DR. SHRIKANT JICHKAR

Minister of State for Information and Public Relation, GAD, Energy, Finance and Protocol. M.B.B.S., M.D., D.B.M., M.B.A., B. Journ, LL.M, (International Law), M.A. (Public Administration), M.A. (Sociology), M.A. (Economics), (M.A. Sanskrit), M.A. (History)

The theory of budget is developed in the epistemology, of political economy. Aristotle during his discussions on political economy explained the difference between economy and political economy. Economy, he said, was management of the household. The word, political economy, however, was promoted in the studies in Europe. If the head of the family organises the economy, the head of the state also organises the economy of his citizens. Thus political economy was shaped into policies that are promoted by the head of the state in the interests of the citizens. Kautilya in India also prescribed rules for the king so that the income of the state would be regular, and the expenses would be fully accounted in the treasury. Some kind of audit of the treasury was also suggested by Kautilya. Cash must be counted in the treasury office regularly, says Kautilya. Most of the regulations of the Kautilya are observed even today, of course, in more refined terms and phrases of the Accountant General's office.
The king needed money for the functions of the state. The king therefore approved heads of income which was recovered from the citizens. Therefore, the first premise of the taxation was the increase in the incomes of people. Growth orientation of the economic policy was the principle of political economy. During the period of war the king would himself issue paper currency for financing the war activities. It was a kind of deficit financing as we know it today. Paper currency was used by the British Government in India to finance the expenditure of the second world war.
Mechanics Of Social Wisdom
French Revolution was an ethos of citizens in relation to their state. The political democracy needed the power of the citizens in framing the rules of the states. Earlier the state was constituted' according to 'the whim or the wisdom of the individual. Now the constitution of the state is according to the social wisdom. The consensus of the people on the state policy became the social wisdom. The mechanics of the social wisdom is the election and the elected representatives of the people. The parliament and the assemblies as the institutions of the elected representatives connote social wisdom.
Budgetary Mechanism
Funds are required to implement the policy of the state. The budgetary mechanism itself became the determining policy from the standpoint of social wisdom. The word, "Budget" is derived from the old French word, "bougette" meaning little bag. Unless the representatives have their bag full of money, they cannot spend for the policies for the people. The sources for income of the bags and its allocation for the programmes are attempted in the budget. In the local governments in the USA the business aspects of the budget were underlined. The enlightened people were elected to the bodies, and they were knowing their own business practices. They had the apprehensions that elected representations would spend money recklessly. Therefore, they insisted that the elected representatives should give the estimates of their expenditures. The taxes were thereupon approved to match the suggested expenditure. It would be otherwise also. The taxes were fixed and the expenditure should be within the limits of the incomes collected through the taxes.
Role Of Social Audit
This business-like attitude introduced the role of the social audit. The incomes and expenses should be audited to know the rationality and utility of the socially contributed amounts for the functions of the state. The Public Accounts Committee is the constitutional form that has emerged out of this accountability of the public funds collected and expended by the state. The secretary has to appear before the Public Accounts Committee to explain the deviations of the departmental budget. In the earlier period, to appear before the public accounts committee was connoted as inefficiency of the department. The secretary would therefore reprimand his personnel in case such situation arose on the eve of the Public Accounts Committee.
Mechanics Established
The growth of the Government budgetary institutions in the West was largely a result of the struggle for power between the legislative and executive branches of Government. The decline of the feudal system made it necessary for kings and princes to obtain resources for their ventures from taxation rather than dues. This meant that tax payers demanded to be consulted. For centuries the British Parliament seemed content to restrict the amounts that the sovereign levied in the forms of taxes while letting him spend the money as he pleases. Only after the controversies of the 17th century between Parliament and Sovereign which culminated in the Revolution of 1688 and the Bills of Rights did Parliament began to control even the expenditure. It was after this that the tradition grew up that expenditure must flow from appropriations and that the appropriations must be made for specific purposes.
The economic theory governing the political economy has undergone a change in the last hundred years. The year 1846 witnessed the rise of free trade theory, when the Corn Laws were repealed by Lord Peel, the then Prime Minister. The free trade theory connoted minimum taxation to maintain the law and order function of the state. However, the policies of the capitalist states steadily deviated. The Manchester Chamber of Commerce had recorded in its resolution in 1880 that free trade was being abandoned all over the European and American countries. One of the reasons for abandoning the free trade theory was the occasional depressions that were witnessed in the economy. The prosperity would be followed by the depression and the crisis of over production agitated the minds of the statesmen. Karl Marx was candid in this respect. He recognised the crisis of overproduction as the crisis of the capitalist mode of production.
The state had come to know that the years of prosperity were the periods of production for the wars. After the war of the short period, the factories for armament and the employment thereof would create depression. French economists, Gide and Rist, have noted this correlation of ad-hoc expenditures on war and the resulting effects on the economy. The states, therefore, followed the policy cf allocating a fixed proportion of the budget on the defence department. The concept of a standing army and the regular department of defence and armaments was developed in the budgetary policy in the middle the last century. The budgetary allocation for the standing army became the regular feature of the national budgets all over the European countries.
