one of them has been under construction for years – among them is another Dabhol plant, Ratnagiri CCPP III, which too was completed in the Ninth Plan; among them are two plants at Purlia which were sanctioned in the Eighth Plan!

Claims and promises in regard to the Ultra Mega Power Projects in Chidambram’s successive budgets have been even more farcical, even more brazenly misleading. It is our intention to award five projects before December 31, 2006, he told Parliament in the Budget for 2006/07. By the 2007/08 Budget, this became, ‘Seven more UMPPs are under process and we are confident that at least two will be awarded by July, 2007.’ In this Budget, he says that the fourth UMPP ‘will be awarded shortly,’ and that five more can be brought to the bidding stage provided the states extend the requisite support. After listing four Ultra Mega Projects, his document of ‘accountability and transparency’, Implementation of Budget 2007-2008, reports ‘Five other suitable sites have been identified by the Central Electricity Authority’ – it proceeds to list five sites in five states. The fact as of 20 February, 2008 is that not one site has been finalized, not one. In regard to each of them, letters are going to and from central and state governments: I can supply the list at short notice.

And yet you can’t quite say that the Government has lied – notice the words it has used, ‘Five other suitable sites have been identified by the Central Electricity Authority.’ That doesn’t mean they have been settled, and, if you concluded as much, well, that is your problem.

The Italians have the right expression for this kind of reporting: suppressio veri suggestio falsi – to suppress the truth is to suggest the false!

A symptom

And yet the Budget is but a symptom of the ways of the Government:

•Just go on announcing schemes;

•Grab existing schemes, group them, give them a new name, and proclaim them as historic new initiatives;

•Announce huge grants and outlays, forget them;

•Advance false claims: those ‘Action Completed’s;

•Shove problems to the future – as in the loan waiver; shove blame on the past – even when doing so flatly contradicts what you have yourself stated in Parliament, as the Prime Minister’s ‘the unpaid distress bills of the NDA’ is flatly contradicted by what is set out in the Economic Survey 2003/04 that Chidambram himself tabled;

•Mislead – as in the calculation of the deficit;

•Double-count – as in regard to power;

•Proclaim the desirable –‘we must aim at outcomes, not just outlays,’ the necessity for reforms as in the Economic Survey – and make people believe that, because you have proclaimed the desirable, you are straining to attain it.

And do all this with full faith – that no one will actually read the documents you pile on them; that, even of they do, they will soon forget; that the media are the easiest to bamboozle…Mismanagement

The Budget is a symptom also of gross mismanagement of the economy. Apart from the fact that reforms have been at a complete standstill ever since this ‘dream-team’ of ‘reformers’ took office, their management has brought the country back into the vicious cycle of high interest rates, declining growth, and inflation. Till 2004 April, foodgrain stocks had been scrupulously kept 40 to 50 per cent higher than norms set by experts – so that fixers always knew that, were they to raise prices, Government could, and would, counter them by releasing stocks from its godowns. Ever since, stocks have been allowed to fall below the norms – with the result that traders today know that the Government just does not have the wherewithal to stabilize prices.

The result has been worsened by erratic policies. Exports of non-basmati rice were banned; soon the ban was lifted. Government did nothing as wheat output fell short; then it floated a tender to import wheat; then it cancelled the tender, then…

As prices kept rising, it hurtled to swat a fly with an axe – the axe of monetary policy: higher interest rates, tightened money supply… Prices continue to rise, and naturally so. Investment is discouraged, and naturally so. Growth rate of manufactures has already begun falling, predictably so…

The dream-team…

(Concluded)

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'Action completed'!

Arun Shourie: Wednesday, March 26, 2008

Arun Shourie puts the Budget to the aam aadmi test and argues why the UPA fails miserably

The document is Implementation of Budget 2007-2008, and is one of the important documents that have been distributed with this year’s Budget. ‘In keeping with the endeavour of the Government of India to promote transparency and accountability,’ writes the Finance Minister, P. Chidambram, in his Foreword, the document has been compiled. It contains ‘the status of implementation of announcements’ that were made in the preceding Budget. ‘I am happy to place this brochure before the House,’ he writes.

The item for which those words appear in bold italics – it is one of the several items for which they appear in the same way – is ‘Mumbai as an International Centre.’

