However, what can be foretold with a somewhat greater likelihood of being correct is the impact of two populist budgets (2003-04 and 2004-05)—which are engineered to suit political aspirations rather than economic needs—on the future of the economy based on the situation today; and that’s what this fortnight’s column will deal with. This year’s budget precedes elections in a number of States and next year’s budget will be shadowed by impending general elections. Hence, at least the next two budgets will be populist with a likelihood that the first budget under the new government after the elections will also be soft as a gesture of gratitude to the people for voting it in.

First, disinvestment is likely to slow down. Today, this matter is politically emotive, not for any economic reason but because it is being used as a lever to excite misplaced patriotic passion. Thus, phrases like "sell-out to foreign countries" and "selling India’s family jewels" are only meant to impress the voter that politicians are opposed to disinvestment because of their patriotic sentiments, the argument being that, basically, disinvestment makes inroads into India’s sovereignty. This assertion is hard to support. If public sector undertakings are being sold off, the buyers are essentially Indian entities. There might be a small proportion of foreign investment involved but it is too small, and the sell-off so surrounded by caveats, that foreign control is out of the question. Surely, it is not unpatriotic to sell public sector units to professional private sector companies who can run them single-mindedly, leaving the government to focus on social issues. We welcome the outsourcing of foreign job work (such as call centres) to India but resent our Government selling its commercial assets even to Indians because political control is, thus, reduced.

The result of this slowdown in the disinvestment process is that the fiscal deficit will continue to climb. And since no politician knows, or cares to know, the implications of such an increase, India will be pushed nearer to an economic crisis. And this time, thanks to globalisation, we are not as economically isolated as we were when the "Asian Flu" which affected most Asian countries left us unscathed about two decades ago. If privatisation is accepted as ‘unpatriotic’, how long will it be before foreign investment in India will be twisted to mean looting the country’s material and human resources, with the benefits going outside India? Of course, production will rise and so will jobs and salaries (look at the information technology and finance-oriented industries) but that’s not the point. The point is that it will be presented to the people as ‘unpatriotic’.

And domestic investment? It will be said that it is making the rich richer. The top industrialists, some of whom hold worldwide rankings, have access to resources that are simply not available to grassroots entrepreneurs. They will continue to make profits and proclaim (patriotically!) that they are brightening India’s image abroad. Of course, they are! But, Indian politics being what it is, they have to wear their patriotic credentials on their sleeves or the politicians will make short work of them. Look what happened to Tehelka’s Tejpal and the Global Trust Bank.

It is obviously illogical that foreign investors are claimed to be looting the country while domestic investors are said to be looting the people. But, then, when was politics ever logical?

So, there will be a slowdown in the economy. And this is doubly unfortunate because today, despite the political scenario, most economic indicators are rising. And for this, we have to thank the acumen of our business community and the few Ministers in the Government who are genuinely concerned about the country’s economy. For the rest, it is international obligations like trade treaties and WTO protocols that are forcing the country to bring down its fiscal and non-fiscal trade barriers and that has also given Indian business a more level playing field abroad.

But the greatest impact of two (maybe three) successive soft budgets is the likelihood of the country again entering into a high-cost economic phase. Populist, pre-election budgets contain provisions which, directly or indirectly, raise the cash with the people almost immediately. Instances of such provisions are Pay Commission recommendations being drastically inflated by the government, higher slabs of DA releases, revival of LTC, etc. for government employees. For the general public, there is increase in food and other subsidies which immediately lowers the prices of daily needs such as groceries and petrol. Also, bank deposit rates may be raised to allow for greater returns on savings (a big sore point among the general public which have been hit by dropping bank rates).

There’s no such thing as a free lunch. Such giveaways directly affect the economy. Besides raising the financial burden on the government (without the corresponding cover of higher taxes and levies), such populist measures often flood the markets with money. If people go on a buying spree, prices go up and pockets of shortages start opening up in the economy. A vicious circle develops until prices become so high that the extra income with the people is nullified in terms of what they can buy with it. But the damage has been done. Higher prices push up the inflation rate, the real interest rate becomes unproductive and banks are forced to increase credit rates. This is when we enter the first phase of a high cost economy. If immediate, drastic action is not taken (cutting subsidies and giveaways, eliminating tax rebates and concessions, etc. pricing food, fuel and other necessities realistically, etc.), the high cost economy can snowball into a serious state of industrial depression coupled with high inflation. This has happened to us in the past (1991) and it left the country in a situation where it had to pledge its gold stocks abroad for foreign exchange. Our politicians are quick to latch on to so-called erosions of the country’s sovereignty, but they have short memories in respect of the dire impact of profligate economic measures. How many of us remember that, just a few decades ago, the only source of food for India’s teeming, hungry millions was the free wheat supplied by the U. S. A. under the PL-40 programme?

However, all is not gloom and despair given the resilience of the Indian people whose entrepreneurial spirit does not shirk from sitting on the roadside repairing shoes to building industrial empires. Of course, the rising population and deteriorating college educational standards is making it very difficult for the common man, but the spirit is still willing. However, when natural calamities such as droughts and floods add to his woes, he sometimes, for a while, loses his innate strength. There are increasing reports of suicides in the farm sector, of urban labour families committing mass suicide and starvation deaths.

But it needs only two good monsoons to bring to the fore the indomitable spirit of the common Indian. It does not say much, however, for the political process that after over half a century of massive planning effort, India is still at the mercy of the elements. Droughts and floods affect the same places year after year but no pre-emptive action is taken. In this modern age of science and technology, it is shameful that while one part of India is regularly devastated by drought in another part floods are regularly taking a massive toll of human lives.