Much
was expected of the new government's budget. It is after
all the first really serious policy statement of the
new government, since the National Common Minimum Programme
(NCMP) is more a wish-list of proposed policies and
programmes. Also, as the Finance Minister admitted in
the opening sentences of his Budget speech, the people
of Indian have clearly and unambiguously expressed a
desire for change in government - and, it should have
been added, in economic strategy.
Certainly
the budget speech was filled with many references to
agriculture, education, health and employment. And some
measures do indicate a commitment to change in certain
areas. For example, Mr. Chidambaram stuck by the decision
to impose a 2 per cent cess on taxes, so as to mobilise
about Rs. 4,000 crore for education, and also indicated
a desire to revive public sector enterprises, both the
ailing and the healthy ones, through specific measures.
The Rural Infrastructure Development Fund has been revived.
The intention to double agricultural credit in three
years is not a budgetary measure, but is still important.
The tax on services has been increased and widened.
In addition, the Finance Minister has made a special
allocation of Rs. 10,000 crore in terms of budgetary
support for the Central Plan, supposedly to implement
the NCMP. But this amount is really nothing compared
to the huge need for funds required to go even some
way towards fulfilling the promises already made. Nor
does it indicate a very dramatic change in course.
The actual budgetary allocations for crucial programmes
such as rural employment schemes and Antyodaya Anna
Yojana are no higher than had already been provided
for in the Interim Budget of the previous government.
Most of the additional plan allocation for the CMP is
likely to go towards education. Other claims are being
realised simply by aggregating existing expenditures
on a range of employment and rural development schemes
and placing them under the NCMP allocation for the Planning
Commission. Even in other schemes which are important,
such as rural sanitation and drinking water, the increases
in outlay are relatively modest, in the Rs.40-100 crore
range. This is not likely to inspire much confidence
in the claim of redirecting economic policy.
Meanwhile, in a surprise move, the government has chosen
to allocate an additional Rs. 12,000 crores for defence,
by increasing the defence budget from Rs. 65,000 to
Rs. 77, 000 crores over the remaining months of the
financial year. It is being argued that this represents
a rollover of unspent funds and committed order from
the previous year. But still this huge increase in allocation
seems unwarranted at a time when the security situation
can hardly be described as critical and when problems
such as an agrarian crisis, rising unemployment and
persisting hunger and malnutrition are serious. It turns
out that the additional allocation for defence exceeds
the total additional expenditure allocated for the NCMP,
which sends out wrong signals about the priorities of
the government.
Finally, despite claims of strengthening the hands of
the state government's which must necessarily play an
important role in implementing the CMP, no major effort
has been made to correct the fiscal squeeze being faced
by the states. The Finance Minister highlighted the
plan to reduce interest rates paid by the states on
borrowing from the centre from 10.5 to 9 per cent. What
was not mentioned was that the Centre today is still
effectively a usurious moneylender to the states. It
borrows in many cases at interest rates which vary between
4 and 6 per cent, and then lends to the states at 10
per cent.
There was much more scope to reduce the state governments'
interest payments. Also, something urgently needs to
be done about the overhang of past debt. The Planning
Commission had recommended that the non-small savings
part of state governments' debt to the centre should
be written off, but no such measure has been taken.
These inadequate moves on the development front have
been accompanied by policies that still stick with the
liberalisation agenda of the previous government. Foreign
Direct Investment caps have been raised substantially
in telecom, civil aviation and insurance. Foreign Institutional
Investors have been provided a range of concessions.
Banks are to be encouraged to increase their speculative
exposure to the stock market. And privatisation is to
be persisted with in the name of “piggy-backing” on
new share issues by profit-making companies like the
NTPC.
The biggest disappointment is in the allocation for
rural employment schemes. One of the most important
promises of the UPA government - and a declared priority
in the National Common Minimum Programme - was the offer
of employment guarantee in the rural areas. The UPA
government has even promised to promulgate legislation
to guarantee 100 days of employment in public programmes
at the minimum wage, to one member of every rural household.
It has been clear for some time now that rural employment
generation has been one of the critical casualties of
the reforms. The annual growth of all forms of rural
employment (that is principal or subsidiary occupation)
was less than 0.6 per cent per annum between 1993-94
and 1999-00, compared to 1.7 per cent per annum between
1983 and 1993-94. The daily status unemployment rate
in rural India as a whole increased from 5.63 per cent
in 1993-94 to 7.21 per cent in 1999-00, and was more
than 15 per cent in some states.
Most of this was because of the absolute decline in
agricultural employment, which had very negative impact
since agriculture still accounts for just under two-thirds
of rural employment. But even non-agricultural employment
growth was slower than before.
Some of this was because of the decline in public spending
on rural employment programmes since the mid-nineties.
