Saturday, May 1, 1999

Union Budget 1999-2000: Some unanswered questions

My article titled "Union Budget 1999-2000: Some unanswered questions" was published in the newsletter of the Liberty Institute in May 1999.

The 1999-2000 budget has tried not to tread too hard on any toes. In view of the rollbacks that had to be undertaken last year, this was perhaps inevitable. But by the same token, the budget has left many questions unanswered.

Rural development

The budget has outlined many measures. But it has failed to deal with two basic questions. First, as a former Prime Minister had noted only 15% of all developmental funds actually reach the target. Merely allocating more funds is not an answer to this structural problem. Secondly, the fundamental cause for this is the abject rural productivity. Rural India continues to support 60-70% of the population while the contribution of agriculture to GDP has fallen from over 70% in 1950 to about half that level today. The lesson to be drawn is that the fundamental way to eliminate poverty in the countryside is to improve its productivity, and dramatically lower the size of the population dependent on land. This pattern is seen in virtually every country that has experienced economic development. Most of the developed countries of the world today have less than 5% of their population dependent on land.


Lack of mobility in labour is directly related to the almost total lack of employment opportunity in the organised sector. Over the past decade, annual growth of employment has been a pathetic 1%, even when the economy experienced a healthy growth. The real cost of organised labour - in terms wages, benefits, and security - in a country with abundance of labour is extremely high. The policies that have been pursued to protect the workforce have had the effect of pricing labour out of the market. And this when barely 10-12% of the workforce is in the organised sector. Unless this trend is recognised and reversed, rural India cannot escape perpetual poverty.


A lot has been said about the need to develop the basic infrastructure - power, telecom, roads, ports, etc. Again the whole focus has been on providing fiscal sops, tax holidays, assured returns, and other such measures. Very little attention has been paid to the regulatory bottlenecks that has ensured that despite tremendous demand for infrastructural services, investors and entrepreneurs remain uninterested. Whatever little has been attempted over the past few years is too little too late. There is an urgent need for radically fresh thinking if the Gordian knot is to be cut.


The shortfall in housing is staggering. Fiscal sops are unlikely to make a dent. While the Centre has repealed the urban land ceiling law, hardly any of the states have moved in that direction. Just as there has been very little movement to change archaic rent control laws. This apart, thousands of crores of rupees are lying tied up, because of the failure of state agencies responsible for providing facilities like water, sewage, road, power, etc., in the newly built areas, even in and around Delhi. Even as these properties remain unoccupied, unscrupulous builders are squeezing hapless investors in housing societies, by escalating the price.

Gold deposit

Various kinds of gold deposit schemes have been tried for long to draw out the supposed unproductive asset. All these barely skimmed the surface. Yet, no attention has been paid to understand this phenomenon - why do people in one of the poorest countries in the world are so lured by gold. In a country where in the last thirty years the consumer price index has risen by a whopping 800%, the real value of gold to the people is not hard to understand. Already the proposed increase in duty on gold has led to reports of increasing smuggling.

Government expenditure

While statistical jugglery has made the deficit look better, the government has provided no clue as to how it proposes to keep its expenses in check. Yet another commission is unlikely to find anything that is not already known - gross overstaffing, bureaucratic wastage, and corruption.

Budgets need to reflect the broad vision of the government. And it is this political vision that has been singularly lacking in our union budgets most of the time. They have become much-hyped non-events, as the country and the economy lurches on from one crisis to another.

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