This is budget season in India. State after State has rolled out its budget after the Vote-on-Account was presented by the Union Finance Minister in Parliament on February 16.
This year’s budget-crafting season is truly unique in one significant sense: every one of them presented so far bears the scars of the recession, which even in its still early days, is already being labelled as the worst in living memory. Even so, some comparisons are noteworthy.
For instance, the Kerala budget presented by its Finance Minister, T.M. Thomas Isaac, is very different from the budget for Karnataka that B.S. Yeddyurappa presented the same day.
Evaluating them against three sets of broad parameters can help in capturing the differences in the approach by the two States.
First, faced with a virtual collapse in demand, what did they attempt by way of providing a stimulus to the economy?
Secondly, what have they done to provide relief to large sections of people who have either lost their jobs or have suffered severe wage compression?
Thirdly, given the fact that the States have little control over financial resources — especially after the introduction of a more-or-less unified Value Added Tax regime — how have they arranged their priorities when faced by the unprecedented decline in their revenues.
The singularly striking feature of the Karnataka budget is the attempt at tokenism in the face of a massive decline in revenues, amid widespread expectation of some relief.
In Karnataka, the compression in revenues appears to have translated directly into a severe cut in revenue expenditures, which have a bearing on several important social sectors.
Expenditures on health, education, the public distribution system and other social welfare services will bear the burden of the drastic squeeze in revenue expenditures. To make matters worse in the context of the recession, these are expenditures that would matter even more to the poor now.
Kerala’s approach to stimulus and relief appears to be two-pronged.
It attempts to undertake a Rs. 10,000-crore expenditure programme spread over two years to kick-start the economy, while providing tangible relief to the poor (the Rs. 2 a kg of rice to those below the poverty line being the most impressive announcement made by Mr. Isaac).
It is evident that small-scale industries have been affected severely by the economic downturn.
The move to provide specific and targeted relief to traditional industries such as coir, cashew, beedi and handloom industries does not find a parallel in Karnataka’s budget for 2009-10.
This is significant because while it may be true that the downturn has hit many sections, given the resource constraint, it is necessary to target those in need of relief most.
This is not just a question of moral propriety but of economic rationality as well. The most important objective in the current situation is to get demand back on track; a more broad-based boost to demand is likely to result in a quicker and less painful recovery.
The two budgets — by two politicians from opposite ends of the political spectrum — illustrate two different approaches to not only the recession but to the role of the State in economic activity. Just one feature of the two budgets highlights this.
A large part of the plan outlay in Karnataka is premised on the much-touted notion of using Public Private Partnerships (PPP) to build infrastructure.
In contrast, the expenditure planned in Kerala rests on the notion that the State would be main driver of investment that would also attract private into projects.