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February 1, 1999
Business Commentary/ Jay Dubashi
What has Budget got to do with the common man?
There is not much enthusiasm about the Budget this year, now due on February 27. The common man gave up on Budgets long ago, when he discovered that there was nothing for him in them. Ever since liberalisation, Budgets have brought him nothing but inflation and unemployment and unless there is going to be a real shift in thinking this time, this Budget will not be any different either.
The economists, of course, have their own theories, none of which actually work. In fact, Indian economists have lost their credibility. They are after all the ones who went ga-ga over liberalisation which, the common man thinks, is the source of all his troubles.
Some economists believe high interest rates are the main culprit and unless they are brought down, things will not improve. Others think the government must do some pump-priming by stepping up on capital spending, and it is the lack of government expenditure that is responsible for the present impasse on the economic front.
There is little evidence to support any of these theories. They have been tried before in other countries and have failed. Japan is a good example. Interest rates in Japan are the lowest in the world, the prime bank rate being 1.5 per cent a year. But the GDP growth rate in Japan is also the lowest -- in fact, there is no growth at all. Japan is likely to end the current year with a growth rate of minus 3.5 per cent, if you can really call it growth.
Australia has the highest interest rates among advanced industrial countries, about 8 per cent. If our economists are right, GDP growth rate in Australia should be the lowest. Actually it is the highest, about 5 per cent. Australia is doing much better than Japan, in spite of high interest rates.
Take the question of pump-priming. Here too, Japan has been ahead of every other country. Successive Japanese governments have come up with spending packages totalling $ 500 billion in the last three or four years. Nothing has helped and the country continues to be mired in recession.
Japan can afford to spend money because its governments run a surplus on the budget. India cannot, because the government cannot lay hand on that kind of cash without borrowing. Either way, it leads to higher interest rates or inflation or both, and has therefore little impact on the economy.
In one way, Japan and India are in the same boat. Their citizens refuse to spend money. The reasons are the same. They have no faith in their governments. Japan used to be a stable country until about ten years ago. When it ceased to be politically stable it also ceased to be economically stable.
When you are not sure about the future, you keep a tight grip on your purse, for you do not know what is in store for you. Indians are not sure about their future. The economy is in such a big mess that anything can happen. In Bombay alone, according to an estimate, there are about one million people without jobs.
In the Thane-Belapur industrial belt, every other factory is closed. Company after company, including such big names like Siemens, Philips, Guest Keen Williams and British Oxygen is laying off people.
Fifteen years ago, the textile mills of Bombay employed 250,000 millhands. Now they employ less than 30,000. About a third of composite textile mills in the country have closed down. And what is true of textiles is true to a certain extent of most sunset industries, including engineering.
It is true that stock markets are booming, but only some selected new industries have suddenly caught investors' fancy. But they are exceptions to the rule. Unless the finance minister comes up with a radical new strategy for growth, his Budgets will cut no ice, not with the common man at any rate. And the current finance minister seems the least likely man to do so.
The Rediff Business Columnists on Budget 1998-99
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