Keynesianism In Budget
Budgetary policy underwent a revolutionary change after the first World War. Lord Keynes appeared on the scene. The policy for the reparations of the amounts by the defeated country was challenged by Lord Keynes. The general policy to collect reparations, Keynes argued, would be harmful. This was disliked by many others in the Government. Lord Keynes resigned. His book, "Economic Consequences of Peace" published in 1919 explains the controversy. Instead of collecting reparations we should help them to reorganise their economies. The wisdom of Keynes was rejected then. However the same was endorsed in the policies of the victorious countries after the Second World War. Marshal Aid is its evidence.
In the same book, Keynes had warned that the country would be over-run by the revolutionary phase if we did not protect the purchasing power of the currency. He had reproduced the views of Lenin, who had clearly observed that the debauched currency would precurse revolution. This reference is relevant from the standpoint of Keynesian economic theory and its implications on the budgetary policy. Keynes recommended mild inflation for the recovery of the economy from the great depression of 1929. The economist who warned against debauched currency proposed mild inflation. This is how the contradictions arise in the theories of great economists.
The great depression of 1929 is a turning point in the. history of the budget. The earlier theory of balanced budget has now been replaced by the theory of imbalanced budget. The Keynesian theory of overcoming the depression in the economy precursed techniques to promote economic activities that would be financed by the state through its budget.
Deficit finance, taxation and public loans are some of the new techniques flowing from Keynesian therapy. The interest rates should ensure the productivity of capital invested in the economy. This suggestion of Keynesian economists steadily promoted many other techniques through which the depression could be overcome.
Keynes prescribed measures to overcome depression. The measure would be mild inflation which he thought' necessary to overcome depression. The crisis of Keynesian theory is evident now. The same Keynesian economists are now frustrated because of the inflationary continuam. Prof. Bell of the USA has edited the book, " Crisis of Economic Theory " wherein thirteen top economists of the world have expressed their frustration with Keynesian theory. The state's policy with reference to its budgetary outlays is being questioned in the Western economies.
Similar debate was witnessed in India during the period of the first plan. The economists were divided as to the utility of Keynesian mechanism to finance the .planned expenditure. The planning process in India, however, was an integration of the targets in production and the deficit finance in India. Keynesian economics did not recommend the production of commodities on increasing level of target. Keynes was in favour of expenditure on unproductive activities. Keynesian economics therefore assumed the militarist expansion because the expenditure on armaments is unproductive. The planning process however integrated the expenditure with productive approach. More production of commodities with the help of budgetary allocations of the state became the new approach in Indian planning.
This innovation in budget has now been delineated in the budgetary form at itself. We have the budget for current expenses and the budget for the capital investments. The two are integrated. The investments in the planning are covered in the capital budget. This process, however, is increasing the expenses of the current budget. The annual budgetary allocations are finally executed by the staff in the state establishments. The current expenditure is proportionately increased to execute the responsibilities involved in the planned expenditure.
Prices And Budget
The budgetary expenses are finally in the form of prices laid for the commodities and the wages paid to the employees. The outlay on commodities would be more if the outlays on the wages would be lower. It could be otherwise also. Finally the budget may face the problem in both sectors. The wages would increase and the commodity produces also would cost more. The budget, therefore, costs more every year because the price level increases. If the price level continues to fall down the economists cognise it as the depression. We call it, recession in economy. The inflation is bad and the recession is also bad. This is the dilemma, in the economic theory. Economists have to steer clear of this contradiction. The budgetary policy integrated in the process of planning also needs close study from the standpoint of price trend. If the object of planning is to increase the supply of commodities and services, the result would be the falling price level. More supply is the aim of planning. In the recent period the supply increased and the price level showed downward trend. The economists however, criticised the government and compelled the state to arrest downward falling prices in some of the sectors of the economy.
If the farm production has increased, the prices would fall. Similarly, the increasing production of industrial commodities would bring down the prices. Even in the field of services, this phenomenon would manifest. If more graduates are available their competition in the market would bring down their incomes and wages. Similarly, the supply of engineers and medical doctors would increase with more facilities for their education. Their income and wage level would therefore decrease. The economists however dislike this trend. We want more supplies, but we dislike the impact of more supply on the economy. The economists advise the state to arrest the results of more on the price level. Production should increase, but the prices should not fall.
This attitude in economics creates double burden on the budget. It has to spend funds for increasing the productive activities and services in the economy. It has also to spend huge funds for arresting the fall in the prices. The guaranteed prices for agricultural commodities is one such dilemma.
Similar dilemma is discernible in the industrial sector. There are commodity sectors where the supply is more than effective demand. The falling price level of these commodities would create conditions unfavourable for the employed wage earners. There is a general demand that the industries must be managed by the state. The industry managed by the state also would increase supplies in the market and create conditions of falling market prices.
