CC the Liberal Budget Strongly
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PROJECT FOR ECONOMIC EDUCATION , '1- I CONTENTS Preface iii I Introduction 5 I Executive Summary 8 Chapter 1 : Liberal Perspectives and Human Developmenf 1 .I.Philosophical Position 1.2, Formulation,of Basic Objectives 1.3. Key Parameters of Human Development 0 2004 bv PROJECT FOR ECONOMIC EDUCATION Chapter 2: The Current Budget Scenario 2.1. Composition and Structure Cover Zesiyii hi~~~iii: 2.2. Drawbacks and Failures Umesh Magar & Vivek Raju. 2.3. Lessons from a Liberal Perspective Published by: Chapter 3: Kashmira Rao for the PROJECT FOR ECONOMIC EDUCATION, Policy Framework and Structure of the Liberal Budget 3rd floor, Army & Navy Building, 148, Mahatma Gandhi Road, 3.1 . Expenditure Management Mumbai 400 001. 3.2. Direct and Indirect Tax Reforms Phones : (0091 22) 2284 3416, (0091 22) 2284 1340 3.3. Non-tax Revenues Fax : (0091 22) 2284 341 6 3.4. Privatisation - The Way Out E-mail : [email protected] 3.5. Other Policy Initiatives Summing Up DTP Typesetting & Printing by: Appendices SHUBHAM PRINT &WEB, I The Liberal Budget at a Glance (Rs. Crores) 59, Dr. V. B. Gandhi Marg, Fort, II The Liberal Budget at a Glance (% of GDP) Mumbai 400 001. Ill The Liberal Budget - Revenue Receipts (Rs.Crores) Telefax : (0091 22) 2284 261 9 Mobile : 98929 21 277 IV The Liberal Budget - Revenue Receipts (% of GDP) E-mail : [email protected] V The Liberal Budget - Expenditure Pattern (Rs. Crores) VI The Liberal Budget - Expenditure Pattern (% of GDP) VII A Note on Exploiting the Potential of e-Governance Vlll Names of participants Union government Budgets and, to a lesser extent, State 1991 the country has been heading in the direction of a government budgets have acquired a larger than life liberalised economy. A liberalising economy needs a truly importance. Along with the proliferation of laws, these Budgets Liberal Budget. too have become increasingly complex, requiring 'experts' to interpret the laws or the various provisions in the Budgets. Work began a year ago when a Drafting Group was appointed Indeed it required a genius like the late Mr.Nani Palkhivala to with a brief to prepare a Model Liberal Budget - the kind of explain the implications of a Budget in terms that people Budget India's current economic situation needs; a budget could understand. that is not only economic-reforms friendly, but which also reflects the Liberal economic philosophy, Until the early nineties, business, industry and taxpayers generally, waited with bated breath with their eyes and ears The Drafting Group decided, as a first step to ascertain the glued to the N or radio to hear what the finance minister had views of iiie inembeis oi iiie indian iibeiai Gioiip iiie in store for them. With socialist governments perched on the subject. These views were collated and discussed at a Seminar commanding heights of the economy it was natural to fear the held at the Leslie Sawhny Centre in Devlali, Maharashtra on worst - and more often than not these fears were justified and August 15 and 16, 2003. Thereafter some members of the the country and the people suffered. And, to make confusion worse confounded, invariably, these Budgets underwent t C An equitable sociely several transformations in the form of "revised estimates" in the course of the financial year. But that is another matter. is a just and fair sociefy - A sociefy where the stafe provides Budgets in the first forty years of freedom were designed to serve a statist economy. When the government at the Centre opportunities for growth. 9 9 was finally compelled by economic compulsions, in 1991, to take a "U Turn", the Budgeting process did not take a similar Drafting Group travelled to Chennai and met with economists turn. It continued to be as complicated and as obtuse as ever. and former members of the civil service in the office of the On the other hand with the considerable dilution of the Industrial Economist, to further clear their thinking. licence-permit-quota-Raj, Union budgets no longer scare the citizen as much as they did in the heydays of the 'socialistic' At these meetings there was, not surprisingly, considerable regime. But this is not enough. criticism of the weaknesses and faults in the present system. However when drafting the Liberal Budget, the Drafting Group's In the evolving liberalisation of the economy there is need to critiques of the existing practices have been brief, and that too promote better fiscal governance through transparency and only to serve as reference points for correctives vis-a-vis the accountability, fiscal consolidation, productivity, growth and Liberal Budget. The dictum that the Drafting Group kept equity. The Project for Economic Education is convinced that a reminding itself was "Everyone knows what's wrong. The job is to liberal economy needs