Stagnant sectors

Budget 2008 is marked by a continuing fiscal neglect of the social sectors even as conditions in these sectors are reaching crisis point.

FOR some years now, the Budget speeches of the Finance Minister have been impressive exercises in the art of rhetoric, that is, of verbal persuasion without reference to reality. It has often been the case that the more P. Chidambaram talked about a particular issue in his speech, the less money he provided for it in terms of budget allocation. This years speech was no exception, except that the rhetoric was, if anything, even more flamboyant and declamatory than before, possibly declaring the United Progressive Alliance (UPA) governments intention to face the electorate in the near future.

But rhetoric has rarely, if ever, won elections in India. Indeed, voting patterns show that Indian electorates have been remarkably mature in several ways, especially in terms of voting out governments that have failed to deliver on their promises. That is why whenever there is a sense that elections are in the offing, the attention of the government shifts, even if briefly, from the reactions of stock market analysts and businessmen, and there is a scramble among policymakers at least to be seen to be delivering on some important fronts.

So it is worth asking what the economic strategy of the government, especially the intentions as signalled in this years Budget proposals, has actually provided in terms of improving the social and material conditions of most of the people. The crucial areas that matter are still the issues that dominated the previous general elections. Therefore, they are still the issues that formed the core of the Congress partys manifesto in the 2004 general elections, and that became important elements of the promises made in the UPA governments National Common Minimum Programme (NCMP).

These are the bread and butter issues of employment, the agrarian crisis, nutrition and food security, education, health and social security. In each of these areas, the UPA government promised much. And in most of these, the delivery has not only been far below the promises, but in some cases even worse than the previous governments record.

The major exception is in the field of employment generation, since the enactment and putting into place of the National Rural Employment Guarantee Act was a significant advance made by the present government. It is clearly only a first step and much remains to be done, not simply in extending the scheme to the whole country, but in ensuring that it is implemented in the desired way with much more local public involvement. Even so, there is no doubt that this was and remains an important achievement that may rank as the most important economic contribution of this government to the future well-being of a large section of the population and a means of reviving the depressed rural economy.

However, while Chidambaram has promised to provide resources as required to the States for this demand-driven scheme, the budgetary allocation he has made for its expansion is small. This suggests that the Finance Ministry may continue to impose the financial restraints and inflexibilities that have already prevented State governments from gaining access to Central resources in ways that would result in more rapid and effective implementation.

In the context of a continuing agrarian crisis, a debt-relief package was widely expected, and the Finance Minister did announce one, with much fanfare and declarations of concern for the plight of farmers. But the package appears to have been put together in a hurry, without adequate thought and without the elements necessary to have any real beneficial effects for the areas and cultivators that are the worst affected by the agrarian distress.

The package has a number of important exclusions. It excludes from full benefits all the farmers on dry land and poor-quality land who hold more than two hectares, even though they are among the worst affected by the agrarian crisis. Thus, most of the distressed farmers of Vidarbha region in Maharashtra or Rayalaseema in Andhra Pradesh or south Karnataka will not get the debt cancellation benefit. In fact, they will probably also not benefit from the one-time settlement, since if they could repay 75 per cent of the outstanding loan they would not be in distress in the first place!

The package also excludes the majority of farmers who have taken debt from private sources, since there has been no attempt to deal with the private outstanding debt. Yet more than three-fourths of farmers hold private debt, especially small tenants, women farmers and cultivators without clear land titles in their own names, who are already among the most disadvantaged agriculturalists.

Since the debt relief package includes loans that are due to cooperative banks, it will supersede the efforts being made to recapitalise cooperative banks to make them more viable and to enable them to start lending more, that followed from the Vaidyanathan Commission report. This may leave rural credit cooperatives in more of a mess than before if the matter is not properly handled.

If the Central government was really serious about providing debt relief to distressed farmers, it should have established a Debt Relief Commission along the lines of the one that was established recently by the Government of Kerala. This would identify the pockets and categories of severe agrarian distress and provide relief accordingly, including to those holding private debt, by refinancing the moneylenders. Such commissions were established even by the colonial government of British India, so they are not administratively that difficult to manage. Of course, this would necessarily mean that the Central government make available real finance for this purpose, instead of the book transfer between the government and banks that is probably going to be used to finance the proposed scheme.

In all the publicity being accorded to this debt relief package, what is being ignored is that this Budget has directed very little towards making cultivation a viable or profitable activity once again. There is no budgetary allocation for various kinds of public intervention such as input provision or price stabilisation schemes that would protect farmers from crop price volatility. There is no attempt to expand and improve the crop insurance scheme in ways that would make it genuinely useful to farmers. The total Central Plan spending on agriculture and allied activities is projected to increase by only Rs.1,530 crore, and the total irrigation spending is actually to fall to a paltry Rs.414 crore.

