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Jaswant Singh presented his first and only Budget for 2003–04. The economic backdrop was not too inspiring, though there were signs of an economic turnaround. The growth in India’s GDP would be 3.8 per cent for the full year of 2002–03. Exports would grow by over 20 per cent to $52.72 billion. And wholesale inflation would be modest at 3.4 per cent. The external sector would remain robust. The current account balance, which had turned surplus in 2001–02 at 0.7 per cent of GDP, after a gap of twenty-three years, had become even more stable at 1.2 per cent of GDP in 2002–03. The import cover (the number of months whose imports could be financed through the available foreign exchange reserves) had gone up from 11.5 months in 2001–02 to 14.2 months in 2002–03. This was because India’s foreign exchange reserves had jumped from $54 billion at the end of March 2002 to $76 billion a year later.
Not surprisingly, in early February, Singh advised the government to prepay the country’s external loans. The government, therefore, decided to prepay $3 billion of its external loans. In many other ways, India was doing better than in the past few years. It was an exporter of food grains to as many as fifteen countries and a donor of hard-currency loans to about a dozen countries, in addition to rupee loans to another twelve. The Indian currency was also stable.
It was in the background of such a state of the Indian economy that Singh outlined his Budget priorities. He identified several areas that the Budget sought to focus on. These contained a mix of economic and social goals – poverty eradication; addressing the lifetime concerns of citizens covering health, housing, education and employment; infrastructure development; fiscal consolidation through tax reforms and progressive elimination of budgetary drags, including reform of the additional excise duty, introduction of service tax and introduction of value-added tax from 1 April 2003 at the state level; agriculture and related aspects including irrigation; and enhancing manufacturing-sector efficiency, including promotion of exports and further acceleration of the reform process.
Singh gave a big push to infrastructure with a total investment plan of Rs 60,000 crore. He announced plans for constructing forty-eight new road projects at an estimated cost of around Rs 40,000 crore, railway projects under the National Rail Vikas Yojana costing around Rs 8000 crore, renovation of two airports and two seaports at an estimated cost of Rs 11,000 crore and establishment of two world-class international convention centres at a cost of Rs 1000 crore. The forty-eight road projects with a total length of over 10,000 kilometres were over and above the National Highway Development Project and were to be partly funded by half of the proceeds from the Re 1 cess per litre levied on petrol and diesel. In addition to setting up two private airports in Bengaluru and Hyderabad, he announced the government’s decision to take up the modernization of airports in Delhi and Mumbai. The seaports to be renovated were Jawaharlal Nehru Port Trust at Navi Mumbai and Cochin Port.
In a bid to manage the rising interest payment problem on account of the government’s outstanding debt and to capitalize on the decline in the average interest rate burden from 11 per cent in 1999–2000 to 9.4 per cent in 2001–02, Singh outlined three specific steps. One, taking advantage of the country’s comfortable foreign exchange reserves and lower domestic interest rates, he began making premature repayment of the government’s high-cost loans from the World Bank and the Asian Development Bank amounting to around $3 billion. Two, the government decided to offer either a buyback of its loans held by banks which were in need of liquidity or an encashment of the premium for making provisions for the banks’ non-performing assets, thereby improving their balance sheets. Three, a debt-swap scheme by allowing the states to swap their high-cost loans from the Centre against new loans at a lower interest rate.
He announced many schemes for agriculture, with an emphasis on issues and sectors like diversification into horticulture and floriculture, sugar, plantations, animal husbandry, veterinary medicine, credit availability, water management and irrigation. But his decision to effect a 12 per cent increase in the issue price of urea and another increase of Rs 10 per 50 kg bag of diammonium phosphate and muriate of potash caused a big uproar. There were protests from farmers and even members of Parliament belonging to the BJP were unhappy. He had consulted Vajpayee, who asked the finance minister to go by his conscience. Thus, while seeking Parliament’s approval for the vote on account for expenditure during the first two months of 2003–04, Singh announced a complete withdrawal of his decision to increase fertilizer prices.
Fertiliser subsidies which had been reined in at Rs 12,700 crore for 2003–04 had, as a result, gone up to Rs 13,400 crore. Singh’s roll-back decision was reminiscent of what had happened to Yashwant Sinha in 1998 and Manmohan Singh in 1991. While Sinha had to roll back the entire increase he had announced in fertilizer price, Manmohan Singh got away with only a partial roll-back.
While announcing the fertilizer price increase roll-back, Singh also announced a one percentage point cut in interest rates on all fresh loans to the states from the Centre and a similar cut on loans given to Central government staff for housing or buying a car or computer. SSIs also benefited from a reduction in the interest rate on loans to them as the finance minister announced that banks would charge a maximum of two percentage points above the prime lending rate on loans to small units.
Such populist moves were perhaps aimed at deflecting the demand for rolling back a cut he had announced in the small savings interest rate and the increase in the diesel price. Singh’s Budget did not have to roll back either of these decisions.
Excerpted with permission from India’s Finance Ministers: Different Strokes (1998–2014), AK Bhattacharya, Penguin India.
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