Budget Banalities

- Dasu Krishnamoorty

The government of Andhra Pradesh is teetering on the brink of irreversible indebtedness, a reality the budget presented to the assembly on Tuesday could hardly conceal. The document is an unabashed admission of bankruptcy, not made under any duress, but in discharge of constitutional accountability. Even before he could explore alternatives for increasing revenues and reducing expenditure, the finance minister rushed to embrace the softer option of fresh loans to tide over the repetitive crisis. For populist reasons, he found it difficult to break free from the precedence of no-fresh-taxes-this-year. After salaries and pensions are paid to government staff, there is very little left of tax revenues to meet plan expenditure. What comes through tax devolution and grants from the federal government is not enough to meet subsidy obligations and to implement welfare programmes. The finance minister invented a new and analgesic term "the stark reality of fiscal constraints" to explain away financial profligacy.

Though the real problem is the increasing distance between revenue and expenditure, the finance minister shied away from exploring revenue-yielding avenues. If he failed to bring revenue closer to expenditure levels, he should have at least examined how expenditure could be pruned to reflect revenue realities. A white paper on fiscal reforms, released as a prelude to the budget, tried to deflect responsibility by citing the declining share of federal transfers as one of the reasons for the present crunch. The share had declined from 5.19% to 4.75% between 1995-96 and 2000-01. But the share had increased in monetary terms from Rs. 4,150 crores to Rs. 6,560 crores. The current debt burden is estimated at Rs. 37,700 crores, which is 800 crores more than the total of last year. As a proportion of the gross state domestic product (GSDP) it was higher than the average of all states in the country in 1999-2000. The average cost of debt also has gone up from 11.8 to 13.4% because the government was retiring low interest debt and acquiring new loans at higher cost.

Government had also been standing guarantee for loans raised by public enterprises and co-operatives. Add to this the crippling establishment cost of Rs. 8,780 crores to pay salaries and pensions. Chief minister Chandra Babu Naidu admitted that taxes collected were just sufficient to meet the salaries and other costs and that development wholly depended on borrowings. If the government goes ahead with its plan to borrow, the debt burden will be Rs. 40,800 crores, five times the total of Rs. 8,300 crores in 1992-93. With the higher interest rates the government is paying for fresh loans, the interest rates have gone up from 11.8% in 1995-96 to 12.1 in 1996-97, 12.5 in 1997-98 and to 13.4 today. While the government had borrowed Rs. 6,000 crores in this financial year, it has paid Rs. 51.4 towards amortisation. The government paid Rs. 3,100 crores as interest on loans in 1999-2000 in contrast to Rs. 3,960 crores during the current financial year.

But it is the failure of the finance establishment to find a synonym for the World Bank that caused most acute embarrassment to the finance minister who uttered the name of the saviour (read World Bank) several times, very much like Bush Jr. invoking the name of God at his inaugural. According to him, the World Bank will finance a project outline for the A.P. Poverty Elimination Project aimed at reducing poverty in all the rural backward mandals of the state through a strategy of social mobilisation. All ongoing irrigation projects are planned to be completed in a time-bound manner by fully utilising the development assistance available from the World Bank and lesser Gods like Japan's Bank of International Co-operation and some assistance from national institutions. A major programme of 5,000 minor irrigation schemes will be taken up with the assistance of, who else?, the World Bank. The entire annual plan for 2001-02 totalling 9,000 crores rupees will be implemented with the help of borrowings from the federal government, financial institutions and the market. In the pipeline is a Rs. 1,500 crores 'untied' loan from the World Bank.

Do governments wake up to "stark realities" only at budget time? There are huge holes in the delivery and collection systems. Chandrababu Naidu's daily teleconferences, surprise visits and every unconventional trick to monitor administrative corruption and fiscal indiscipline notwithstanding, expenditures continued to soar and collections continued their slide. As a BJP spokesperson pointed out, the government had failed to outline a plan or strategy for streamlining expenditure. There is no satisfactory explanation for a sudden surge in expenditure in March, the last month of the financial year. Babus sleep for the first ten months of the year and suddenly discover that they would not get allotments in the following year unless they had spent the previous year's allocation. The result is sudden, unproductive and unplanned expenditure. The rush of expenditure was evident from the report of the comptroller and auditor-general, which showed that the government had incurred 46% of its expenditure in the last quarter of 1998-99, including 33% in March alone. In short, a massive Rs. 6,700 crores were spent in a single month. Leader of the Congress legislature party Y.S. Rajasekhara Reddy quotes the status paper on finances as saying that the interest burden was mounting because the borrowings were diverted for unproductive expenditure.

According to Eenadu daily, the government's failure to meet its debt obligations is matched by its helplessness in recovering loans it had sanctioned to public sector enterprises, local governments, co-operative bodies and non-governmental institutions. They owed the treasury Rs. 4,200 crores in 1994-95. Today, this sum has soared to Rs. 4,900 crores. Recoveries in 1994-95 were Rs. 1,030 crores and this year, it is only Rs. 160 crores. Legislators and politicians control most of these institutions directly or indirectly and bring pressure on the government to write off these loans in due course. Large chunks of tax collections, already low due to deliberate underassessment, evaporate before they reach the treasury. This carves a big hole in revenues. How much of the monies intended to help the poor and backwards reach the targets is doubtful. It is a double-pronged treachery: first, to siphon off revenues reaching the exchequer and second to poach on the delivery system. None of the 14 strategy papers Chandrababu Naidu had released on the eve of the budget can solve problems arising from theivery and corruption at every level of the administration.

Chandrababu Naidu cannot pretend ignorance of the history of reverse lending that is the lot of borrowers from global banking institutions. A World Bank report for 1995-96 says that honouring a tradition of reverse lending, India paid $ 7,230 lakhs more than what it has received. In the first nine months of 1995, the country received Rs. 6,250 crores and paid back to the creditors Rs 4,220 crores by way of amortisation and Rs 3,270 crores by way of interest. The country still owed them Rs. 2,040 crores. How does the chief minister propose to repay the loans without proposals for fresh taxes? And, if the phenomenon of reverse lending persists, that day of repayment may not arrive at all. Countries stronger than Andhra Pradesh have genuflected before creditors. For lending 40 lakh pounds sterling to the British government, Lord Rothschild wrested the Balfour declaration from Britain assuring a Palestinian homeland for the Jewish people. Today's Rothschilds are the Bank-IMF twins and leading private bankers of the world. They have the support of a new thesis peddled by Christie Davies, professor of sociology at the University of Reading in Britain. The thesis demands that hereafter global banks or any other creditor should seek territory for cash. Sounds fanciful? No. Russia sold Alaska in the nineteenth century to pay off debts.

Borrow, if the state must. It can repay if it does not shrink away from enlarging the tax base, increasing the efficiency of tax collection, ensuring maximum productivity of the loan funds, disciplining an export lobby that does not deliver and punishing ministerial and bureaucratic waste and ostentation. Above all, corruption must go and with it the parallel economy it has created. Budgets have never been credible documents because they employ figures to make up for the poverty of words. The solvency status of the state is such that to discuss budget allocations and analyse sectoral distribution would be mistaking the bark for the tree. These budgets, like history, will repeat themselves because finance ministers shun learning from history of how newly liberated countries nonchalantly walked into an endless tunnel of indebtedness, blindly resting faith in exotic economic remedies suggested by their creditors and self-serving bureaucrats. The people pay the price for such naivete. Is Chandrababu Naidu listening?

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