Hype and reality

The budget recognises the crisis in rural India, but allocations do not match the talk

Written by Jayati Ghosh | Published:March 2, 2016 12:11 am
budget, budget details, budget analysis, budget jayati ghosh, jayati ghosh, budget 2016 analysis, budget 2016 news, budget news, india news The good news is that the NDA government — after spending more than a year in denial — finally seems to have woken up to the ongoing agrarian crisis and the worsening financial conditions of cultivators.

In India now, there appears to be an inverse relationship between the time finance ministers spend talking about a particular issue in their budget speeches and the amount of money they actually allocate to deal with it. This was true of former Finance Minister P. Chidambaram’s budget speeches, but incumbent FM Arun Jaitley seems to have gone even further in his florid prose and self-congratulatory tone when declaring measures that ultimately amount to very little.

Consider agriculture. The good news is that the NDA government — after spending more than a year in denial — finally seems to have woken up to the ongoing agrarian crisis and the worsening financial conditions of cultivators. So there was much talk of many measures (most of them simply renaming earlier and existing schemes and programmes) that would be directed at the farming community. But in terms of actual spending, the finance minister essentially resorted to a sleight of hand rather than real increases in allocations. Thus, while the documents show a significant increase in the ministry of agriculture’s allocation from Rs 22,959 crore to Rs 44,486 crore, a significant chunk of that (Rs 15,000 crore) is because the interest subsidy for loans given to farmers, which was earlier under the ministry of finance, has simply been moved to the ministry of agriculture. If that is subtracted (as it should be) the increase is much less impressive, as the total spending only increases from 0.17 per cent of the GDP to 0.19 per cent — so minor as to have little impact on the actual conditions of farmers.

Similarly, the MGNREGA, which until very recently was unloved and much derided by PM Narendra Modi, has now been rehabilitated to the point that Jaitley declared he was providing the highest allocation ever to this programme, at Rs 38,500 crore. But this proud claim ignores three important facts. First, the MGNREGA is by law a demand-driven scheme, so the government is duty-bound to provide whatever funds are necessary according to the demand for work. Announcing a higher allocation makes it appear that this is the largesse of the minister and the government, which is the opposite of what the law states. Second, the government has been miserly and tardy in providing the funds to the state governments as required, so that at present there are more than 14 states in deficit, to whom the government owes several thousand crore. If this is taken into account, the actual amount of the allocation is much less. Third, even this declared amount falls well short of levels achieved earlier under the UPA, amounting to only 0.25 per cent of the GDP compared to 0.59 per cent of the GDP in 2009-10.

Other social spending has fared even worse. The BJP’s electoral manifesto had declared the goal of health for all, but the extremely limited attempt at health insurance for BPL families and senior citizens comes nowhere near that. Indeed, total health spending continues to stagnate, such that the budget of the ministry of health and family welfare will remain at the embarrassingly low figure of 0.24 per cent of the GDP. This implies even lower levels of spending for the National Health Mission, and hardly any increase in funds available to the systems of public hospitals across the country.

Meanwhile, women and the young continue to be not just neglected but even pushed aside. The ICDS has taken a hit, with the allocation for the coming fiscal year actually lower (at only Rs 14,000 crore) than the Rs 15,394 crore that would be spent this year. How this crucial system will survive when anganwadi workers and helpers across the country are suffering from late payment and even non-payment of their pathetically small remuneration,
is anybody’s guess.

The Centre’s answer would be that now states have more money because of the Finance Commission’s award, and so they can take up the slack. But here too, the Centre has proved adept at clawing back some of this by creating more cesses and surcharges that do not have to be shared with the states, rather than increasing tax rates. Already in the current year, the share of states has declined from the projected 36.3 per cent of tax revenues to 34.8 per cent. The proposed budget also introduces a variety of cess and surcharges, all of which will be retained by the Centre.

It could also be argued that these limits on spending are necessary to maintain “fiscal discipline”. But, in fact, the economy is actually not doing as well as the hype suggests. The rural economy is down, investment rates have been falling, and employment, especially in formal jobs, is simply not picking up. The massive windfall gains to the Indian economy coming from low oil prices appear to have been wasted as the people still have to suffer high food inflation, even as wholesale prices fall.

Clearly, there is need for measures to increase domestic demand by improving wage incomes and possibilities of employment. More real spending on agriculture, on social sectors and on employment schemes can do this directly — and indirectly through very large multiplier effects. Putting more money on roads and railways (which is in itself desirable as long as it is not frittered away on high-speed rail links and other trophy projects) is not an effective substitute, and will not generate the much-promised and desperately needed employment. Sadly for all of us, the government has yet to learn this.

The writer is professor of economics at Jawaharlal Nehru University, Delhi