‘Action completed’? Has Mumbai become the International Financial Centre that the Government had said it would be made?

You will recall that over the last three years, three big announcements have been made for Mumbai – and each of them has been splashed across our papers in huge, bold headlines. Mumbai was inundated by a traumatic flood on 26 July, 2005. The Government announced a special package of Rs. 1,260 crore to ‘rejuvenate’ the Mithi river – this was to be one of the steps that would prevent that kind of a flood. Not one paisa has been disbursed since then.

Next, the Prime Minister announced that funds would be given to metamorphose Mumbai into another Shanghai. Not one paisa has been given since that announcement. A power-point presentation has indeed been made to the high-ups – it is a compilation of sundry projects that have been conceived and commenced by a succession of governments.

And then came the announcement that Mumbai would be made into an International Financial Centre. Another ‘special package’ was announced – to much fanfare: a ‘special package’ of Rs. one thousand crore. For months, my friend and colleague, Kirit Somaya tried to find out how much money has actually reached the Maharashtra Government. Nobody would tell him. But he is not the kind to give up. He filed an application under the Right to Information Act – just imagine the commitment of our governments to -- what was that expression of Chidambram? -- ‘transparency and accountability’ that to get to know how much they have given in their generosity for such a worthy cause, a citizen has to take recourse to the Right to Information Act! Kirit strained for two months. Eventually, he received the information in July 2007: the total amount that has been given by the Centre is Rs. sixteen crore sixteen lakh.

The proclamation? Rs. one thousand crore. Actually given? Rs. sixteen crore sixteen lakh.

Then how is the ‘Action’ ‘completed’?

That tract of transparency and accountability explains:

‘The Report of the High Powered Expert Committee to make Mumbai an International Financial Centre has been released. The full text of the report has also been placed on the Ministry’s website… inviting feedback from the public.

‘A presentation was made to the Prime Minister on August 24, 2007. The recommendations identified for priority implementation have been circulated to the concerned regulators/agencies for comments/views on the process of implementing the recommendations. An Action Plan has been drawn up and is being implemented.’

Thus,

•Report received

•Put on the Ministry’s website

•A presentation made to the PM

•Recommendations circulated to regulators/agencies for comments/views

Action completed!! Not that the project has been implemented. Not even that ‘the process’ by which it will be implemented has been settled. Just that the ‘comments/views’ on the process by which it is to be implemented have been invited.’ But ‘Action Completed’, it is!

And the sequence is typical. Given the concern of this Government for the poor, it is de rigueur to talk about the unorganized sector, and that is what Chidambram did in his Budget for 2005/06. ‘The unorganized or informal sector accounts for 92 per cent of the employment and absorbs the bulk of the annual accretion to the labour force,’ he said. The ‘possible solution’ is PURA or Provision of Urban Amenities in Rural Areas. A Commission has proposed action along these lines. And then the typical commitment, much praised recently for cleverness: ‘Once the proposals are firmed up, Government will take up the creation of a few growth poles, as pilot projects, in 2005-06.’

President Abdul Kalam was still in office. He used to propagate this idea of Professor PV Indiresen. Hence, a few ‘pilot projects’, but those also in the indefinite future – when the proposals have been firmed up. Kalam gone, PURA gone. No mention in subsequent budgets.

But commitment to the poor continues. The poor are at the heart of the Government’s thinking, the Prime Minister and the Finance Minister have proclaimed times without number; to the poor, what matters most is food; for delivering food to them, the Public Distribution System is the key; and for making that system effective, the key is to improve the working of the Fair Price Shops.

‘Fair price shops constitute the backbone of the food security system for the poor,’ Chidambram told Parliament in his Budget for 2004/05. ‘We shall address the weaknesses in the system and strengthen public distribution,’ he promised. ‘I shall return to this subject a little later.’ That was in para 15. You had to wait for 60 paragraphs to learn what Government would do on this vital matter. An idea has been suggested, he said – that Government should distribute food stamps to the poor, and the poor should be able to go to any designated shop and procure the food. And so, another pilot: ‘I propose to introduce a pilot scheme for distributing food stamps, instead of distributing food through fair price shops, in two or three contiguous districts in a selected state. I sincerely hope that one of the States will come forward to associate with the Central Government in this experiment.’