a different kind of Budget - a Budget offer the people what is right." that.is de-mystified and made simpler, highly transparent and, above all, brought in tune with reality. The reality is that since Despite our discomfort with centralised economic planning, we have not hesitated to use the expertise available with the Planning Commission! The drafting group has drawn upon the concerned with political economy. Tenth Five Year Plan and working group reports for human development targets, data as well as some ideas. In fact the Participants at the Workshops on the Liberal Budget held at Tenth Plan document contains useful insights and ideas relating the LSP Centre in Devlali and at the office of the Industrial to economic reforms. Economist in Chennai. The Liberal Budget is not frozen in time. There will be an annual Dr.Bibek Debroy, Dr.Ashok Desai, Mr.K.PGeethakrishnan (the review of the Liberal Budget, Changes will be made if change Employment Guarantee Scheme, which is detailed in The is justified but always in keeping with the basic Liberal belief - Liberal Budget is based almost entirely on Mr. Man is the measure of all things. On this there can be no Geethakrishnan's note to the Drafting Group on the subject), compromise. And this goes well with the objective of the Mr.T.N.Ninan, Dr. Pronab Sen, Dr.R.Swaminathan, Professor Liberal Budget - Building an Equitable Society. Suresh Tendulkar, and (late)Mr.T.K.Velayudham who provided useful inputs to the Drafting Group. What then is this equitable society? It is not to be confused with the egalitarian ideal propounded by socialists. An equitable Mr.S.Viswanathan, editor and publisher of the Industrial society is a just and fair society - A society where the state Economist for his inputs and for the use of his office for the provides opportunities for growth. All human beings are not workshop in Chennai. born equal if economic and social circumstances are the only criteria. It is the task of a Liberal State to provide them Friedrich Naumann Stiftung. opportunities for growth irrespective of thelr caste, creea or status - economic or social. The State is the enabler, providing Mr. Umesh Magar and Mr.Vivek Raju for the cover design the required social and physical infrastructure. These include and layout. basic primary education, primary health care, easy availability Mr.Roger Pereira, CEO and Managing Director and Mr.Allwyn of safe drinking water or water for irrigation; decent roads for Fernandes, Vice-President and Director, R&P Management easy connectivity; speedy justice and the maintenance of law Communications Pvt. Ltd. and order. In an equitable society the individual matters. The Liberals seek growth with equity. The Liberal Budget is an Mr. S. Ramadorai, Chief Executive and his team at Tata instrument to make that happen. Consultancy Services. Much thought, consultations and effort have gone into the Finally, we thank the real authors of this Liberal Budget - The preparation of the Liberal Budget. The result is a Budget not in Drafting Group comprising Mr.Sunil S-Bhandare - Chairman of the conventional sense of the term. What has emerged is a the Group; Dr.Ajit Karnik; Dr.C.S.Deshpande; Mr-Sanjay Panse template or a benchmark to evaluate the traditional Budgets and Ms. Seetha - all members of the Indian Liberal Group. It of the Union government and to offer constructive suggestions was their dedicated effort, finding time despite their busy for changes as the situation demands. professional schedules, that resulted in the Liberal Budget We cast our net wide seeking the views of a large number of seeing the light of day. For them it was indeed a labour of thinking Indians not necessarily confined to economists. The love. The Project for Economic Education owes them a deep Project for Economic Education thanks in abundant measure debt of gratitude. the following for their assistance in the task of producing the Liberal Budget, which to our knowledge is the first effort of its kind in India: ( Members of the Special Interest Teams of the Indian Liberal S.V.Raju , Group (ILG). These Teams are groupings of ILG members in Execufhfe Chairman b va~i~usdisciplines. In this case we targeted the Teams Murnbai, May 29,2004 Project for Economic Education .- 11 > iii-a < I Given the enormity and complexity of India's socio-economic agricultural recovery; (b) significant growth of manufacturing structure, formulation of a Liberal Budget is not only a industries; and (c) steady growth of the services sector, challenging task, but one that has to take into account the including the external trade. However, there is so far no perils of the unknown involving such external and internal reflection of any major impetus to investment activity except in shocks like war, massive oil price hike and natural disasters. the area of road development and telecom.