Will India ever see budgetary reforms?

Fri, 16 Mar Pre-Open

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The Union Budget for 2012-13 is scheduled to be announced today. The Budget, in a general sense, gives the future projection of government accounts. It depicts the way in which the government aims to raise the revenue and expend the same. It also serves as a platform for announcing reforms.

We believe that the upcoming Union Budget is extremely important, especially from a reform point of view. Lok Sabha elections are due in 2014. Thus, the Budget for 2013-14 is most likely to be populist in nature in order to win vote bank. Displeasing the electorate in the last year could backfire and hence tough decisions, if any, are needed to be taken now.

However, history suggests that populist measures have always scored over reformist approach. Take the case of the recent Railways Budget for example. Railway passenger fares were untouched for the last 8 years. In order to increase passenger safety and provide better amenities, fares had to be increased. No budgetary support from the Centre and worsening financial position of the Indian Railways meant that increasing fares was virtually inevitable. But what happened to Railway Minister Dinesh Trivedi once he presented the fare hikes in the range of 8-22%? He is at the risk of losing his job since any kind of price hike is deemed as antagonising the voter base of coalition party which supports United Progressive Alliance (UPA) government at the Centre. Passenger safety and amenities got traded for power in this case. Withdrawal of Foreign Direct Investment (FDI) in retail was another example where a reformist move became subject to dirty politics.

Thus, by now the UPA alliance might have clearly understood (perhaps it already knows) that profiteering from populist measures is the mantra to remain in power. So what if that jeopardises the growth of the nation. Populist measures (subsidising fuel and power) widen the fiscal deficit and render the financial machinery of the government inefficient. It is not that these measures must be completely eliminated to further marginalise the poor. However, there should be balance between populist and reformist approach. Nonetheless, considering Congress party's recent performance in state elections we doubt whether the reform agenda will be addressed in this Budget. The next Budget, too, is expected to be populist for reasons stated earlier. Thus, it is anybody's guess when reforms will ultimately see the light of the day.