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is a strategy that seems to have been honed to perfection.
When the Finance Minister rises to present the budget,
he launches on a long and tiresome speech filled with
trivial detail. The intent is to make attention flag.
Much of the detail, which fills Part A of the speech,
has little to do with fiscal policy or the strategy
being adopted to mobilise additional resources and allocate
them in directions that reflect a clear agenda for development.
The intent is to obfuscate the nature of the budgetary
exercise. Some of the detail relates to allocations
to existing or new programmes and initiatives with the
size of such allocations varying from a few crore rupees
to a few thousand crore. The intent is to prevent early
judgement of whether the allocation to a particular
sector, given its size and requirements, is significant
or not.
The minister combines all this with small concessions
to some sections, promises to others and statements
that make inconsequential measures seem important. The
intent here is to shift the debate to whether this is
a ''soft'' budget or not. What is kept out of the speech
per se are the numbers that could show that much of
what the minister claims to deliver have not been provided
the resources needed for implementation. The intent
seems to be to divert the nation’s attention by offering
some concessions and wasting time on detail so that
it is only after immediate interest in the budget has
waned that the real character of the budget is revealed.
For those who missed the actual event in real life or
on television, this is a description of the budget speech
for 2011-12 delivered by Finance Minister Pranab Mukherjee.
He pursued the strategy to perfection, but he does not
seem to have succeeded in full in realising his objectives.
It has not taken long for many to realise that a fundamental
feature of Budget 2011-12 is that it lacks any focus
or strategy whatsoever. As a fiscal package it is an
almost random set of expenditure increases, very few
of which are significant when measured as a ratio to
GDP. Above all, while paying lip service to ''inclusion'',
it is seen as delivering little of it.
The crux of this budget is that the Finance Minister
has chosen to stick to fiscal conservatism and keep
aggregate expenditures in control. Plan expenditures
as a ratio of GDP that rose from 4.6 per cent in 2009-10
to 5 per cent in 2010-11 are budgeted to fall to 4.9
per cent of GDP. And non-plan expenditures that fell
from 11 to 10.4 per cent of GDP during the first two
of those years are budgeted to fall further to 9.1 per
cent of GDP. There is like to be a contraction, if anything,
in expenditures.
In fact, the contraction is likely to be even more,
since the Finance Minister would not have the benefit
of the additional Rs.72,000 crore in non-tax revenues
relative to budget that he obtained this year, because
of the sale of 3G and wireless broadband spectrum. Thus,
non-tax revenue receipts are estimated to fall from
Rs.220,148 crore in 2010-11 to Rs.125,435 crore in 2011-12.
But what is surprising is that despite that fall, aggregate
revenues are expected to rise marginally from Rs.783,833
crore in 2010-11 to Rs. 789,892 crore in 2011-2012.
This is to be ensured by projecting an increase in tax
revenues of more than Rs.100,000 crore from Rs.563,685
crore to Rs.664,457 crore. This increase is not to come
from additional resource mobilisation. As the budget
speech makes clear, while the Finance Minister expects
to garner additional revenues of Rs. 11,300 crore from
indirect taxes, he expects to lose Rs. 11,500 crore
from the concessions he gave on the direct tax front.
So revenues are optimistically expected to increase
because of buoyancy and better compliance.
There is reason, therefore, to suspect that the revenue
estimates for the next year are exaggerated. In all
probability the increase will not be realised and expenditures
will have to be cut further. This kind of enforced austerity
which affects expenditures directed at the poor is expected
in a year when the Finance Minister expects to obtain
Rs.40,000 crores by selling public assets under the
garb of ensuring people’s ownership of the public sector.
Much of that money is to be directed at realising fiscal
deficit reduction targets.
In fact if the position taken by the budget on subsidies
is an indication, policy is geared to further excluding
rather than including the poor. On subsidies, the Finance
Minister declares in his budget speech that: ''To ensure
greater efficiency, cost effectiveness and better delivery
for both kerosene and fertilisers, the Government will
move towards direct transfer of cash subsidy to people
living below poverty line in a phased manner.'' While
cash transfers are poor substitutes for subsidies and
are therefore controversial (as discussed in an accompanying
article), the statement also does not make clear what
this ''targeted transfer'' would do to the volume of subsidies.
An examination of the figures, however, makes that clear.
It shows that aggregate subsidies which rose from Rs.141351
crore in 2009-10 to an estimated Rs.164,153 crore in
2010-11, are expected to decline to Rs.143,570 crore
in 2011-12. This decline is before we take account of
the erosion of the ''real'' value of these subsidies on
account of inflation.
There are two ways in which Mr. Mukherjee is expecting
to ensure the slash in subsidies. The first is by reducing
fertiliser subsidies by around Rs.5,000 crore and petroleum
subsidies by a huge amount of nearly Rs.15,000 crore.
Both these are possibly going to be realised through
a shift to a cash transfer system. That would happen
in a year when oil prices are expected to rule extremely
high, and when the government has signalled that it
is not willing to reduce duties on petroleum products
to neutralise even a part of the price increase. Even
if domestic prices are adjusted to take account of increases
in international prices, the government could have reduced
the proportional or ad valorem duties it levies on these
products to reduce the burden imposed on consumers.
Thus, for much of the population higher prices of fertiliser
and petroleum products and their knock on effects on
inflation seem inevitable.
The second way in which subsidies are to be reduced
is by capping the food subsidy in nominal, money terms
in a year when the Food Security Act is supposed to
be enacted and implemented. The total subsidy on food
is budgeted to remain in 2011-12 at the previous year’s
level of around Rs. 60,500. This despite the fact that
food price inflation is high and the UPA’s promise was
to extend and expand access to the public distribution
system. It must be noted that this cut in subsidies
is likely to aggravate ongoing inflationary trends.
