Opinion Thomas Isaac writes | Union Budget 2023: Stability is being achieved at the expense of the poor and rural sector

There is no guarantee that the increase in capital expenditure would produce the desired outcomes unless major governance reforms are initiated against cronyism

Poverty alleviation programmes have been given short shrift in Budget 2023. (Illustration: C R Sasikumar)

T M Thomas Isaac

February 3, 2023 11:26 AM IST First published on: Feb 2, 2023 at 06:49 PM IST

Looking at the reaction in the media to the Union budget, it would appear that many have been carried away by the lofty ideals of “Amrit Kaal”, the glitter of high-tech schemes and the surge in capital expenditure. Very few seem to have remembered what Mahatma Gandhi said: “Recall the face of the poorest and weakest man you have seen, and ask yourself if this step you contemplate is going to be of any use to him.”

Poverty alleviation programmes have been given short shrift in Budget 2023. The most important among them is MGNREGA, whose allocation has been cut to Rs 60,000 crore. The actual expenditure in 2021-22 was Rs 98,468 crore and the expected expenditure in 2022-23 is Rs 89,400 crore. The total allocation for the National Social Assistance scheme, anganwadis, the National Livelihood Mission and nutrition programmes has stagnated at less than Rs 60,000 crore. As a ratio to GDP, the allocation for the above anti-poverty programmes has declined from 0.79 per cent in 2022-23 to 0.53 per cent. The other two major programmes are the drinking water and housing programmes with an overall allocation of Rs 1.5 lakh crore and an increase of 13 per cent from the revised estimate of 2022-23, but still below the budget estimate of 2021-22.

The allocation for agriculture and allied sectors, including PM-KISAN, is Rs 1.4 lakh crore, lower than the budget estimate for 2022-23. The food subsidy has been cut by 31 per cent from Rs 2.87 lakh crore to Rs 1.97 lakh crore and the fertiliser subsidy by over 22 per cent from Rs 2.25 lakh crore to Rs 1.75 lakh crore. The allocation for food procurement and market intervention has been reduced from Rs 72,000 crore to Rs 60,000 crore.

The education and health sectors have seen a marginal improvement from the budget estimates for 2022-23, but are totally inadequate in terms of the requirement. As a ratio to GDP, the allocation for education has witnessed a steady decline during the NDA regime, from 0.63 per cent in 2013-14 to 0.37 per cent in the present budget. India is on course to be the third largest economy, but we will continue to be at the bottom in terms of the quality of life of people.

The budget celebrations were rudely disrupted, not by the people’s protests but by investors who bid down share prices. The crisis in the Adani empire, the largest of Indian conglomerates, has serious implications for an important policy variable of the budget — the enhancement of capital expenditure from 3.9 per cent of GDP in 2022-23 to 4.6 per cent.

The expectation is that the public capital expenditure would crowd in private investment. But the puzzle is that despite higher government capital investment, private investment is not forthcoming. The Gross Fixed Capital Formation (GFCF) to GDP in all the years of the NDA government has been lower than the ratio of 32.6 in 2013-14. Under the impact of Covid, it fell sharply and has yet to fully recover. An exasperated Union Finance Minister was heard demanding an answer from the big investors why private investment is not picking up despite corporate tax reductions and other concessions like PLI.

The answer to the puzzle is not simple. Nevertheless, among other things, an important element would be a lack of fairness and transparency. A public policy that is geared to the creation of a few champion investors leads from minimum government to maximum government when it comes to certain favoured corporates. Such a situation is not one that would enthuse the “animal spirits” of the investors.

Whatever the reason, the subdued investment would imply subdued growth. No amount of verbiage can whitewash the fact that the Indian economy, which was growing at around 8.6 per cent per annum since 2003-04, entered a period of serious deceleration after demonetisation in 2016, reaching 3.1 per cent in the last quarter before the pandemic.

Even after the downward slide began, budget after budget of the NDA regime pursued a foolish strategy of reducing the overall budgetary expenditure to GDP ratio — from 14 per cent in 2013-14 to 12.2 per cent in 2018-19. Though not related to the budget, the situation was confounded by the Reserve Bank of India adopting a policy of increasing the real repo rate even while inflation was coming down. These policies were reversed only with the pandemic. In the present budget, the expenditure-GDP ratio is 15 per cent, lower by 0.4 per cent when compared to the previous year.

India’s economic deceleration was the result of multiple policy failures, and the present budget does not seem to have any new strategy to make up for the mistakes. The budget assumes “a full recovery in FY22 ahead of many nations and (is) position(ed) to ascend the pre-pandemic growth path in FY23”. It is rather silly to assume that the economy fully recovered from the pandemic in FY22. The per capita GDP would still be below the pandemic level. It is this assumption that underlies the budget’s approach to agriculture and the rural poor.

The ratio of tax and non-tax revenues to GDP in 2023-24 is virtually the same as in the previous year and yet the fiscal deficit has been brought down from 6.4 per cent to 5.9 per cent. To achieve this fiscal stability, the finance minister has no choice other than to cut expenditure on agriculture, rural development, and poverty alleviation. Stability is being achieved at the expense of the poor and rural sector. Besides, there is also no guarantee that the increase in capital expenditure would produce the desired outcome unless major governance reforms are initiated against cronyism.

The writer is former finance minister of Kerala