Beyond the budget: We must repay our natural debt

The finance minister has presented a remarkably popular budget, the success of which can be seen from the positive response from almost all sections of society. It is also obvious that the public and the market have reacted favourably not only to several measures that will have a desirable impact on growth and development in the short run, but also to the provisions for economic reform contained in the budget. Specific measures that highlight the reform orientation of the budget are the emphasis on user charges that defines an important thrust in fiscal policy. Acceleration of reforms of the electricity supply industry, dismantling of the administered pricing mechanism for petroleum products and changes in the retention price scheme for urea leading to complete decontrol by April 1, 2006 are important features in the FM's speech. The most significant message of this budget is, however, the statement of a sense of confidence that Indians can feel on the prospects of economic growth. Several of the measures contained in the budget define the second generation of reforms, which clearly impart a forward orientation to the government's economic and fiscal policies. This is, therefore, an appropriate stage for Indian policy-makers to articulate a longer-term vision of the country to influence parliamentary debate now and also provide a foundation for future budgets. The FM functions within boundaries that are drawn by government policy and the expectations of Parliament and the public. It is, therefore, necessary to redefine and enlarge the boundaries within which economic policy and budgetary provisions are crafted in the coming years. One major area where redefinition that is now long overdue requires each policy measure to be subjected to the litmus test of sustainable development. Clearly, the destruction of natural resources and social capital, and culture and tradition can dangerously reduce the ability of future generations to meet their needs. Some countries of the West which have attained high levels of economic growth and income have entered a stage which makes their development patterns clearly unsustainable. Should India continue to ape these societies and follow exactly the same path of development, even as the gap between the rich and poor in our country continues to increase? The livelihood of the poor depends entirely on the services they derive from natural resources, whether it is fodder, fuel, fibre, building materials, or, in the case of tribal societies, food. Our current system of accounting does not include changes in the stock of natural resources and, therefore, the services derived from them. In fact, while the population of India since independence has trebled, the stock of natural resources has declined to critical levels in several parts of the country. The cost of this decline and degradation of natural resources even in formally measured economic activities is substantial. TERI's estimate is that over 10 per cent of India's GDP is lost annually on account of environmental costs. These include morbidity and mortality from pollution of various kinds, the most serious being pollution in all our rivers and water streams and air pollution not only in large cities and towns but also in every poor dwelling throughout the country. In several parts of the country, groundwater has also been polluted with chemicals and toxic material, which impose serious health effects. Indoor air pollution resulting from the burning of inferior biomass fuels in ill-ventilated homes causes serious human exposure to the pollutants for long periods of time. The worst victims of this exposure are women and children, and 2.5 million premature deaths occur annually in India resulting from air pollution. Traditional Indian values are not inconsistent with greater consumption of goods and services as long as they do not impose an unacceptably large footprint on the earth's resources. Economic policy in this country should, therefore, eschew the consumerism of some countries of the North. The FM has rightly emphasised the necessity of consumers paying user charges for the services that they are provided, such as for electricity. The past record of rural electrification shows a major deviation between prices paid and the cost of services received by consumers. This distortion needs to be corrected urgently. Similarly, user charges need to be paid for the use of services provided by the environment as well. Those who pollute clean air and use the services it provides must pay to the extent of the cost imposed. The polluter must pay principle is essentially consistent with the rationale for user charges for any good or service consumed. Parliament has to support this principle and the debate must empower this government and those in the future with accepting and applying it across the board. Beyond providing a thrust in these directions for future economic policy; in this session of Parliament, certain provisions must be introduced in the Finance Bill to promote efficient and responsible use of natural resources. The FM has provided encouragement to the automobile industry, but a differential rate of taxation rewarding efficient cars and taxing at a higher level those that are less efficient, would have been far more desirable. Similar should be the treatment of taxes on other energy using appliances. The annual Economic Survey two years ago rightly included a chapter on sustainable development, which for some inexplicable reason has been done away with. It is important for the public at large and our policy-makers to get attuned to a new system of national income accounts, which estimates growth or reduction of our natural wealth. This need not in any way replace the conventional measurement of GDP, but should be used as a piece of supplementary information to highlight the increase in our natural debt. While setting our sights on some of these longer-term issues, we should not minimise the merit of this year's budget, which creates confidence in the country's economy and conditions for bold forward thinking. The emphasis on economic reform also sets in motion a long-term thrust much needed for stronger economic activity in this country. But today's confidence, inspired by a good annual budget, must lead us to setting future directions that would build a sustainable pattern of growth and create conditions for poverty removal. Parliament and Indian society must initiate a debate in this direction, so that certain specific measures are added to this year's budget itself which can set the stage for subsequent budgets.