When the whole nation asks the FM, where did he get the money? He replies to the people, press and the Parliament: "Just trust my intelligence." No FM has ever told this to the nation without making any provision in the budget.

The present budget speech is one of the most misleading speeches. Before explaining as to why it is misleading, I would explain the political background of the budget. See before every budget, there are pre-budget discussions for recommendations from different related groups. But this time no pre-discussions were held as there was a political uncertainty surrounding the presentation of the budget.

When the banks were flushed with money the FM gave statements on three occasions asking the people not to go to banks but go to stock markets. No FM in the world would do that.

There is steep decline of investment in agriculture sector, capital formation, which was 19 per cent, now it is 7 per cent. Water resources have not been rejuvenated, how will farming grow? There is a complete stagnation of irrigated areas for the last 17 years. During NDA regime the country was having surplus food, but in 2006, the country was importing food. Can a country of 110 crore people ever risk this? Is there any country, which can supply this quantity of food?

An analysis of Budget 2008-09 organised by India First Foundation

An analysis of Budget 2008-09 organised by India First Foundation at National Museum Auditorium on April 1, 2008, New Delhi. This is based on Shri S. Gurumurthy's speech.

Today you cannot trust the budget speech to understand the budget. Twenty years back or thirty years back if a Finance Minister (FM) said something, that there was a deficit, then it was believed. Today if a Finance Minister says that there is a fiscal deficit or the revenue deficit then it cannot be trusted. The speech of the FM was so beautifully ornamented, the oration was so beautifully drafted that one can assume that what he said is true. But actually if one goes through the large volumes of the budget then one can draw the conclusion about what it reveals and what it conceals.

Immediately after the speech of the FM, one expected the ratings of the budget. In fact, this time there was a budget metre running; even after fifty per cent completion of budget speech, there were reactions in the electronic media by giving marks through budget metre, and that creates the public opinion also. So there needs to be a certain amount of awareness that the opinion created is not the right opinion of the budget, otherwise in the last few years it is seen that the opinion generated by the Sensex, becomes the opinion of the budget. The budget speech is supposed to be the mirror of the budget, but it is no more. The intervention of television has made the budget speech a theatrical effect. So in this situation one should consider whether the budget speech should be telecasted at all. It may bring about the qualitative change both about the content of the budget speech and the behaviour of the Parliamentarians. It's a point for consideration for the Parliament, media and the people, whether televising the budget speech becomes more understandable or it becomes a bar for the public debate.

The present budget speech is one of the most misleading speeches. Before explaining as to why it is misleading, I would explain the political background of the budget. See before every budget, there are pre-budget discussions for recommendations from different related groups. But this time no pre-discussions were held as there was a political uncertainty surrounding the presentation of the budget. So this budget becomes a budget without any discussions with the people concerned. And the media also completely missed this point. The media was busier in presenting maximum information on the budget itself on the first day itself, due to stiff competition among them. So one can understand how the budget debate and understanding the economy through the budget were distorted, because of the competition among the media.

Today there is no unbiased, critical, honest and truthful opinion that can be formed on a budget today. If one looks at the previous four budgets presented by P. Chidambaram, one can see that Chidambaram was presenting Sensex as the brand ambassador of India. In the theatre of budget economics, Sensex was the hero, and rightly so Sensex too responded. That time Sensex touched around 20 thousand points from 7 thousand points, and The Economic Times wrote a banner headline that India on way to becoming a global power. But most of the people do not know that the entire contribution of Sensex in India's GDP is just one per cent and the entire focus of the budget was on lifting the Sensex. Strategically, it may be good, but we should not believe it. Sometimes we believe, when Sensex goes up; Indian economy goes up; but it is not correct. When Sensex is up, then India's name goes up in the world financial market; India becomes an attractive destination for investment; all these things can be understandable. But that is what we begin believing, we begin celebrating and we begin dialoguing-this was the biggest mistake. And in a theatrical term, this is not useful for an election year.

So there is a change of hero, from Sensex to the farmer. And this change happened under very curious circumstances. It did not happen with any great plan, great thinking or strategy. One would be astonished to know as to how the farmer was thought of at the last moment of the budget. And there was a theatre of budget without a hero, and the hero who could fetch votes massively in the election. There was a search for him and they hunted him down perhaps on February 21, 2008, and that is how the farmer was presented as a hero of the budget. Before that in all the previous four budgets, Sensex trebled and the market capitalisation of Indian stock market became hundred and fifty per cent of the GDP, and market capitalisation of Japan's stock market was hundred and seven per cent of its GDP, in Korea it was hundred and sixteen per cent. So one can understand how much Sensex was celebrated, worshipped and promoted by series of budget support and whenever Sensex was sinking, and fatiguing, the FM was almost asking Sensex to go up. Nowhere in the country does the FM like this. This is not a subject of criticism or discussion in India. In fact the financial media celebrated the FM going on the television, and promoting Sensex. The intelligentsia does not question it. Parliament keeps mum.