And the Finance Minister’s decision to make up for the
revenue loss due to his direct tax concessions with
increases in indirect taxes would in a number of cases
contribute further to inflation. The budget appears
to be contributing to, rather than combating, inflation.
The Finance Minister claims that he is addressing the
inflation problem through supply side adjustments aimed
at increasing the production of food articles and streamlining
the supply chain with a set of small expenditures and
some gratuitous advice to the states. But, while this
claim is made, allocations show that there is to be
no effort whatsoever to step up plan spending on the
agricultural sector, and reverse the long-term decline
in public capital formation in agriculture related areas.
Central Plan outlays on Agriculture and Allied Activities,
which increased from Rs.11014.14 crore in 2009-10 to
Rs.14361.55 crore in 2010-11, are budgeted to rise only
marginally in nominal terms to Rs.14744.15 core in 2011-12,
which amounts to a significant decline in real, inflation-adjusted
terms. The corresponding figures for Rural Development
are Rs.38569.04 crore, Rs.46104.1 crore and Rs.46292.08
crore, which too point in the same direction. Unwilling
to spend money on building rural infrastructure and
enhancing productivity to restore the viability of crop
production, the Finance Minister seems to be hoping
that the rural population will be able to borrow their
way out of an agrarian crisis. Towards that end he has
called for an increase in credit flow to the rural areas
from Rs.375000 crore to Rs.475000 crore. Credit is indeed
important, but private debt is no substitute for public
investment. In fact, there is much evidence to show
that public investment is needed to stimulate private
productive investment in agriculture. Thus, the budget
does little to address the long-term supply constraints
that underlie the inflationary surge.
Mr. Mukherjee of course claims that he is adopting more
immediate measures to protect the really poor from the
worst effects of inflation. An example he gives is the
decision to link wages paid under NREGA to inflation.
But those wages have been fixed in nominal terms at
Rs.100 a day, which is less than the legal minimum wage,
and can hardy be considered adequate protection against
hunger and malnutrition.
The refusal to consider the legally declared minimum
wage as an inviolable benchmark is visible elsewhere
as well. When the Minister declared that he is doubling
the wages paid to Anganwadi workers to Rs.3,000 a month,
all he was doing was bringing that wage in line with
what is paid under NREGA, which, as noted, is short
of the minimum wage. But even faulty and inadequate
measures of this kind are presented as major advances
towards ''inclusion'' of the poor. The mismatch between
claims and policies in this area is reflected in the
allocations to the social sectors. Though the central
plan outlay on social services such as education and
health, are budgeted to rise from Rs.136,941 crore in
2010-11 to a higher Rs.153,182 crore in 2011-12, that
increase is almost matched by a budgeted decline in
non-plan expenditures on this sector from Rs.35,085
crore to Rs.20,862 crore.
In sum, this budget is afflicted to a far greater degree
than before by a kind of cynicism that leads to policy
paralysis. No more is the budget seen as an instrument
through which resources are mobilised not just to keep
growth going but to distribute its benefits to those
left behind or marginalised by the growth process. The
cynicism runs so deep that those responsible for policy
are not willing to heed calls even from within their
own party to garner resources for enhanced social expenditures
and social protection. The treatment being afforded
to the Sonia Gandhi headed National Advisory Council
is evidence enough of this. This kind of cynicism and
brazenness is disconcerting because among the economic
benefits expected from functioning within the framework
of parliamentary democracy is a check on the executive
arm of government in the form of a ''fear'' of inflation,
a distaste for excessive inequality and a sensitivity
to deprivation. This seems lacking today.
There are two factors that could account for this. One
is the possibility that what we are witnessing is a
form of ''state capture'' in which those holding the policy
reins do not believe they need to do things that give
them legitimacy and help them win voter support. That
is seen as the task of those managing parties and not
governments.
The other is that the powerful within the executive
arm believe that fiscal policy is no more an important
instrument of development policy. This seems to be part
of the belief that private initiative and markets, facilitated
by government largesse of course, will deliver ''growth'',
the benefits of which will ''in time'' reach the people.
There is evidence of such belief in this budget too,
which has much on offer for private domestic and foreign
capital. For example, bond and mutual fund markets have
been opened up further to foreign investors who have
been provided a substantial concession in the form of
a reduced withholding tax. Privatisation of the public
sector is to be accelerated. Entry for corporates into
banking is to permitted. And, the revenue foregone on
account of exemptions and tax concessions for corporate
tax payers alone is not just high, but is projected
to increase from Rs.72,881 crore in 2010-11 to Rs.88,263
crore in 2011-12. That sum far exceeds the subsidy on
food, for example, that is to be curtailed.
This kind of exclusionary policy is sought to be justified
by focusing on the growth achievements of the country,
led by the private sector. The obsession with growth
does have some fall out for capital spending in certain
areas. Central Plan outlay for the Energy sector, that
rose only from Rs.114307.9 crore in 2009-10 to Rs.126225.24
crore in 2010-11 is projected to rise to Rs.155495.16
crore in 2011-12. The corresponding figures for Industry
and Minerals are Rs.30690.33 crore, Rs.38851.66 crore
and Rs. 45213.76 crore respectively and for Transport
Rs.86453.03 crore, Rs.98726.87 crore and Rs.116860.91
crore. The UPA government is conscious that its growth
obsession requires that the infrastructure needed for
the private sector to flourish has to be invested in.
But given the absence of any semblance of economic governance
and the evidence of fiscal conservatism associated with
neoliberal ideology, even these objectives may not be
realised.
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