Three years later, the pilot had disappeared, but more managerial types had alighted. Chidambram has continued to feel the urgency of improving the public distribution system. And so in the Budget for 2007/08, he took the definitive step for improving them: ‘A Plan scheme for evaluation, monitoring, management and strengthening of the targeted PDS will be implemented in 2007-08, and this will include computerisation of the PDS and an integrated information system in the Food Corporation of India.’

Come this Budget, and Government has moved higher up the technology scale: not mere stamps, not mere computerization and integrated information systems, an all together new, and technologically more advanced pilot. ‘An idea that has been growing,’ Chidambram says in this year’s Budget, ‘is to deliver subsidies to the target group through smart cards. Finally, I have found two willing partners -- the State of Haryana and the Union Territory of Chandigarh. They will introduce, on a pilot basis, a smart card based delivery system to deliver food grains under the PDS in Haryana and Chandigarh, respectively…’

And in the meantime, all the weaknesses of the Public Distribution System, to correct which Chidambram was going to revert later in his Budget of four years ago, continue unabated, all the leakages continue unchecked. In its report of April 2005 on the Targeted Public Distribution System, the Planning Commission records some of these ills:

•The implementation of TPDS is plagued by targeting errors, prevalence of ghost cards and unidentified households;

•Though the off-take per household has shown some improvement under TPDS, yet only about 57% of the Below Poverty Line households are covered by it;

•Leakages and diversions of subsidized grains are large and only about 42% of subsidized grains issued from the Central Pool reach the target group;

•Over 36% of the budgetary subsidies on food are siphoned off the supply chain: in several states, much higher proportions are siphoned off – 42% in Assam, 82% in Bihar, 42% in Gujarat, 56% in Haryana, 43% in Karnataka, 62% in Madhya Pradesh, 76% in Punjab, 61% in UP;

•Another 21% of the food subsidy reaches households that are above the Poverty Line;

•The cost of income transfer to the poor through PDS is much higher than that through other modes.

The Comptroller and Auditor General released his own findings in 2006. In his Performance Audit on Management of Foodgrains, the CAG concluded, first of all, ‘The results of the 59th round of the National Sample Survey of NSSO revealed that: almost 71 per cent of farmers had not even heard of the concept of Minimum Support Price. Even in Haryana and Punjab (which together contribute 56 per cent of all rice procured and 85 per cent of all wheat procured in the country), 37 per cent and 38 per cent of farmers respectively were unaware of MSP; and almost 81 per cent of farmers were effectively unaware of how to use the MSP programme.’ Second, the Audit once again laid bare all the holes with which we are familiar:

•The number of households Below the Poverty Line in the records of the state governments is a third higher than in the records of the central Government. This has the effect of scaling down of rations, says the CAG.

•Lists of beneficiaries are not updated, and this enables bogus cards to continue.

•Large number of cases have come on record in which ration cards have been issued to households that are not eligible for them: cards issued far in excess of numbers who are Below the Poverty Line; cards issued to households whose income is far in excess of the poverty line; households managing to get food under one scheme as well as another one; ration cards issued on the recommendations of VIPs with no further verification; the cards issued in one state are almost double the number of households that have been found to be Below the Poverty Line by a survey of the Rural Development Department.

•Foodgrains are distributed at lower than the prescribed scale of issue by four to 25 kg in several states and Union Territories.

•Grains are diverted in state after state.

•In Punjab and Haryana substandard rice is accepted on a vast scale.

It is not that ‘solutions’ have not been thought of. It is just that they have all met the familiar fate. To ensure proper monitoring of ration shops an Area Officers Scheme has been devised. The officers are to inspect the shops regularly. The CAG’s finding? ‘There was 96% shortfall in inspection by Area Officers under this scheme between 2000 and 2004/05…’ Vigilance Committees are to be formed, and they are to independently monitor the shops: in 24 states and Union Territories, the CAG finds, the Vigilance Committees have not been formed or are defunct and ‘non-functional’…

Nothing surprising in any of the findings – they are endemic. They have marred the Public Distribution System for decades. It was precisely to purge the system of them that Chidambram was flying all those pilots… The assurances are being implemented, the work is in progress, Chidambram’s brochure informs us.

The system, of course, remains as it has been.

(To be continued)

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