Budget 2011-12

Mar 7th 2011, Jayati Ghosh
If anyone asked an average citizen of India today what her (or his) most significant economic problem is today, my guess is that the answer would be: rising food prices. The second issue that would probably be highlighted is employment, most of all the difficulty of finding decent paid employment or remunerative livelihood in self-employed form, whether in agriculture or industry or services. The third might be the problems of ensuring minimal health security for the household, as well as of providing adequate education for the children.

So, how far has the Finance Minister, who claimed in his Budget Speech that he was concerned with improving the conditions of the people, actually delivered on any of these issues? This is in fact a Budget that is remarkable for its effective rejection of the material concerns of most of the population. On the question of food security and food prices, the FM did make some sympathetic noises and talk about measures to improve agricultural productivity. But on the more pressing question of ensuring adequate distribution of food to prevent local speculation and rising prices, and to make sure that the poor are able to access food at reasonable prices, he was silent. To add injury to insult, he has actually reduced the allocation for the food subsidy by Rs 424 crores! This suggests that the Government does not see public food distribution as an important means of curtailing food inflation, and moreover is not really serious about the Food Security legislation that it intends to enact.

On employment, the presumption once again seems to be that economic growth on its own will deliver more jobs, even though all the recent evidence suggests that without active labour market policies, this is not likely. Some concessions are to be granted to small and medium enterprises, especially in the export sector, but these may be more than counterbalanced by the rise in excise duties and indirect inflationary effects of the rise in petrol prices. Meanwhile, there is hardly any increase in the allocation to the National Rural Employment Guarantee Scheme (though it will be argued that since this is demand-led, the amount may still increase) and laughable amounts have been provided for various urban livelihood schemes.

The regressive nature of the tax measures in the Budget provides the strongest indication of the FM's apparent lack of concern for the bottom three quarters of the population. Direct tax payers the corporations and the less than 5 per cent of the population who even file income tax returns, let alone pay such taxes have been given a bonanza of tax reductions, which will cost the exchequer an estimated Rs 26,000 crore (on top of benefits in the current year that are projected to have cost about Rs 80,000 crore). But indirect taxes have been raised across the board, including for items of mass consumption, so that the common people will now contribute disproportionately to the additional Rs 60,000 crore that is being raised.

This rise is bound to generate further inflationary pressures, especially given the increase in petrol and diesel prices that will cause direct and indirect increases in many other prices. In a context in which concerns about inflation are already becoming marked, this is a strange move to make, and certainly one that will negatively impact the ordinary citizen.

So what about social sector spending? The Finance Minister made much of the substantial increase in plan allocation for social services, and indeed, at Rs 26,000 crore it does seem significant given the paltry nature of increases in this area in the past. But non-plan revenue expenditure on social sectors is actually slated to be cut by nearly Rs 6,000 crore, so the increase is not as much has been trumpeted. Since the central government has allocated only Rs 8000 crore more for school education, it seems that the financial burden of ensuring the right to education is to be thrust on the state governments. But many of them are already facing fiscal crises and will find it difficult to raise the required resources.

In fact, since the state governments are largely responsible for social sector spending and still account for around 80 per cent of total social sector spending in the country, it matters critically what resources are made available to the states. Here, it turns out that total support from the Centre to state and UT plans is less than Rs 6500 crore, which is completely inadequate for the most obvious needs of health, education, housing and other infrastructure. In fact, this increase of around 7.5 per cent over the previous year's spending will barely keep pace with inflation and is well below the projected increase in GDP.

So the FM seems to have forgotten about most common people of the country, barring the voters of his own constituency who will benefit from some special schemes!

 

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