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Budget 2000-2001: A Critical Appraisal

by Nitai C Nag
***It should be most uninteresting on the part of a tax paying citizen to notice that while the government due to inefficient management of the public exchequer during the current fiscal, has already borrowed several thousand crores of taka from the commercial banks, it also seeks to open a permanent provision through the parliament to borrow from the banking system again in the coming fiscal.***
Unfortunately for the nation, controversy surrounding the recent budget has seemingly surpassed all proportions The incumbent and one ex-finance ministers have engaged In a quarrel in which each questioned the other’s qualification as regards making a budget Although a typical citizen is almost accustomed to not expect any good news from the rituals that pass tn the name of placing national budget in the parliament, such acrid engagements simply add to his already huge inherent deprivations by. among others, lowering morale; he is ideally supposed to take lessons from how dignified personalities behave. In what follows we try to point out whv reason looks so short in supply in the corner concerned, and also make a few comments on certain aspects of the recent budget. We begin with Issues on trade policy which we hope will provide some explanation as to why the otherwise dignified personalities had to be so unkind to each other
Tariffs on International
Trade
In his budget speech the finance minister complains that rapid tariff reduction in the first half of the 1990s, rendered sick thousands of industrial units, which tn turn swelled the volume of default-loans ni the banking sector. Since the present government is in charge of sorting the problem, said the minister it Is behaving pragmatically. not whimsically, about Ilie country’s economy vis a vis globalisation. In a few post budget speeches the minister also hurled terse replies to one ex-liname minister's terse criticism ol various aspects of the proposed budget.
The statement cannot be accepted on face value on the following grounds. First, according to public accounts, rapid tariff reduction commenced not in the first half of the 1990 s but in the second half of the decade that preceded it. For instance, in 1986, number of tariff slabs was lowered to 1 I from 24. Maximum tariff rate, which used to
be over 400 per cent prior to 198G was reduced to 150 per cent in 1987 and further to 100 percent In 1990. In 1996 when the present government assumed power, maximum tariff rate was 50 per cent. In 1999, maximum tariff rate fell to 37 5 per cent. Also, in the proposed budget tariffs on Industrial raw materials and intermediate products have been significantly reduc ed 'despite negative revenue* Implications'. One wonders what the present Ii nance minister would do about tariff reduction had he been in charge of the Job in the late 1980 s when rates and slabs etc. used to be as high as already mentioned. In other words, one might think that while the present government is carrying forward the same "import liberalisation'' agenda of Its preceding one. which in turn Inherited it from the earlier "autocratic" government, the minister's complaint is not quite tenable.
Secondly, if thousands of industrial units turned sick due to faulty trade |>o!lcy pursued by the government of early 1990's, the present government too should share the same blame since nowhere in the Industrial sector there is visible any sign of reversal of the process despite what the finance minister calls his government's pragmatic handling of the matter. The marked sloth of industrial sector growth in the recent years is out a testimony to this point.
Thirdly, Bangladesh's external trade did not have to wait, until the setting in of globalisation. to be made liberal'. Thus although the government of early 1990 s committed for a few of Bangladesh's traded items market access and "na-
tiona) treatment" tn tin external trading parincis. those commitments assumed relevance only since January. 1995.
Import liberalisation", on the other hand, saw its vigorous beginning still a decade earlier. Whv? The minister should certainly be aware of the answer. Just at the behest of the leading external donors the government of late 1980'S started the process which continues virtually unabated to this day.
So. there is simply no qualitative different as far as man-agem< m ol trade policy is concerned between the current and former governments. The better is it. therefore, for public the more the minister. Incumbent and ex-remember the matter while making public speeches on the subject in question.
