Prime Minister Narendra Modi in his “Mann ki Baat” broadcast on February 28 said he has a big exam the next day. The budget is out. Let us examine how the PM has performed. The budget’s objectives are laudable but can these be achieved?
It is focused on agriculture with a target to double farm income in five years. It is not clear if this is real income or nominal income. Doubling real income in five years is a Herculean task. With the measures outlined in the budget it may not be realisable. The PM may be counting on the success he had in realising agricultural growth of 10 per cent per year in real terms as Gujarat CM. Many analysts have argued that the building of more than 1 lakh water harvesting structures had a lot to do with it. The goal to build 5 lakh ponds in rural areas through MGNREGA can push agricultural growth. If along with this, diversification, expansion of agro-processing (for which rules have been relaxed to attract foreign firms), use of GM seeds, and better connectivity through rural roads can significantly step up agricultural growth.
If this can achieve a growth rate of 10 per cent then with 5 per cent inflation a 15 per cent growth rate in nominal terms is achievable. However to reach such a growth rate will take some time and doubling of farm income in the next five years may be difficult, if not impossible.
The increased allocation for irrigation projects for the accelerated irrigation benefit programme (AIBP) and the target to complete 27 projects in a year reflect good intentions. However, the reality is that the area under surface irrigation has not increased — in fact, it has gone down — over the last two decades despite the government spending lakhs of crores on irrigation projects. This has happened because of political reasons, including a race to claim the right on water by upstream states.
The budget also emphasised the welfare of the poor and those belonging to the lower middle class. Some of the budget proposals may provide short-term relief. From a long-term point of view, providing quality education is vital. The budget has proposed setting up 62 Navodaya Vidyalayas, which have been successful in promoting quality education to rural children. The budget also proposes funds to make 10 public and 10 private institutions as world-class centres for research. A new Digital Literacy Mission Scheme for rural India has also been announced. It can help improve the quality of government schools. But a lot depends on how it is implemented.
Another announcement that can improve rural development is the devolution of Rs 80 lakh to each panchayat. The outcome will depend on how democratically a panchayat functions. One can be hopeful that in today’s world, with high levels of education and access to social media, reasonable outcomes can be expected over time. As such, it is a good measure to empower panchayats.
On the energy front the budget has not made any significant announcement for renewable energy other than raising tax on coal from Rs 200 to Rs 400 per tonne. This amount is to be spent for promoting renewable energy. In the past, though, the fund has not been used for this purpose.
The significantly adverse health impact of cooking with bio-fuels that result in indoor air pollution has also been recognised. The government plans to provide LPG to all. This was recommended in the report of the expert committee that I chaired on integrated energy policy in 2006. We have made slow progress on this since. It is unclear, however, how long will this take to reach all and how is it going to be accomplished.
To provide a regular supply of LPG is perhaps more difficult than providing 24×7 electricity. The target date for electrifying all villages has been advanced to May 2018. This is doable and it must be done. Providing reliable and on tap electricity to rural areas can transform rural economy faster than perhaps any other measure. The main challenge here is to have a sustainable business model. This requires that appropriate price is charged for electricity. Politicians, of all hues, promising cheap, or even free, electricity is the main hurdle here. One way to circumvent this hurdle is by providing direct subsidies to consumers.
In this context, the government should be lauded for its decision to make Aadhaar mandatory even though it was an initiative of the UPA government. It proposes to provide most of the subsidies as direct benefit transfers. But while Aadhaar can help avoid duplication and ghost cards, it does not identify the poor. In this regard, the government must try the opposite approach: Identify the rich and exclude them. Metrics such as income tax payers, employees of the public and private sector drawing salaries above a certain level, those owning a motorised vehicle, etc. can be used for this purpose. This will not only reduce the burden of subsidies but also obviate the need for dual pricing of several products. Cash transfers, even linked to the purchase of particular goods or services, can make a single price viable and acceptable.
The government’s ability to raise resources for all these programmes will depend on the growth of the economy. If the increased allocations for roads, railways, MGNREGA and irrigation are effectively and quickly spent, they can generate the needed stimulus for growth. To conclude, the budget proposes many good initiatives, which if successfully implemented can have a deep impact on people’s welfare. I would give an “A” for ambition to the PM. What he gets for outcomes will depend on the implementation. And for that we need to wait for the next Union budget.