Given all this, it is surprising that the government is presenting the Budget as a farmer-friendly one. Either the government has been misled by its own propaganda, or it cynically believes that it does not matter how farmers actually fare as long as they can be convinced that the government cares about them. It was even more surprising to read a newspaper report ascribing to the Finance Minister the view that the debt relief package is a measure to improve food security in the country. He appears not to know that most of the farmers in distress are those who have been producing cash crops, rather than food, or that the current problem in food security stems largely from the mess the government has made of the domestic procurement and distribution system.

In this context, it is worth remembering the promise made in the NCMP: The UPA will work out, in the next three months, a comprehensive medium-term strategy for food and nutrition security. The objective will be to move towards universal food security over time, if found feasible. The UPA government will strengthen the public distribution system (PDS) particularly in the poorest and backward blocks of the country.

Instead of this, the PDS has continued to be run down during the tenure of this government. Allowing large corporate players into the foodgrain market has reduced the Food Corporation of Indias capacity to procure the required amounts of grain. Food price inflation has already emerged as a major area of concern in the current year, and it is likely to get worse, rather than better, in the near future. Global prices of essential foodgrains are rising and domestic procurement prices will have to rise accordingly if the government is to be in a position to procure foodgrain for the PDS and other uses such as the Midday Meal Scheme.

Therefore, there will have to be a rise in the food subsidy to ensure adequate procurement and prevent basic food prices from going up too much for retail consumers. However, the allocation for the food subsidy shows hardly any increase, from Rs.31,546 crore in the current fiscal year to a proposed outlay of Rs.32,667 crore in the coming year. This is even less than the governments own inflation projections for the coming year, which means there will be a decline in real terms. A pathetically small amount of Rs.48 crore is all that is allocated for strengthening and expanding the PDS system.

A major aspect of nutrition and health relates to the Integrated Child Development Scheme (ICDS), which is absolutely crucial for ensuring minimum access to health and nutrition facilities of pregnant and lactating mothers, infants and young children. The ICDS has been operating on the underpaid labour of women in an undesirable and unsustainable fashion. The Finance Minister has now consented to increase the remuneration of anganwadi workers to Rs.1,500 a month and that of anganwadi helpers to Rs.750 a month. This is an improvement, but still leaves them receiving less than the minimum wages. Further, the Supreme Court has repeatedly instructed the government to make the scheme universal to all habitations, but the small increase in the budgetary allocation to the ICDS (of just Rs.852 crore) ensures that this will not happen even in the coming year.

The National Rural Health Mission is a flagship programme of the UPA government, launched with much fanfare. However, it too runs on the underpaid labour of women (Accredited Social Health Activists or ASHAs, who are the backbone of the scheme, receive at best Rs. 800 a month) because of the very small allocations that have been made to it. Even in this Budget, the total spending on the NRHM is slated to be less than Rs.11,000 crore, and the increased spending will barely keep pace with inflation. Certainly, the promise to raise public spending on health to at least 2-3 per cent of GDP [gross domestic product] over the next five years with focus on primary health care appears to have been forgotten.

Education was supposed to be a major area of concern for this government, and the NCMP pledged to raise public education spending to at least 6 per cent of GDP, with at least half this amount being spent on primary and secondary sectors. This undertaking was certainly not kept last year the governments own Economic Survey showed that it was less than 3 per cent but even in the current year the allocations suggest that it will remain in this region. That is less than what the National Democratic Alliance (NDA) government spent as a share of GDP.

What is most shocking is the reduced commitment to elementary education. The total proposed outlay on elementary education has increased by only Rs.1,337 crore, or around 7 per cent. That is barely above the projected inflation rate for the coming year (6.4 per cent, which means that there will be hardly any increase in real spending on elementary education in the coming year. This is despite the fact that school education is hugely underfunded, that recent increases in enrolment have been achieved at the cost of minimum quality with schools being set up without even the most basic infrastructure and a huge shortage of teachers. Allocations to the Sarva Shiksha Abhiyan have actually fallen, as the Central government moves to pass more of the burden to State governments. This makes a mockery of the governments commitment to ensuring the right to education and casts doubt on its commitment to pass meaningful Central legislation on this.

There are welcome increases in the budgetary allocations for secondary and higher education, but even here the increases are nowhere near what is necessary. The desired expansion in secondary schooling and higher and technical education demands a manifold increase in public spending on these: instead, the total increase in such expenditure is projected to go up by just above Rs.6,000 crore, which is simply not enough to deal with the unmet and growing demand.

The Finance Minister cannot claim that there is a shortage of fiscal resources to provide for these crucial areas of education spending. His own Budget estimates project an increase in revenue receipts of 17.5 per cent, while the total spending is to increase by less than 6 per cent. Surely, the crucial and necessary demand to ensure quality school education for all should not be sacrificed to mistaken notions of fiscal rectitude.

All in all, therefore, this is a Budget that is marked by a continuing fiscal neglect of the social sectors even as conditions in these sectors are reaching crisis point for the general population. Quite apart from the injustice and development concerns, the political stupidity of such an approach is startling.