In fact, thrice in the year 2006, when there was flush of funds and the banks did not know what to do with the funds as huge foreign exchange remittance was coming in dollars and getting converted into rupees. The banks ultimately swanked all the money in the real estate market, two lakh 60 thousand crore were disbursed in the real estate in the two years, and there was unbelievable rise in the price of the real estate. When the banks were flushed with money the FM gave statements on three occasions asking the people not to go to banks but go to stock markets. No FM in the world would do that. Because you cannot ask a man to go to the stock market because if you lose money, one cannot give guarantee on his capital or income. There is a complete lack of vigilant public opinion as to what should be the behavioural limits or restraints of the FM. One can easily say Chidambaram was virtually a Sensex Minister rather than a Finance Minister. And there is a paradigm shift from the Sensex to the farmer now, and we would come to know how the farmer became the hero of the budget. Is it really a fact that this budget is a farmer's budget or is it a farmer's theatre? The Business Standard wrote a good story, which says that from where the 60 thousand crore the FM got no one knows, but the maximum amount of default or the outstanding amount, the total amount of the commercial banks and the cooperative banks come to 30 thousand crore, and under no circumstances it is 60 thousand crore. The whole country asks the FM from where did he get the 60 thousand crore, inside the Parliament and outside the Parliament? But the FM has not come out with any clarification till today. So The Business Standard wrote that if you take 30 thousand crore as a real write-off, for every farmer the write-off comes to four thousand crore. Now let us discuss what is the income tax relief given? For people having income up to two lakh, the tax relief is nine thousand two hundred seventy every year. For the farmer, the FM gives four thousand rupees' relief once in a lifetime. If one who earns three lakh per annum, the tax relief he gets is 24 thousand seven hundred twenty; if one earns four lakh, then one fetches a relief of Rs 35 thousand every year; people earning five lakh get a relief of 45 thousand three hundred twenty rupees per annum; if one earns 10 lakh or 15 lakh, one gets a relief of 50 thousand rupees every year. But the farmer gets just four thousand rupees. Whereas the farmers' relief was projected and presented successfully and accepted in the headlines of all the newspapers. And how did this farmer's relief come about and how they became the heart of the budget?

I will explain how this gentleman FM has become the political and economic fiasco of the country. The idea was to prepone the elections. But one month after presenting the budget, the Congress chief says they are not holding the elections this year. Why? This farm waiver has become a fiasco and has gone into smokes. It was last minute interpolation. I will give two distinct examples for this. If one looks at the Paras 20 and 56 of the budget, the FM says he will give farm credit to 2 lakh forty thousand crore outstanding on March 31, 2008, and will make it two lakh eighty thousand crore on March 31, 2009. These two figures include the outstanding of 60 thousand crore. Unless the banks take 60 thousand crore as outstanding on March 31, 2008, and as outstanding on March 31, 2009, the figures cannot be two lakh forty thousand and two lakh eighty thousand. That means Para 10 and Para 56 were being written, that write-up was not contemporary. So when Para 73 came in they forgot that these figures are already included as outstanding and realisable even in March 2009. So Para 73 says, we appointed a committee and the committee just stopped short recommending waiver, it was an absolute lie. It gives an impression that the committee wanted to give a recommendation, but somehow it did not recommend it at the last moment. But the committee actually said reverse of it. So Para 73 is interpolated at the last moment. The last moment was on February 20, 2008. There was a rally in Amethi, where the FM addressed and Sonia Gandhi compelled him to give relief to the farmers. And Chidambaram said, "It was the bankers' duty to lend to the farmers, whenever they wanted. It is not their grandfathers' money, so they have to lend the money. They have no business to say no. So I ask the farmers to go and ask for money."

On February 27, in the second phase, The Economic Times carries a news-item, "Sonia directs farm waiver". And one can find this in Para 73 of budget. But they forgot to amend Paras 10 and 56. So one can understand the thinking involved in the waiver of loan in the budget. Media did not carry a single news-item about all this. So it was a last minute decision and interpolation. And this 60 thousand is a magic band, as they said. It was not a government's decision. In his previous budget speech, the FM said that the farm loan and rural debt were serious issues, and people were dying of these in last year. Farmers faced biggest problems in last year. FM had appointed Radhakrishnan Committee as it was a very big problem. What Dr Radhakrishnan said was a different astounding figure. Radhakrishnan said the problem of farmers was not debt. It is really a symptom, it is not the cause. It is the effect, because between 1997 and 2002, there had been no growth in the real income of the farmers. Agricultural produce's prices have been reducing in compare to non-agricultural prices. Despite that the farmers were more regularly paying in compare to any other borrower. But the FM said the Radhakrishnan Committee just stopped recommending waiver.

If one looks at the report of the Radhakrishnan Committee, most of the debts are due to the pressure of the private money-lenders on the farmers, not any of the bank pressuring the farmers to pay money. And the committee says the farmers should avail the term loan to repay the private loans, and the village panchayats should involve in settle down the problems with the private money-lenders. When the whole nation asks the FM, where did he get the money? He replies to the people, press and the Parliament: "Just trust my intelligence." No FM has ever told this to the nation without making any provision in the budget. This government can never take advantage from the loan waiver, because this is the most un-thought of decision.

