Indian agriculture as well as the rural sector have been in distress in the last two years due to deficit rainfall and the decline in global commodity prices. The rural non-agriculture sector, too, has been under stress due to the lack of demand for manufacturing and services. It is well known that India’s progress in the social sector has been much slower than the country’s GDP growth. India’s rank on the Human Development Index was a lowly 130 out of 188 countries in 2015. As such, apart from focusing on physical infrastructure, India has to invest in a big way in human capital in order to improve human development and accelerate economic growth.
How far did Budget 2016 address the concerns of the rural areas and the social sector? Can it revive Bharat and improve social sector outcomes? On the face of it, the measures announced for agriculture, rural infrastructure and the social sector are in the right direction, but the devil lies in the detail.
First, doubling the incomes of farmers by 2022 is unrealistic. Second, although everyone thought there was a big increase of 94 per cent in the budget allocation for agriculture, if one removes the amount for interest subsidy of short-term credit to farmers, the increase in annual allocation is only around 27 per cent. This increase is not low by itself but lower than what it
appears to be.
Compared to this government’s two previous budgets, the latest one gives greater importance to agriculture and rural areas. The proposals on irrigation, soil health, pulses and the move towards giving fertiliser subsidies directly to farmers are good moves. One expected a higher allocation to the Rashtriya Krishi Vikas Yojana (RKVY). Also, the focus should have been on research and extension of services in order to improve technology-use and promote climate-resilient agricultural practices. Both these areas are important for ensuring the sustainability of agriculture.
The budget’s focus on rural infrastructure can revive both demand and incomes in rural areas. Rural development, as a whole, was allocated Rs 87,765 crore. The MGNREGA allocation is Rs 38,500 crore, although one expected an even higher allocation due to recent droughts. The allocation for the Pradhan Mantri Gram Sadak Yojana (PMGSY) was raised to around Rs 19,000 crore. There has been some discussion in recent years that the PMGSY is doing well compared to the performance of the MGNREGA. But these two programmes, instead of being substitutes, complement each other.
Measures on rural electrification, Swachh Bharat, self-help groups, rurban clusters, education, and skill development are expected to boost rural demand. Moreover, Rs 2.87 lakh crore have been provided to the local bodies. Spending by panchayats will increase demand in rural areas. However, the impact of investment on infrastructure may take more time because of the long gestation period of such projects. Moreover, the impact also depends on the efficacy of implementation.
Turning to the social sector, there was a significant decline in social-sector spending in last year’s budget. One expected higher expenditure in this sector, given the need for improving human development. But, the allocations under different heads in the social sector show that there was either a marginal increase or, indeed, a decline over the already low allocations in last year’s budget. For example, the projected funding for the Integrated Child Development Scheme (ICDS) showed only a marginal increase.
In the budget speech, the finance minister said, “catastrophic health events are the single-most important cause of unforeseen out-of-pocket expenditure which pushes lakhs of households below the poverty line every year”. In this context, the new health protection scheme, which will provide a health cover of upto Rs 1 lakh per family, is a good proposal. Of course, Rs 1 lakh is not enough for catastrophic health events. The approach on health seems to be limited to providing insurance coverage and access to medicines. The “universal health for all” approach seems to have been forgotten.
Similarly, the education sector needs improvement. Here, too, allocations to programmes , such as the Sarva Siksha Abhiyan, have not improved. Apart from allocations, measures to improve the quality of education are also required. The Economic Survey quotes the findings from the Annual Status of Education Report (ASER). There is only a marginal improvement in the percentage of children in Class 5 who are able to read a Class 2-level text. The percentage of Class 3 children able to solve simple two-digit subtraction problems fell from 26.1 per cent in 2013 to 25.3 per cent in 2014.
The trends in social-sector allocations show that the share of social services expenditure in the GDP fell from 7 per cent in 2014-15 (revised estimates) to 6.7 per cent in 2015-16 (budget estimates). Similarly, the shares of expenditures on education and health were respectively stagnant at 3 per cent and 1.3 per cent of the GDP in the last few years. The need for a significant increase in the social sector expenditure is obvious. In particular, the expenditure on the health sector needs to increase from the present 1.3 per cent of the GDP to 2-2.5 per cent.
One of the explanations for providing lower allocations to agriculture and the social sector is that these are state subjects. The 14th Finance Commission increased the states’ share of Central tax revenues from 32 per cent to 42 per cent. Therefore, states are supposed to spend the shortfall created by the decline in Central allocations to these sectors. As several studies show, states will have enough money to invest in the social sector. But this assumption may be unrealistic, given the fiscal challenges facing the states in the next few years. The Centre may have to continue to fund these crucial areas.
However, in the social sector, outcomes are more important than allocations. The challenge is improving the efficiency of delivery systems. In the past, outlays have not fully translated into outcomes due to poor delivery systems. Using modern technology for the efficient delivery of programmes, simplifying procedures and greater participation of the beneficiaries can help in creating a better delivery mechanism. The use of Aadhaar would be helpful.
India, which is aspiring to be a global power, should achieve higher in human development. There are significant costs to ignoring human capital. Some estimates indicate that there is a 2 to 3 per cent (GDP) loss due to malnutrition-related low productivity. Research shows that every dollar spent on interventions to reduce malnutrition among children generates about $20-$30 in economic returns. The government should understand the intrinsic value of people’s health and the instrumental value of human capital in terms of GDP gain and returns on investment.
To conclude, the budget is a good start for Bharat, but it is a mixed bag for the social sector. Given the problems in these sectors, one expected a bigger push and bolder measures than those proposed in the budget.
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