EDITORIAL (July 10 2009): The Indian budget for 2009-10 has created much furore in the Pakistani press. The reason is the Congress (I) government's decision to increase its outlay on defence by a hefty 24 percent. This, understandably, must have sent shivers up the spine of the Pakistan army that had remained unconvinced that the threat perception from India had been defused in spite of constant placatory statements by members of the Obama administration and the UK that India no longer posed a threat to Pakistan.
Pakistan's strategic depth in the South Asian region, it must be acknowledged, has been defined by its perception of India as a threat: The Kashmir dispute, three wars between the two countries, India's military assistance that led to the creation of Bangladesh and the recent issue of the construction of dams that are expected to reduce Pakistan's water supply as a lower riparian country. And now the latest Indian salvo: the massive increase its outlay on defence.
Thus irrespective of the commitment of the Pakistan army to eradicate the menace of Taliban from this country, considered a genuine threat by the majority of Pakistanis, it is likely that the rise in Indian defence expenditure may well compromise the ongoing operation in Swat region and Waziristan with more resources, manpower as well as equipment, diverted on the eastern front.
The Indian Finance Minister Pranab Mukherjee presented details of how the government intends to spend on 'national security': (i) modernisation of police force including special risk/hardship allowances to personnel of paramilitary forces, (ii) an additional amount of 22.84 billion rupees for strengthening border management inclusive of fences, roads, flood lights, and (iii) augmentation of paramilitary forces inclusive of creating infrastructure particularly in the area of housing. This lends credence to the Indian view that enhancement of the budget is focused on ensuring that there is no repeat of the Mumbai attacks which, it maybe recalled, had taken India's paramilitary forces several days to resolve. Pakistani government would have done well to consider extending hazard pay to its paramilitary forces as well engaged in tackling terrorism throughout the country.
Be that as it may it is indeed unfortunate that the rise in Indian defence expenditure has successfully diverted the attention of our media and the public from some rather good economic policy measures announced in the budget - policies that the Pakistan government would have done well to consider prior to announcing its own budget a month ago. First and foremost the Indian government has provided fiscal space to its economy given the global recession. In other words it reduced taxes to boost demand. The Pakistan government in contrast narrowed the fiscal space still further and is wondering why productivity is not rising, and nor are the exports.
Reducing taxes would naturally raise the Indian budget deficit. The Indian Finance Minister stated that the target for the deficit will be back on track "as soon as the negative effects of the global crisis have been overcome." This was not considered by our economic managers for one obvious reason: we are already on a rigid IMF programme and do not have the flexibility to undertake policy measures that are not approved by the Fund staff.
It appears that the government is considering another IMF loan to temper its initial euphoria over pledges made by Friends of Pakistan as concerns over the pledges translating into disbursement have surfaced. Perhaps the solution lies in massive cuts in current and development expenditure, meeting the deficit target and then proceeding with structural changes to the economy on the pattern of the Indian model.
The Indians set up the Indian Infrastructure Finance Company Limited that would be a special purpose vehicle for providing long-term financial assistance to infrastructure projects. The Pakistan government, desperate to start multi-billion dollar projects in the field of energy, is mainly relying on international financial institutions - a fact that has led to many a condition simply not acceptable to the people of this country given our high rate of inflation. An infrastructure company on the lines of the Indian company may well have allowed the government to access funding from the commercial sector abroad.
And finally the Indian government increased its allocation for meeting power shortfall by 160 percent. In contrast the Pakistan government's outlay for water and power declined from budgetary estimates of 2008-09 of 62 billion rupees to 2009-10's budgetary outlay of 47 billion rupees.