Promotion Of Economic Development
The budgetary policy therefore has to face contradictory situation. The budget should promote economic developments through its capital expenditure. The capital investments of the Government would increase the flow of commodities and services. The idea is to control the inflationary prices by increasing the supply of the goods and services. After about thirty years we have achieved a level when some commodities are available in competitive market. The tendency of the falling prices is the result of investments through the planning at the state and the national level. The budget has now to carry the burden of. subsidies,, guaranteed prices, etc. If this situation has no remedy, the budget would be burdened with more taxes. The commodities and the labour that are used in the state through its budget either become competitive or monopolistic from the -point of view of their prices.
Shri Rajiv Gandhi is exploring competitive solutions in our economic planning. The economic reforms in Soviet Union, China and other communist countries have experienced the limitations of planning from the standpoint of market prices. The economic reforms are therefore exploring an economic theory which would promote competitiveness in all aspects of the economy. Similar explorations in Indian economic planning by the Prime Minister of India is likely to be a turning point in economic theory. Monopolistic prices of commodities and also monopolistic wage structures in the economy will have inflationary effects on the budget itself. If the budget has to be freed from inflationary parameters in consuming commodities and employing labour, the external economic environment has to be competitive. The commodity markets from where the budget purchases its commodities have to be competitive. Similarly, the manpower has to be competitively employed. The economic reform in the communist countries is governed by the theory of competitive market including the competitiveness of the labour that is employed in the factories and farms.
The review of the budget before hundred years and the problems of the budget now in the planning of the economic development in India is an interesting story of policies and contradictory experiences. The Keynesian experiences in the capitalist countries have been reviewed. The economic reforms in the communist countries have sharp delineation in favour of competitive economy for planning developments in their goals of socialism. The economists in India have to ponder over these trends and consider the budget as a mechanism of economic development in the light of the experiences outlined in brief.
Competitiveness Of Labour
Prices on the market are finally identified with the values of the socially necessary labour that produces commodities. Labour power as the commodity was cognised by Marx. Therefore, the law of demand and supply governs all commodities including labour power as a commodity. This is the fulcrum of the labour theory of value. Classical economists as well as the Marxist economists analyse economic phenomenon with the help of labour theory of value. Values are transformed into prices on the competitive market. If commodities will have to be cheaper the labour power as a commodity has also to obey the same law of supply and demand of the labour. Competition is revolutionary, said Marx, because competition is the law of nature. Marx was consistently supporting competition in the bourgeois economy. The analytical frame of Marxian economics is explainable in all its parameters with the help of competitive movements of labour, capital, and commodities. The free trade theory, competitive economy, competition on the market, are similar terms. It is a paradox of the modern economic theory that the economists who argue their theorems on the premise of competition support the absence of competition. Budgetary economists have assumed the function of interference in the economy, specially after the theorem of Keynes to arrest the depression.
Potentiality Of Self-employment
The budget in relation to the economic parameters has been discussed in the Keynesian economics. The price level and the employment as parameters of the economy are repeatedly analysed so much so that the Keynesian prescription neither solves the problem of employment nor the inflationary price level. The problem of employment is connoted exclusively in the wage employment. Self-employment is not cognised as employment in the economy. Self-employment also creates values in the form of commodities and services in the economy. It is not understandable why economists have not clearly delineated the theory of self-employment. Considering the people engaged in employment and self-employment in the national economy of India, it is obvious that self-employment far exceeds the wage-employment. Wage-employment may be about 10 per cent of the self-employment as regards the citizens employed in production of commodities and services. Shri Rajiv Gandhi has been exhorting the policy making economists to rationalise the economic status of self-employment in the economy. The budgetary policy has also to explore the potentiality of increasing self-employment. It is not feasible to promote financial policy in favour of exclusively one segment of the people in wage-employment, leaving the other segment untouched. Considering the numerical weight of the people in self-employment and their political significance in the democracy of India the budgetary policies should be dovetailed to rationalise the under-previleged people in self-employment. The quantum of self-employment has recently been measured in the Economic Census of India in 1980. The Maharashtra State has published the details of the State Level Economic Census, and income/expenditure of the people engaged in manufacturing activities. This study should help the budgetary policy makers to explore the possibilities of extending the help through the state policies to those who are in the category of self-employment. This would correct the error in the western economic theory which has left self-employment without concrete economic analysis.
Whether people are in wage-employment or self-employment, their labour values are transformed into prices on the market. As said earlier, budget consumes commodities and uses wage-labour both in the current and capital portions of the budget. If the commodities and labour are competitive in the market economy, the inputs in the budget would flow competitively in. the commodities and labour accounted for in the budget. The inflationary potential of the budget could be remedied in this perspective. The budgetary policy therefore should be to promote competitive economy in society in its self-interest.