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Budget:A Balanced Score Card

Assessing the Budget: A Balanced Score Card View



 

Roopen Roy

 

(Roopen Roy is the Managing Director of Deloitte Consulting, India.

The views are personal.)

 

 

Several eminent economists and CEOs will be dissecting and analysing the Union Budget for 2010-11. To avoid overlaps and duplications, I intend to examine the Finance Minister’s Budget through the prism of a 5-metric Balanced Score Card. I could have deployed a dozen measures that I believe  are pertinent to assess the extent to which it meets the avowed mission  of  “inclusive growth” but for the sake of brevity I have selected only 5 here.

 

I believe as a seasoned and consummate physician Dr Mukherjee scores the highest marks in the diagnosis, somewhat lower marks in prescription and he scores a little less in the administration of bitter medicines. He had a difficult fiscal balancing act to do and a political tightrope to walk. Overall he has done a decent job in rejuvenation of the economy.

 

1.       Growth in agriculture

In the words of the Finance Minister himself, “The agricultural sector occupies centre-stage in our resolve to promote inclusive growth, enhance rural incomes and sustain food security.”

India has over a billion mouths to feed. 58% of our population is still engaged in farming. The 7.2% growth (or higher) is really a flaw of averages. In recent times agriculture has been  growing at less than 2% per annum.Our population is growing @ 1.4% every year. One drought last year (which was described by the ridiculous euphemisms of “precipitation challenge” and “sub-normal monsoon”) sent our  growth in agriculture to the negative zone. Our food prices went skyrocketing. Without increase in agricultural productivity, the two laudable goals of a double digit increase in GDP and an inclusive growth would remain a pipe dream.

The budgetary allocations  to agriculture has seen a steady decline –from the 20% allocation in the 1980s to 6% in the recent years. While the current budget makes a modest start, a radical but thoughtful Green Revolution 2.0 has not been heralded in this budget.

The FM has correctly diagnosed the issues:

a)       Greater investments are needed to increase in productivity. The FM has allocated Rs 400  crores  to extend the Green Revolution to  the Eastern states. It is anybody’s guess whether the funds are adequate. And clearly there is no policy signal for the leap-forward in the rest of the country.

b)       Investments in cold chain and elimination of wastages have attracted some fiscal concessions and there is a grandiose announcement of hiring privately built storage which will be hired by Food Corporation of India for a guaranteed period of 7 years instead of 5. Intriguingly, under this heading the Finance Minister has quoted the Prime Minister and left us wondering whether he has given a policy signal to the opening up of the retail sector .He has only said that opening up of retail trade will “ help in bringing down the considerable difference between the farm gate prices, wholesale prices and retail prices. Is he not talking about disintermediation or is he?

c)        The agricultural credit flow to the farm sector has been enhanced to  Rs 3,75,000 crores against Rs 3,25,000 crores

d)       The food processing sector has received a promise of 5 more mega-food parks and access to external currency borrowings.

 

In this metric, I will give the FM a score of 6 out of 10.


 2.Access to credit for the poor

Access to credit for the tiny sector and micro-enterprise sector is a very challenging area. According to the National Commission for Enterprises for Unorganized Sector the micro enterprises with less than Rs 500,000 investment in plant and machinery get 2% of total bank credit. This abysmal rate has further declined to 1.2% after the economic slow-down (euphemism “growth moderation”) set in. The small sector with up to Rs 2.5 million investment has a share of only 5% of credit in the formal sector. As the economy revives and bankers exercise prudence more strictly, it is likely that the small and tiny sectors may find themselves pushed out of the formal credit sector altogether. Of course, there is a policy signal of increasing bank credit and the setting up of a “Financial Inclusion Technology Fund” of Rs 100 crores  but there is as yet no holistic, articulated strategy of leveraging technology in banking and insurance to reach the masses nor a strategy for scaling up the micro-finance eco-system.

We tend to derive more inspiration from across the oceans (The West) than from across the river (Bangladesh) .Our microfinance ecosystem, despite some progress, continues to suffer from small average size of loans at around Rs 5000. What rural enterprises need is substantial and continuous support for at least three to four years to enable them to be self sustaining. The  budget should have signaled appropriate policy measures to scale the micro-finance eco-system and provide micro and small enterprises access to credit. Our stated policy  of "inclusive growth" demands that rural India is transformed and is able to generate employment at decent levels of income. If this happens, the resultant surge in rural demand will   provide a momentum to sustainable growth of the economy. The budget did not provide measures in this direction. My score here would 4 out of 10.

Education including vocational training. 

The much vaunted demographic dividend of India may turn into a demographic nightmare, if young people ready to work have no skills to make them fit for gainful employment. The Prime Minister himself has said, “Our youth can be an asset only if we invest in their capabilities. A knowledge-driven generation will be an asset. Denied this investment, it will become a social and economic liability. Hence, we must invest in building the knowledge base of our coming generations.”

The Budget has provided a greater plan allocation of Rs 31,036crores for school education and states will receive an additional allocation for elementary education. The National Skill Development Corporation (NSDC) appears, on paper, to be the best investment that any FM has ever made unless I have not understood the speech. He has said that for NSDC he has “approved three projects worth about Rs 45 crores to create 10 lakh skilled manpower at the rate of one lakh per annum.” If true, it is a very worthwhile investment in  skill-building.

 

Under this head, I will score the budget 7 out of 10.

 

 

4.Infrastructure

 

Reduction in fuel subsidies was recommended by the Kirit Parikh Committee. Hence, the measures initiated by the FM much to the chagrin of the opposition were only to be expected.

Roads and Railways have  together received an allocation of Rs 36,646 crores. The Railway Minister herself has pointed out the meager increase of route kilometers since independence. A projected addition of 20 KM a day of National Highways has made Minister Kamal Nath to say in jest that he is counting his age in Kilometers nowadays. In power , India’s total installed capacity is a little over 150 gigawatts but the peak power deficit hovers around 13%. Just to be in the same place as the Red Queen would tell Alice we have to grow this at a compound rate of 10% with investments estimated @between $250 to $300 billion and if we are to generate at least 25% of our electricity from nuclear power and use our large thorium reserves and have access to uranium supplies –there must be innovative financing models and greater investments and less red tape. In this metric I will give the FM 5 out of 10.

 

5.The reform agenda

 

Efficient PSUs is not an oxymoron. If the PSUs can be unfettered, empowered, endowed with good governance and exposed to the scanner of the market they can become giants of tomorrow. Singapore Airlines, Temasek, Posco,Volkswagen are state owned but professionally managed enterprises. Apart from the promise of raising finance through sale of shares there is no bold agenda of either privatization or aggressive restructuring. There is a correct diagnosis that “weaknesses in the government systems, structures and institutions at different levels of governance….is a factor that can hold us back in realizing our potential as a modern nation” and he has pointedly referred to the bottleneck of our public delivery systems. But there is no hint of wielding the sword to cut the bureaucratic Gordian Knot. An opportunity to straddling the “duranto” engine of bold reforms and growth has been stymied by the bogeys of populism to some extent. I will score this one at 4 in 10.

 

Based  on these 5 metrics my overall score for the this budget from the specific viewpoint of inclusiveness is 6 out 10.

 


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