Yechuri displays simliar understanding

From ET:

Notwithstanding the constitutional limitations of an interim budget and a vote on account, the UPA government appears to remain in a state of total denial about the gravity of the impact of the global recession on India. An interim budget can be an expression of the government’s declaration of intent and a balance sheet of its achievements during the last five years — an election pamphlet.

It can also give expression to the government’s reasoning on how to tackle this impact of the global crisis through increased public expenditures. This is particularly true when it is universally acknowledged that the way out of the present crisis is through a massive fiscal stimulus. The future government can well decide on how to account for these expenditures, either through monetisation of the deficit or through tax proposals for additional revenue mobilisation. Remember, the Bush administration had left behind a budgetary deficit of over a trillion dollars for Obama, who has now gone further for greater fiscal expenditures.

Unfortunately, the UPA government has chosen the first of these two options. Thus, by not rising to the occasion, it will only contribute to compounding the misery on the people. Much of the tom-tomed fiscal stimulus packages, like the Rs 70,000-crore infrastructure projects, come from allocations previously made in the last budget. The fine-print of the budget figures tells us that over the allocations made last year, close to Rs 40,000 crore extra, has been spent.

This is less than 1% of India’s GDP. What is worse is that for the next fiscal, the capital plan expenditure is slated to decline by Rs 4,500 crore. Clearly, the government is relying on private investment through PPP projects for infrastructural development, which, in the context of a recession, is a dangerously erroneous strategy. The burdens will eventually fall on the people, further depressing their purchasing power like it is happening with the private airports today where user development charges are being levied to meet the revenue shortfalls.

Much is being made of the resurrection of Indian agriculture. The fact remains that less was spent than what was allocated. So is the case with the social services sector. Not only have allocations been not fully spent, but the allocations for the coming fiscal in crucial areas is lower than what is being spent this year. Rural employment sees a reduction of Rs 6,650 crore, rural development Rs 5,176.59 crore, urban development (notwithstanding the JNNURM) Rs 1,734.95 crore.

So, far from envisaging any quantum leap in public expenditure, we see the government continue to remain trapped in the neo-liberal framework of fiscal fundamentalism. It needs to be repeated that the only way to meet the disastrous impact of the global recession is to enlarge domestic demand through employment generated by public investments in a big way. Already the impact of the recession has seen large-scale job cuts. Insecurity stalks millions of workers in export sectors like textiles, garments, etc. And 71 diamond polishers have already committed suicide in Gujarat. Other areas like construction, commercial crops like cotton, rubber, coffee, etc., are seeing an alarming drop in activity.

Under these circumstances, no amount of bailout packages can redeem the situation. These may improve corporate balance sheets but they cannot generate greater domestic demand. This can be done only through a massive dose of public investment. Only the naïve would feel satisfied with the fact that we are the second fastest growing economy in the world. The projected 7.1% GDP growth is bound to be significantly scaled down once the actual figures come in.

With the fiscal deficit rising to 6% of the GDP as against the projected 2.5%, many neo-liberals would argue as to how the government can spend any more. It makes neither economic sense nor common sense to be pre-occupied with fiscal deficit concerns under recessionary conditions. After a five-year run of over 20% growth of revenue surpluses, this year has seen a shortfall of an alarming Rs 60,000 crore tax revenue. This is precisely because of the global recession.

Further, despite a record foodgrain output of 230 million, the government has reduced the allocation of foodgrains to the states, in some cases to the tune of a massive 73%. This means, the government is stocking these foodgrains in its godowns paying a very heavy carrying cost which contributes to the burgeoning fiscal deficit. What is worse is the fact that the projected fiscal deficit for the next year is 5.5%, i.e., instead of expanding public investments, the government is planning a contraction of public expenditure.

It is this neo-liberal mindset of fiscal fundamentalism that needs to be jettisoned and a courageous ‘new deal’ of massive public investments must be undertaken. These are times for Keynesian fundamentalism.