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 

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    Haradhan Mandal
    Mar 2, 2016 at 4:17 am
    1. "sleight of hand rather than real increases in allocations ". 2. "miserly and tardy in providing the funds to the state governments " Allocation on the Budget Paper is not RELEASING the fund that reaches the beneficiaries - MNREGA job seekers and Farmers. 3. "health insurance" is not health care. It is a 'health care' of an Insurance company. Same goes for farmers' s Crop Insurance - it is for the Insurance company to be paid by the Govt. Finally - "much talk of many measures (most of them simply renaming earlier and existing schemes and programmes" of UPA-1.
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      Ms
      Mar 2, 2016 at 3:48 am
      Plain leftist remarks. All you (leftist) want is- others;you earn and govt; now distribute it to ones who don't work.
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        Ms
        Mar 2, 2016 at 3:43 am
        Someone righty said "It is impossible to make everyone happy". Money is limited. Even you know that. People including me don't want to pay tax on EPF. but activists from every sector want the centre to increase its expenditure.
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          Arun Sharma
          Mar 2, 2016 at 5:24 am
          Where is the money from low crude oil prices is being wasted? Does the central government has more money and it is not giving same to states? If so where is the money going? Perhaps it is for implementation of seventh pay commission and OROP. No body is explaining where is the money being wasted? There is also huge corruption in all schemes for poors, so how more money will benefit poor? How many rural people have bogus BPL cards? Money going to rural folks is just being siphoned by affluent and powerful people of villages.
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            Ashok Sridharan
            Mar 2, 2016 at 7:03 am
            Partly agree with Ms. Ghosh, although she hasn't bothered to discuss how the government will raise the funds needed to spend so much on social commitments. With two crippling back to back droughts and a very poor global economic environment, its hard to see what any government can do about it without resorting to the kind of irresponsible borrowing that UPA II indulged in. This goverment is still paying for the thoughtless profligacy of Sonia hi and Co.
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              Sanjay
              Mar 2, 2016 at 8:55 am
              The devil lies in the details, my dear! This seems to be a sort of facelift to subvert criticism. Where is the roadmap for GST, Direct Tax Code?
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                Mukesh Goswami
                Mar 2, 2016 at 10:43 am
                All talk but hardly any walk.. Long story short.. Let them show Farmer income higher by 15% by next Feb or else resign.. Modi is a compulsive mouth shooter.. No rationale for announcing doubling the farmer income in 5 years.. Just note that all Modi announcements are for a period beyond 2019 so that he can ask for votes.. If defeated, he will not be accountable for all the rhetoric.. India will pay dearly for voting him to power.. wish, I m proved wrong but ???
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                  G
                  Mar 2, 2016 at 9:58 am
                  Naturaly, the all knowing JNU lady completely ignores the Jan Dhan yojana when writing about government spending for the poor!
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                    Raman Govindan
                    Mar 2, 2016 at 9:33 pm
                    "finally seems to have woken up to the ongoing agrarian crisis and the worsening financial conditions of cultivators"......................................................................................................................... Rural farmers are of several kinds. We have farming workers who lease from the land owners, farmers with insufficient land to support them, and rich aristocrat or upper middle cl farmers. The last category, also get the concession! If the subsidy on procurement, fertilizers, pesticide, and electricity tariff are given, it should be stated clearly that it is done to stabilize the price of food article and not help all repeat all the farming community. It has been the practice rt. from Nehru’s days to confuse the two purposes. Best solution would be tax the rich farmers and provide the subsidies as at present. But the left and JNU type intellectuals, the feudal lobby and the dynastic coteries will join together to cast aspersion on the proposals.
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                      rkannan
                      Mar 2, 2016 at 10:20 am
                      Ms Ghosh obviously has little clue as to what she is talking about but her economic thinking is mired in the 19th century. MNREGA has turned out to be the most corrupt scheme ever and therefore has plenty of backers in all political parties. The Railway budget shows that over 50% is wasted on ries and pensions. This is what really afflicts the Railways - not the bullet train which will generate more than adequate revenue. All express trains, with AC facilities, make money. Railways loses money on subsidising 2nd cl long distance fares. The best way forward would be to reduce Railway staff by atleast 50 % and get rid of such wasteful subsidies. Investments in Roads and infrastructure would result in economic growth thereby lifting people out of poverty. However, the poverty of thought by our leftist self proclaimed intellectuals,who exert a great deal of influence on policy makers, is focused on ensuring that the average Indian remains poor.
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                        S.K. Express
                        Mar 2, 2016 at 5:58 am
                        This JNU professor fails to realize that no money for 'commissions' (sometimes amounting to even 90% during the various Congress regimes) need to be allocated any more. I.e., no money for looting has been allocated. Does that help with your analysis?
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                          Sanjiv
                          Mar 2, 2016 at 2:25 am
                          Why is it that none of the economists of the Left like this author ever analyse the revenue raising efforts of the states? Why don't they ever offer an alternative budget? Why are they so steeped in negativity?
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                            surendra s
                            Mar 2, 2016 at 4:47 pm
                            The writer seems to suggest that all was hunky dory in the past. Global headwinds are barely allowing us to stand. Recession fears are looming. Huge capacity built up remains unutilised. Neww demand is not picking up. How can you expect allocations to rise? If fiscal discipline is not maintained, RBI is not going to lower rates. In the given situation, FM has done the best he can.
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                              City Of
                              Mar 2, 2016 at 4:02 am
                              Those who can, DO. Those who can't, teach! Even a grade 4 kid knows that a budget has two essential components - revenues and expenditure. How about the revenue side, madam professor??!!!!!
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                                yousef
                                Mar 2, 2016 at 2:19 pm
                                remaining can be financed by the loot done by congress
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