Malignant growth

Published : Mar 25, 2011 00:00 IST

Prime Minister Manmohan Singh and, behind him, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia (at a function in New Delhi in this file picture) have made it clear that in their perception the increase in food inflation is because of increased prosperity in general and the success of the governments pro-poor schemes in particular. - RAMESH SHARMA

Prime Minister Manmohan Singh and, behind him, Deputy Chairman of the Planning Commission Montek Singh Ahluwalia (at a function in New Delhi in this file picture) have made it clear that in their perception the increase in food inflation is because of increased prosperity in general and the success of the governments pro-poor schemes in particular. - RAMESH SHARMA

The meagre allocations for critical social sector programmes point to a focus on growth for growth's sake, whose consequences can be unsettling.

TERMINOLOGY tells us a lot about underlying economic ideologies. In India, increasingly, public spending that affects the basic conditions of life of the vast majority of the population is termed in mainstream media as social spending or populism. By contrast, measures that deliver more incomes to domestic or foreign companies are usually described as growth-oriented and reform-minded.

Growth in turn is inevitably seen as an end in itself, a sign to display to the world India's new-found economic strength. But, as the historian-philosopher Donald Sassoon has noted, the ideology of growth for growth's sake is the ideology of the cancer cells. The purpose of aggregate output growth must obviously be to deliver better living conditions for the bulk of the people: otherwise it would be pointless, even cancerous.

This is why levels of social spending by the government are crucial. What does Budget 2011-12 tell us about the government's intentions in this regard, with respect to addressing the most important economic problems of people in India today and improving their conditions?

The big issue for most people today is obviously inflation, especially food inflation. The government apparently sees the current inflation as the result of demand pull, that is, excessively rapid increases in demand causing the economy to overheat. The Prime Minister and the Deputy Chairman of the Planning Commission have already made it clear that in their perception the increase in food inflation is because of increased prosperity in general and the success of the government's pro-poor schemes in particular.

This may come as a surprise to farmers who continue to suffer agrarian distress or workers whose real wages are being eroded by price rise or self-employed workers with fragile livelihoods. But the perception of macroeconomic overheating is widespread among influential policymakers, and this is why the focus in this Budget has been on fiscal consolidation and restraining public expenditure, including in critical areas that will affect the supply of essential goods and services.

Macroeconomically, steps in this direction are likely to make the prices of essentials rise even faster in the near future, even as they damage employment prospects because of the negative multiplier effects of such reduction in public spending. This is because of the cost-push pressures on inflation, which reflect rising costs and problems in supply, particularly of important raw materials and intermediate goods. In particular, public expenditure that operates to improve supply conditions and distribution and that restrains other elements of cost would receive primacy. This requires more spending on making cultivation viable in various ways and on the public distribution system (PDS) for food to ensure affordable public provision that restricts trading margins and speculative activity. This also requires a reduction of taxes on petroleum goods so that rising international prices do not translate into significantly higher petrol prices within the economy, since fuel is a universal intermediate that affects all other prices.

In fact, the government is on a completely different track, with moves that will increase inflationary pressures and reduce the real value of the already paltry levels of public spending in critical areas that affect basic living conditions.

The Finance Minister, in his Budget speech, was self-congratulatory about the United Progressive Alliance (UPA) government's spending on social sectors, which he claimed would continue well into the coming fiscal year. His speech dwelt at some length on various inclusive measures the government had already undertaken and emphasised the increasing extent of resources he was allocating to them. But a look at the actual numbers tells a different story. It turns out that in the most important areas and in fact for the flagship schemes of the UPA government the budgetary allocations have hardly increased in real terms and are even expected to fall in some cases.

Food security

Consider the issue that dominates public consciousness today, that of food prices. The Finance Minister proudly announced that the government would soon table a National Food Security Bill in line with its long-time promise. All official estimates on this, regardless of whether they agree in other particulars or not, recognise that this will involve an increase in the food subsidy by anything between Rs.10,000 crore and Rs.50,000 crore. But the budgetary allocation for food subsidy has actually fallen, from Rs.60,600 crore to Rs.60,573 crore.