The modern economic development will make agriculture as an economy. If one looks at the developed countries, it is seen that they are giving maximum subsidy to the sector, otherwise there cannot be any farming. We undertook modern economic development on the lines of the successful economy, but we never took care to see what they did to take care of their farmers and agriculture. We virtually let our farmers ruin. And now in India, nobody wants to live in villages, and no one can find any person, below the age of 30, doing farming. All who are doing farming are above the age of 40. All youngsters are moved out of the villages. Farming is being discarded, as it has become uneconomic and unacceptable profession. The farmers in our country have no social status today. It's a huge issue. No country in the world can be able to supply food to India. In fact, why did the Great Russian communist system collapse? Because they could not produce food. They could produce atom bomb but not agriculture, as they avail only 2-3 hours of sunshine.

In India the population dependent on agriculture in the year 1972-73 was 79 per cent and the agricultural share of GDP was forty per cent. The agricultural GDP has come down to 20 per cent and population dependent to 56 per cent. There is a slash of 35 per cent of the real income. How does one expect the farmers to survive? No newspaper wrote any editorial on this issue. In the last twenty years, there is a huge visible development in every sector. But the problem is: we could not include farmers in the process of development. We should concentrate on inclusive development. But we can't include 56 per cent who are excluded. Farming in America is a two per cent occupation; the highest farming occupation, which is in France, that is a developed country, is 11 per cent. In India it is just the reverse. There is steep decline of investment in agriculture sector, capital formation, which was 19 per cent, now it is 7 per cent. Water resources have not been rejuvenated, how will farming grow? There is a complete stagnation of irrigated areas for the last 17 years. During NDA regime the country was having surplus food, but in 2006, the country was importing food. Can a country of 110 crore people ever risk this? Is there any country, which can supply this quantity of food? In fact, all the country put together cannot supply even 10 per cent food requirement of India. When the world wants food from India, now India cannot supply food. But this seriousness is not shown in the budget. This is a very serious issue and there should be an international debate on this issue. Our FM should start a national debate on this issue instead of concentrating on the Sensex.

The National Samples Survey Organisation (NSSO) gives statistics of the farmers' debt. If you add farmers' debt as calculated by NSSO in the rural area with the amount of debt supposed to have been given by the banks and cooperatives are much higher, and non farming non-rural debt is included as rural debt, one can understand how statistics have been manipulated by the banks. Whatever loan (maybe a term loan) given to the farmer is a farm loan. Because the banks have to show that they have given loan to the priority sector. Apart from this, the one critical and a very dangerous aspect that has been missed by everybody, the media, the Parliament is the proposal of the FM, in Paragraph 97, to bring in the Derivative System in India. Most people in India do not understand what is derivative. And Financial Derivative is something which has now sent America to tailspin.

One must have heard about Waren Buffet, who is known as one of the richest men of the world. He is the biggest player in the world financial investment market. He owns more than 80 companies, and one of them is a private jet company, which owns 765 private jets. But he never travels at all by private jet. Fifty years back he had bought a three-bed room flat, he still resides there and drives his own car. And he does not have a credit card. He does not go to parties. One can understand the discipline of the man. Such a brave financial operator described the derivatives as Financial Weapons of Mass Destruction (WMD) in February this year. So what is this derivative? Derivative is term of population of unidentified animals, which are going in trillions today. Let us explain derivative with an example. Suppose I will have a contract with another person to buy some shares, which he owns. I have money and he has the share. This is an actual contract. If he does not deliver he has to give me the price difference. But he will not enter into a trade normally to deliver a share, which he does not want. Now the derivative is that he will enter into a contract with me to deliver a share, which he does not have, and I will enter into a contract to buy it without having the money to buy the share. This is called option. All that I have to do to buy the share worth one lakh rupees from him, all that I have to do is I have to pay the option premium of three thousand rupees. That is all. If the share prices go up, I will ask him to deliver, and if the share price is down, I will simply forget this three thousand. This is called option. There are credit derivatives and there are derivatives based on weather. Whether there can be adequate rain next year or not, there are derivatives. There has to be derivative what Indian cricket is scoring against other team. This derivative, which was 100 trillion dollars in 2002, has become 516 trilion dollars as of December 31, 2007, according to the Bank of International Strategy. This does not include stock market derivative. There can be no safeguard in derivatives. If you are in it you must be prepared to collapse. This derivative has been described as weapons of mass destruction. So derivatives can be called Intercontinental Ballistic Missile (ICBM) which is more dangerous than Weapons of Mass Destruction (WMD).

The loan that is made in one place can be converted into loss and another man will die. Some banks will lend money in America, and some banks in India, Europe and Middle East, Korea and Japan will die. This has been smuggled into India. Whole world is afraid of this type of financial system. The FM says he will bring it to India. And there is a dead silence on the issue. And nobody even knows what is it? Can there be a more illiterate nation than this? And if this group cannot understand this, then who will understand this? Derivatives are a huge phenomenon. WMD and ICBM have been smuggled into the budget without anybody's knowledge. All enlightened people must oppose Para 97 of the budget. There should be no derivative trading in India.

Courtesy: The Organiser, May 4, 2008