Some Macro-Economic Considerations Pulapre Balakrishnan The claim that the budget is 'growth oriented' is puzzling. First, the fiscal stance is deflationary. Secondly, capital spending by government is down. For each of these reasons it is not at all clear that a recovery will be triggered or that private investment will take off As far as the role of budgets go, perhaps, this one may be accurately described as non-inflationary. But then inflation does have other crucial determinants. Since the budget's bookkeeping has been much lauded it bears mentioning that rhe revenue deficit is still with us, and growing. Apparently, the government's macro-economic adjustment programme is yet to catch up with its own consumption. Finally, for exports we have been provided with an enthusiasm rather than a strategy APART from some significant changes in policy instituted in the budget, the finance minister this time seems to have caught the imagination of many by some very deft book-keeping. There is widespread wonder at 'give-aways' not having had to be combined with 'take-aways'. Obviously these gentlemen have not heard of the newly introduced 364-day bills! Coming to specifics, for instance the media has focused on 'the lowest budgetary deficit (total expenditure minus total revenue) in a decade'. This is indeed correct. In fact, the deficit projected for 1993-94 is close to half that estimated (revised) for 1992-93. However, note (Table 1) that the decline is matched almost exactly by the increase in 'borrowings and other liabilities'. Thus the finance minister may be seen to have borrowed to reduce the budgetary deficit. This is no achievement. While still on the question of balances, the fiscal deficit is actually marginally higher. Thus the lower projected ratio of this deficit with respect to national income is to come about solely due to the anticipated increase in the latter. The revenue deficit, on the other hand, is projected to increase substantially, which is a marked turnabout from the provision last year when it was at least slated to fall, even though the budget estimates were exceed ed by close to 25 per cent. Thus if deficit reduction is considered a desirable objective, at least with respect to the revenue account, this budget makes little progress. The implication of a revenue deficit is that we are borrowing (or printing money) to finance government consumption. In response to this it has been pointed out by the government that one cannot be too critical of revenue deficits in the Indian case for some crucial government expenditures such as on education occur on revenue account. This is entirely to be dis- counted when it is made clear that expenditure on 'education and public health' amounts to 2.9 per cent of total expen diture on revenue account This alter the much touted increase in expenditure on education in the budget. On the whole, an attempt to rein-in expenditure has been made alright. However, while the growth in total expenditure has been curtailed, notice that the decline has been brought about by a reduction in the level' of expenditure on capital account (fable 1). This is of grave import, and with likely consequences of to which I shall turn subsequently. Fiscal stabilisation via reduction of capital spending reflects the political economy of macro-economic adjustment being attempted in India today. Simply put, it is obvious that this government has been unable to take the really hard decisions. But so much for the arithmetic, and on to the economic questions.
