THERE GOES MY BUDGET—AGAIN: For the third time in five years, Sinha has had to roll back his budget proposals

When Finance Minister Yashwant Sinha declared after presenting Budget 2002 that he wasn't "in a popularity contest", it wasn't just rhetoric, though he probably intended it to be.
In a rare consensus across the political economy, virtually every segment-the people, politicians and businessmen-is baying for his blood. The trigger may have been fresh taxes, withdrawal of income-tax rebates or the hike in LPG and fertiliser prices. The truth is that starved of growth and robbed of hope, these are the kinds of measures the Indian economy requires. But faced with electoral defeats and a middle-class outcry, these are exactly the type of decisions politicians detest.

Economy

POLITICS has got the better of Sinha BJP leaders object to Budget 2002 hitting the party's middle-class vote bank A dozen critical economic legislations stuck in Parliament No consensus in Government on labour reforms and downsizing He is accused of acting against the party's interests ECONOMY hasn't come to his aid At 4%, GDP growth in 2000-1 was the lowest since 1991 Government revenues fall short of debt payments Interest rate cuts fail to draw new investments Consumer spending remains sluggish despite low inflation

The loudest clamour is from Sinha's own partymen. Last week, 70 BJP MPs harangued him to roll back the tough measures. Such was the litany of demands that Sinha was prompted to quip "you can't hope for a new budget".

The corporate world isn't delighted with Sinha either. Tired of the prolonged economic slowdown and frequent rollbacks, many businessmen are cursing the Government for their collective troubles. In desperation, Sinha met corporate chieftains in Mumbai in March, beseeching them to support his battle with an embittered and angry middle class.

When all else failed, Sinha again resorted to rhetoric. "A doctor," he said "can only prescribe and the rest is up to the patient." But Sinha's prescription is suspect. For instance, raising taxes during a demand depression-real consumption growth dipped from 6.5 per cent in 1999-2000 to 2.9 per cent in 2000-1-is unlikely to trigger a revival. Former finance minister P. Chidambaram says succinctly, "Since 1998, average GDP growth is lower, average fiscal deficit is higher, average investment flows are lower and total subsidy is higher." Ravi Kant, executive director of Telco, adds, "The fact that commercial vehicle sales-they have a strong linkage to the real economy-have been in the doldrums for five years indicates the health of the economy." Congress MP Murli Deora claims that "Sinha holds two records: for five budgets and five successive disaster years".

"Sinha has a fair grip on economic reality but has failed to grasp popular sentiments." Vijay Kalantri, president, AIAI

"Second generation reforms need a higher degree of political management." Jagdish Shettigar, Head, BJP's Economic Cell

Harsh words? The truth is harsher: annual average GDP growth at 5.4 per cent since 1998 has been the lowest in 15 years. This has hit corporate bottom lines. A recent CII survey reports that 30 out of 116 industry segments recorded negative growth in 2001-2. The Government's own bottom line isn't in any better shape. As the BJP's economic resolution at the Goa National Executive states, "The fiscal situation is such that the total revenue receipts of Rs 2,12,572 crore in 2001-2 would fall short (by Rs 17,982 crore) to meet even debt servicing at Rs 2,30,554 crore, let alone enabling the Government to meet current and developmental expenditure." The capital market-wrecked by scams and a penurious UTI-is equally hit. Dhirendra Kumar of ValueResearch says, "Due to the absence of crises management, this regime has been a disaster for investors." According to Prithvi Haldea of Prime Database, the total funds mobilised from the primary market between 1998 and 2002 totalled just Rs 7,412 crore compared to Rs 9,919 crore raised in a single year in 1994-95.

Ironically, the dismal state of the economy and gloomy business sentiments demand strict economic measures-some of which Sinha had proposed in his budget and is now being pressured to withdraw. For instance, the reduction in subsidies on LPG and fertilisers may have helped reduce the Central Government's mounting subsidy bill (Rs 30,523 crore in 2001-2) and a cut in interest rates would have reduced the cost of borrowing for business. But both are non-populist decisions. Says Vijay Kalantri, president, All India Association of Industries: "Sinha has a fair grip on the economic reality but has failed to manage political and popular sentiments." That's why Sinha's partymen were unanimous in seeking restoration of tax rebates and withdrawal of service tax on insurance.

Of course, not everything is bad with the economy. Prashant Ruia, director, Essar, points out: "Foreign exchange reserves of $54 billion, low interest rates which have made consumer finance a reality and the opening up of telecom, insurance and banking are real positives." In reality, the upsurge in forex reserves is due to the RBI mopping up dollars from the market. And low inflation is largely due to intense price competition across the economy.

To Sinha's credit, nobody doubts his intentions. While Kalantri describes him "as well meaning but wrongly guided", Venugopal Dhoot, chairman of the Videocon Group, believes that "in the circumstances, the Finance Ministry has done a good job". Arguably. Sinha has been dogged by crises like the post-Pokhran sanctions to Kargil to Godhra. Plus he has never had-either due to the system or poor HRD-a team of his own. Sinha could also argue that without the support of other ministries, he alone can't push the cart.

AT most he can give broad directions. Says Shirish Sankhe, partner in McKinsey & Co: "Sinha's budgets-especially the previous two-contain 80-85 per cent of what is required for a 8-9 per cent growth. If the economy is not doing well it is because of the paralysis on the action front." Stock market analyst John Band, however, begs to differ. "His budget speeches are full of good intentions but they get diluted by rollbacks." Simply, Sinha is unable to argue his reforms through because he neither has Manmohan Singh's pious presence nor Chidambaram's networking agility.

Worse, Sinha has never had the political backing of his boss. Jairam Ramesh, secretary of the Congress' Economic Affairs Committee, points out that "no finance minister can be effective without a good chemistry with the prime minister. Manmohan Singh had P.V. Narasimha Rao's confidence. Chidambaram had the implicit trust of both H.D. Deve Gowda and I.K. Gujral." Sinha was hobbled by the "second choice" label and robbed of critical support from the PMO and the Cabinet. The fear is that the BJP may now opt for a popular finance minister. Something the economy can ill afford. There may be a need to change reforms, not the reformer