Comment on commentators

After presenting four budgets, I have come to realise that only the opposition in the house and the newspaper columnists take the budgets seriously.
Comment on commentators
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As Finance Minister, I empathised with Mirza Ghalib. Unusual and counter intuitive? Well, the story goes that caught gambling in public, Ghalib was fined and send to jail by the Judge. As he emerged after serving his gaol term, he was asked by his favourite pupil Munshi Hargopal Tufta how it went. He replied that the jail was not uncomfortable, the hard labour was bearable but the ten whip lashes every day were unbearable. Shocked that the legend had been whip lashed, Tufta pointed out it was contrary to the judgment. Ghalib explained that he was made to share his cell with the a fledgling poet who insisted on reciting ten couplets every evening. And each "shair" was as painful as a "koda"!  I am no Mirza Ghalib and finance is no poetry but reading the comments by veteran columnists in the local dailies would make me cringe, if not sore! Hence the empathy! 

After presenting four budgets, I have come to realise that only the opposition in the house and the newspaper columnists take the budgets seriously. Certainly not the government of the day. Or the people at large. Even the interest of legislators and columnists is not intrinsic to the budget. For the former it is an opportunity to hold forth on any and every issue (the first speaker on my last budget held forth on "Quit Kashmir" movement!). For the columnists it is a golden opportunity to fulfil the weekly or fortnightly obligation! 

After having poured over it endlessly for the last four years, I didn't even look at this year's budget. In my opinion, it ought to have been a Vote on Account not a full budget. But Governor Malik seems to have taken the "vesting of all legislative powers with the Governor" a tad too seriously. He got the budget passed a day or so prior to the President's rule for obvious reasons. 

I chanced to see Dr Javaid Iqbal's column, ("JK Budget 2019-2020" GK, 22nd December, 2019). I must confess I am not one of his regular readers, but as and when he writes on something of my interest, I do read him. The column on the budget opens with an innocuous error, ends with a bloomer and has gaffes sprinkled liberally in between. He starts by saying the "budget, worked out by State Administrative Council (SAC) and approved by the governor, in layout, overall budgetary figures show marginal additions on expected lines from year to year".

The budget has, as always, been prepared by the Finance Department, currently under the administrative charge of Advisor K K Sharma. It has been approved by the SAC headed by the Governor. The SAC can't work out the budget! In a legislative system it is presented by the FM and passed by the legislature. Prior to that, the FM, in a budget cabinet, gets their approval to place it before the legislature. Also, "layout" of the budget — I presume the reference here is to budgetary "outlays" — can't or shouldn't change every year.  He further goes on to say, "(I)t sticks to the trend established by Haseeb Drabu as finance minister during PDP-BJP coalition government. Drabu combined the central schemes with the state budget thus exhibiting budgetary figures amounting to more or less twice the figures during six years (2008-2014) of NC-Congress coalition".

Much as I would like to be remembered as a "trend setting" FM, the fact is that I didn't set any such trend! Central schemes, now or earlier, have to be accounted for in the budget. Whatever money flows from the centre in whichever form, has to be through the state budget. It is not as if the earlier government didn't include central schemes in the budget. They had to and did. The total expenditure has to include all central sector schemes and total revenues have to include the money that comes with these scheme. Otherwise how will money be distributed and released. The jump that he sees is because of the Prime Minister's Development Package of Rs 80,000 crores (now over Rs 1 lakh crore) spread over six years.If, as Dr Iqbal says, and I haven't checked, it has gone up "from fiscal layouts of 33,000 to 46,000 crores during (Rather's) period…to more or less 80,000 crores during Drabu's stewardship in finance ministry", it is so simply because Drabu got more money out of the Centre. That is a large part of the job of the J&K FM. So, Thank you!

After reeling out a series of numbers, Dr Iqbal concludes with a flourish that "(t)he shortfall in capital receipts obviously results from a narrow resource base, a marked shortage of assets on which state could bank". This is "ignorance" typed in 21 different ways! Capital receipts are borrowings. How is a "shortfall", which means lesser borrowings, linked to a "narrow resource base"? And is his recommendation that more should be borrowed? That is also not possible because the magnitude of market borrowing is capped by the Centre.  It gets even worse. What does "marked shortage of assets on which the state could bank" mean? Governments don't borrow against assets; it isn't a collateralised or mortgaged loan. These are sub-sovereign borrowings from the financial market either as bonds, or forced savings of government employees or institutional loans. None of these are linked to existing assets or has any asset as security. Some corporations of the state government may borrow against assets but those don't form a part of the budget.     

Dr Iqbal is again holding the wrong end of the stick when he writes, "The capital receipts amount to 13,378 crores, while the expenditure is a much higher figure of 30,469 crores, leaving a deficit of 17,091 crores". There is nothing better in fiscal policy than capital expenditure being more than capital receipts! Put simply it means that the state is borrowing less and spending more on creation of assets. A deficit is better than surplus on capital account because a surplus would mean that borrowings are being used to defray current expenditure, like salary, pensions and interest! That is the worst situation one can be in. Exactly the obverse is true of revenue account. In fact, if there is "a revenue surplus of Rs 12,751 crores", as he says, then it means non debt creating receipts of that amount are being used to finance capital creation in the economy. This makes it a very prudent budget.   

Where he is on the ball is in pointing out that "Rs 4,340 crores (are) unfunded". From my days as Economic Advisor, I have been of the view that budgets have to be fully funded. There can't be an  unfunded gap because states don't have powers to monetise deficit through deficit financing. If anyone would care to see, I have followed this principle assiduously in all my budgets. The trend I had started has been given up. The fact that there is an unfunded gap means that the budget is not worth the paper it is written on. It doesn't deserve to be commented on be regarding its underlying strategy, vision or outlays. Indeed, it doesn't qualify to be called  a Budget. 

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