Agriculture
It is party to the government's credit that foodgrains production has already nearly reached the previously envisaged target production of 25 million metric tons for 2002. Some reports even claim that Bangladesh is now a food surplus countrv Reassuring though, such reports need not provide one excessive amount of complacence, for. considering the teeming mouths it still remains but a Herculean task to consolidate a state of surplus. From such reports, we believe, the nation will benefit most to learn what the difference between a time being surplus and one that may be sustainable in the long run. is. Close monitoring of delivery of the public sendees, such as. distribution of credit and fertilisers, and public procurement thus remains crucial. In all these areas. farmers reportedly continue to suffer deprivation de-
spite. what Is now widely believed. the above average effl-Ctencv with which the ministry concerned of the present government has so far performed. A budgetary provision Of subsidy on fertilisers alone will not be just enough in this regard
Since food does not mean foodgrains alone but also other items such as lentils, milk, sugar, oil, fish, meat, vegetables, fruits, etc, whether mid getary provision bless or curse these subsectors must also be looked into. Excessive stress on foodgrains supply alone has already created, reportedly, significant set-back many of them The national budget remains silent on this issue.
To make matters worse Import duty on milk powder has Been proposed to be reduced te-markably. As reason the budget document mentions that domestic milk-based Industry should expand to help economic development. This argument, we suppose, is a wrong and totally unacceptable one. In addition to the health risk associateri with imported milk powders. domestic milk producers are also substantially losing due to these < heap imports It may be mentioned here lhat those nations whic h sell these powd< i io us. themselves in gem ra) heavily subsidise agricultural sector in general and the dairy sector in particular. Curious citizens thus could suspect the very intention of the government to this regard. We appeal to the government to withdraw this proposal.
Deficit Financing
It should be most uninteresting on the part of a tax paying citizen to notice that while the government due to inefficient management of the public ex-
chequer dining the current fiscal has already borrowed several thousand crores of taka from the commercial, banks. Io whom Interest and principal will be due soon Willi all its in llatlonmy implications it also seeks io open a permanent provision through the parliament to borrow from the banking system again in the coming fiscal to meet Its obligations, which In turn include projects allegedly ol questionable merit", that is, those which can yvell be dismantled to the poor nation's benefit
Also with the external sector's position not being as stable, Imports far outstripping exports — the latter In turn having experienced significantly lower growth oi late — the apparent public extravagance can hardly have any Justification. Management of any likely crisis in the external sector has become particularly difficult now-a-days since the government can no longer exercise free hand to recourse to trade restricting policies committed since it is to reforming the economy. Even devaluation, according to studies, is likely to expand budget deficit.
So. during any likely event ol crisis management only the most urgent areas of public expenditure. such as health and education, are to suffer the bi nut. Also credit to the private sector could be further squeezed.
Already quality of service in the public sector hospitals is simply unspeakable. Publicly run colleges, many giving post graduate level courses, can be found to be running with scores of posts of teachers going vacant for years. The latter is despite "highest " budgetary allocation being made to education sector
every year.
Concerned citizens thus are likely to become Increasingly disconcerted about the govern* mini's management of the economy In particular. I he extent by which (about 39 per c ent according to the revised budget I budget deficits exceeded tie originally projected figure in a year which the government it-sell describes as bring a good one with above normal rale of economic growth, no necessity of food imports etc must trouble any sensible person
Saving and Investment
A good news about (he econ-omy is that national saving rate has significantly gone up in (he recent past What role Ihe publicly sponsored saving s( hemes have played in this regard cannot be resolved off hand. Some empirical studies of course point out high correlation between interest rate and aggHg.md deposits in banks .uid "ih, । saving schemes Still Interest rate reduction on saving Instiuments is theoretically a sound move since the ongoing Interest rate on bank loans, which in turn also depends upon rates on various deposits. Is too high for starting almost any business. But the pertinent question in this regard is whether reduction of rates on saving Instruments will positively affect investment via reduced lending rates. There unfortunately are so many reasons for one to be but cautiously optimistic about the matter, in the first place, the industrial sickness syndrome, which, according to the finance minister himself has set in due to rapid trade liberalisation, is unlikely to be remarkably improved upon through this measure alone. One will of course remain curious about whether the very intention of the government In this regard is to realise a higher investment scenario or it wants to economise on Its resource considering particularly the fast rising public debt with the government s large scale borrowing from the banking system.