As a percentage of GDP, expenditure on both rural wage
employment programmes and special programmes for rural
development declined from the mid-1990s. The total central
allocation for rural wage employment programmes was
already only 0.4 per cent of GDP in 1995-6, but it declined
further to a minuscule 0.13 percent of GDP in 2000-1.
Special expenditure on rural development (the IRDP and
its later incarnation the Swarnajayanti Gram Swarojgar
Yojana) also fell.
In such a context, it was only to be expected that the
first Annual Budget presented by this government would
reflect this goal by substantially increasing the allocation
for rural employment programmes. Of course, it could
not be expected that from the start there would be a
huge increase in such allocation. The estimated maximal
cost of such a guarantee varies between Rs. 40,000 and
Rs. 60,000, depending upon the proportion of rural households
that would opt for the scheme (likely to be between
one-third and two-fifths).
Obviously, this amount should not be budgeted unless
the programme is already in place in a substantial part
of the country. But certainly it was assumed that there
would be some large increase in allocation as a signal
of the importance that the new government places on
this particular goal.
This is what makes the actual allocations mentioned
in the Budget so disappointing. The budget has not made
any extra allocations for 2004-5, over the amount of
Rs. 6100 crores that was already announced in the interim
budget of the previous government. And this actually
represents a substantial decline compared to the Rs.
9640 crores that were spent in the previous year.
What is worse is that this smaller amount of money is
now to be redirected to “priority” areas rather than
being continued in places where they already existed,
which would have provided some continuity and stability
of expectation among rural workers. The Finance Minister
in his Budget Speech announced a new Food for Work programme
in 150 districts classified as most backward and identified
as areas in immediate need of such a programme. This
programme is to be funded by cutting down allocations
under the existing rural development programmes.
This reflects the typical neo-liberal economic thinking,
whereby “targeting” actually becomes a euphemism for
cutting down and reducing the aggregate availability,
which has already created so much harm in the Public
Distribution System for food and in the provision of
other public services. To introduce this in the first
major economic policy statement of a government that
is supposedly committed to universal rural employment
guarantee, makes a mockery of the whole exercise.
Indeed, the current allocations will have to be substantially
increased by several multiples, if the promise made
in the NCMP is to be kept in any meaningful manner.
To some extent, the unfortunate weather conditions -
the combination of floods and drought that are currently
affecting the countryside - have already made this inevitable,
since public relief works will have to be started almost
immediately in many states. But any real attempt to
improve employment conditions in rural India must accept
that there has to be a very large increase in the budgetary
allocations towards this, if necessary through supplementary
demands.
These do not have to be only in the form of public works,
although of course they are important. But there are
many potential activities which can have important effects
on supply conditions, productivity and sustainability
of rural economic activities, in both agriculture and
non-agriculture.
In addition to constructing and maintaining roads and
other connectivity (which has thus far been the most
popular form of activity in such schemes) there are
other activities such as building and maintaining bundhs,
minor irrigation works, clearing out and desilting ponds
and rivers, also have very positive short run and long
run effects on production conditions and can also improve
the sustainability of cultivation patterns generally,
implying important social gains.
In addition, there is a huge range of social services
that must be performed, which are now systematically
underprovided across rural India. These include activities
such as those performed by workers in educational and
health institutions who provide maintenance and support,
the provision of mid-day meals in schools, sanitation
services, and the like.
The point is also to ensure that financing for such
activities is chiefly the responsibility of the central
government, even though it must be implemented by state
government and below them by panchayats. It is important
to make sure that the central government does not try
to wriggle out of this crucial financial promise.
In part, the government's inability to move ahead further
is because of its sticking with the irrational obsession
with cutting the fiscal deficit. The Finance Minister
is proud of the fact that he has been able to keep the
fiscal deficit at 4.4 per cent of GDP as compared with
4.8 per cent in 2003-04. The fact of the matter is that
a comfortable food supply and strong foreign exchange
situation provides an opportunity to raise output and
employment growth without triggering inflation, even
if this involves deficit spending.
In fact, if the government had simply stuck to the deficit
projection of 4.8 per cent of GDP in the Interim Budget
(which have had no adverse macroeconomic consequences)
this would have released more than Rs. 10,000 crores.
This could have been effectively used in rural employment
schemes and other necessary expenditures.
As it happens, even the current estimate of 4.4 per
cent fiscal deficit to GDP ratio depends on extremely
optimistic projections of tax revenue growth because
of tax buoyancy and collection of tax arrears. If this
remains unrealised, as is likely, the actual revenue
and expenditure figures would show up a much higher
deficit.
So all in all, this is a disappointing budget, despite
its rhetoric. It is disappointing particularly because
this was the first major opportunity for the new central
government to tell the people that it would respect
their mandate and keep to its own promises made during
and after the elections. The challenge now will be to
ensure that, despite the evident fiscal caution, overall
economic policies are still redirected in favour of
the working people of this country. |
