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15 February 2009

BUDGET 2009 Pages From Moneycontrol.com

http://budget.moneycontrol.com/

Economic milestones of UPA government

The Congress-led United Progressive Alliance (UPA) government is expected to recommend dissolution of the present Lok Sabha after the February session. The general election for the 15th Lok Sabha is due before May.

The UPA government claims it had taken action on "almost all 142 items" of significance in the Common Minimum Programme (CMP), its agenda of governance. The CMP's chief focus was on employment, agriculture, health, education, women and children, national security, foreign policy, food, Panchayati Raj, social harmony, minorities, water resources, regional development, among others.

Its most notable achievement includes inflation control and maintaining a tight regulatory environment which prevented domestic institutions from falling prey to global financial woes.

Rising crude and global commodity prices saw inflation bordering around 12%. But a number of policy measures ensured that prices remain under control and the aam aadmi does not suffer.

Dr Shankar Acharya, Honorary Professor, Indian Council for Research on International Economic Relations (ICRIER) and Member of Board of Governors, said a number of subsidies announced last year helped keep prices of food, fertiliser, and petroleum low. "The consequences of that in a normal year might have been rather unpleasant but this hasn’t been a normal year."

The CMP promised an increase in investment for agriculture, which has been in the throes of a crisis. The government promised that immediate steps would be taken to ease the burden of debt and high interest rates on farm loans. In last year's Budget, the government announced a Rs 60,000 crore loan waiver scheme.

The UPA's CMP included a National Employment Guarantee Act to provide at least 100 days of employment for at least one able-bodied person in every rural, urban, poor, and middle-class household. The Act is now functional across India.

It also pledged to raise public spending in education to at least 6% of GDP with at least half this amount being spent on primary and secondary sectors. This was its stance on education. At last count, the UPA government's investment in education stood at 3.5% of GDP.

But despite all these achievements the government failed to deliver on a number of fronts. Primary being its failure to control the rising fiscal deficit. The overall deficit in the current fiscal is expected to surge to 7.5% of the gross domestic product, as against the projected 2.5% in 2008-09.

Since then there has been additional spending of about Rs 1.6 trillion. This increase is attributed to off-budget liabilities – including hefty subsidies on food, fertiliser and fuel – that keep piling on.

The Prime Minister's Economic Advisory Council (EAC) had issued a warning related to serious fiscal risks. It advised the government to urgently raise fuel prices as there was a large backlog of fuel price adjustments to be done.

In addition to the Union government’s extra spending, the state governments have also been given permission to borrow an additional Rs 30,000 crore to fund the stimulus package to combat the slowdown.

The large outgoings for the UPA government’s pet scheme, the National Rural Employment Guarantee Scheme has been a serious cause of concern. Former governor of Reserve Bank of India C Rangarajan had remarked that implementation of the Rural Employment Guarantee programme and the Sixth Pay Commission’s report will take the total deficit to 5%. Similarly, it painted a gloomy scenario on the balance of payments front, pointing out that the current account deficit will balloon to USD 41.5 billion, or 3.2% of GDP, up from 1.5% in fiscal 2007-08. This will be the first time that India’s current account deficit will touch such high levels since the 1991 economic crisis, which triggered off the reforms process.

A number of these steps have resulted in a growth slowdown. The EAC has projected a much slower pace of growth for the current fiscal. The economy is expected to expand by 7.7%, down from last year’s 9.1%, and lower than the earlier projections made by the government and RBI of around 8-8.5%.

However, external factors like global economic deceleration, tightening credit, falling equity markets, and the regressive effects of commodity price-led inflation are also to be blamed for slowdown in economic growth.

Year	GDP
2004-05	7.5
2005-06	9.4
2006-07	9.6
2007-08	8.7

There were also a number of areas like health, education, rural employment and agriculture on which it promised but has under delivered.

A report filed a civil society review of CMP implementation (called the People's Verdict) alleged that the promised increase in budgetary allocations to health by 2-3% of GDP has not been met.

The report said spending on health by the Centre is stagnant from 2003-04 onwards. "The present UPA government promised to spend 3% of GDP on health but after four years, the total spending is hovering around 1% of GDP," the document claimed.

Referring to the CMP proposal to spend 6% of GDP on education with at least half the amount being earmarked for primary and secondary sectors, the report said the combined outlay for the education departments of the Centre and states remain at a "meagre 2.84% of GDP" in 2007-08.

Attachments : cmp.pdf