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Uttar Pradesh has long determined the fate of Indian politics. Right now though there is an uncanny similarity between the politics of that state and the state of the Indian economy. The future of both hangs in balance. Just as a fragile mandate has the Rajnath Singhs and the Mulayam Singh Yadavs scurrying for the magic number for a majority in the state’s Assembly, Finance Minister Yashwant Sinha has the daunting task of presenting the budget numbers that will buoy the sagging fortunes of the Indian economy.

Only the stakes are very different. In Uttar Pradesh, if Rajnath Singh loses Mulayam—or somebody else—wins. On February 28, if Sinha fails, every Indian loses something—a job prospect, a higher income or a business opportunity. The sins of past failures are already showing. The growth rate of the gross domestic product (gdp) slipped to just 4 per cent in 2000-1, the lowest since the crisis year of 1991-92. That translates into a mere 2.1 per cent rise in the average income of Indians. Most of Indian industry is in deep recession with sales and profits falling between April and December 2001. That’s bad. Worse is the continued investment famine—public or private, domestic or foreign. That puts paid to any chances of an early economic upsurge. To cap it all, not many are ready to believe Sinha’s words any more. The brave, bold budget of 2001 came unstuck due to policy paralysis, barring a few reform appetisers announced on February 5 this year.

The question is: will Sinha serve a full meal of reforms in his fifth budget on Thursday? And will that meal be nutritious enough to take the economy out of the onset of an eclipse of recession?

A tough poser to rattle any accomplished brain. That’s why india today brought together six experts to deliberate on the state of the economy and the challenge it poses for Budget 2002.

The panel comprised virtually the entire spectrum of expertise—each economist having contributed to policy making within or outside the government. They included Arvind Virmani, who served the Finance Ministry through the 1990s and is currently adviser to the Planning Commission; Bibek Debroy, a trade and legal expert and director of the Rajiv Gandhi Institute for Contemporary Studies; Indira Rajaraman, a taxation specialist and rbi chair professor at the National Institute of Public Finance and Policy; Subhashis Gangopadhyay, an econometrician and professor at the Indian Statistical Institute; Suman Bery, financial markets expert and director-general of the National Council of Applied Economic Research; and Surjit Bhalla, economist and president, Oxus Research. Jairam Ramesh, an india today columnist and adviser to past prime ministers and finance ministers, moderated the discussion. The two-and-a-half hour brainstorming resulted in some refreshing ideas and analysis.

Tax, not spending, is priority

That the Government is on the verge of bankruptcy is beyond debate. The revenue deficit—an indicator of the income-expenditure mismatch—has snarled from Rs 16,261 crore in 1991-92 to Rs 77,369 crore in 2000-1. But the way to solvency is no more through spending cuts, it’s through higher income generation. That’s a departure from the past years when expenditure reduction was considered the key to cleaning up the fiscal mess. The shift in thinking is not without reason. In the 1980s, the government collected 10 per cent of India’s gdp in taxes. That ratio fell to 9 per cent in the 1990s. This fall of one percentage point means an annual revenue loss of about Rs 20,000 crore.