Also, if the government is serious about its food security legislation, it must significantly strengthen and expand the PDS. How serious it is can be gleaned from past spending on this: in the current year, the government has spent the princely sum of Rs.4.25 crore on food management and strengthening the PDS. No doubt as a sign of its positive intentions, it has increased the allocated amount by Rs.85 lakhs. This amount might just about provide food management for a single wedding party in some of our more affluent households, but it is unlikely to have much impact on the larger Indian population.


Then take the National Rural Employment Guarantee Scheme (NREGS), for which the Finance Minister complacently noted that the Central government had agreed to index the wage to inflation (though it has still not agreed to pay a minimum wage). The allocation for the NREGS has been increased by a pathetic Rs.100 crore from its level of Rs.40,000 crore. But if wages are to go up, surely the spending will have to increase. And if the number of days of employment provided to households per annum is to increase from the current level of 50 to the promised 100, then surely that will also mean more expenditure. So how does this add up? The only explanation is the Finance Ministry anticipates fewer days of employment to be created in the coming year compared with the past year.


The Right to Education Act, which was the result of prolonged struggles and agitation by civil society, was once again seen as a major achievement of this government even though it was effectively necessitated by a constitutional amendment some time ago. Once again, to be meaningful it requires a significant injection of resources. So what do we find? Spending on elementary education is slated to increase by a measly 11 per cent (by around Rs.2,700 crore), which means it will not even keep pace with nominal gross domestic product (GDP). Secondary education gets a bigger hike of 26 per cent, but because it is on a low base the increase amounts to only Rs.1,692 crore.

Rural health mission

The other flagship programme, the National Rural Health Mission (NRHM), gets an increase of 19 per cent, but even so the increase remains small in nominal terms, of only Rs.2,600 crore, which is shocking for a programme that increasingly bears the burden of providing health access to the majority of the Indian population. Because of its low funding, the scheme will continue to rely on the underpaid labour of women the ASHAs (Accredited Social Health Activists) who receive only Rs.500 a month for a very demanding set of tasks. There are much worse shockers. Central government spending on public health, which was already abysmally low at Rs.2,767 crore, is set to decline by Rs.607 crore! No wonder immunisation rates are actually declining in several States.

Indira Awas Yojana

The budget for the Indira Awas Yojana, which provides housing for those below the poverty line in rural areas, has been slashed by Rs.338 crore, so that it is now less than Rs.9,000 crore. However, tax give-aways for the rich in the urban housing market continue and have even been expanded to many multiples of the amount allocated for housing for the poor.

Other anomalies abound. In a welcome move, the government has increased the remuneration of anganwadi workers and helpers in the Integrated Child Development Services (ICDS) to Rs.3,000 a month and Rs.1,500 a month respectively. (Once again, this is still below the minimum wage in many States, certainly for the helpers, which is why the government is forced to call this payment a remuneration rather than a wage.) To implement this would require around Rs.2,000 crore in resources. But the budgetary allocation for the ICDS has been increased by only Rs.624 crore.

The big new issue in the Budget speech was the declaration of the intent to shift from subsidies on kerosene and fertilizers to cash transfers. There are two immediate problems that are evident in this approach. First, what ensures that the amount of the transfer will be sufficient to fully compensate for any price increases in the newly deregulated markets of these goods? Second, how will the government ensure that the cash transfer actually goes to the intended beneficiaries of subsidised kerosene and fertilizer?

The second problem is well known in India, where all public delivery systems have some element of leakage and diversion. How much simpler and easier it will be to divert cash than goods that have to be stored and resold! The government seems to be under the delusion that a technological fix (such as a Unique Identity number provided to all residents) will somehow eliminate all the potential problems of targeting. But determining who is actually poor and which farmer deserves the cash subsidy are socio-economic decisions that are affected by a complex set of political and social forces and power relations. Technology simply cannot address those; they require very different responses.

India has some of the worst human development indicators in the world, which is sad but unsurprising given our continually low outlays for social sectors. Yet, even in the current period of apparent economic boom and growing prosperity for a few, somehow the budgetary resources cannot be found for critical public spending that would allow most of the citizens to access basic needs and live a life of dignity.

Is it really so easy for a government to fool the people? Current international experience would appear to suggest otherwise.

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