Spectacle sans substance

Union Budget 2018-19 turns out to be an exercise that carries forward the use of hyperbole on which the Narendra Modi regime rests. Two major welfare measures, minimum support price for farmers and health care for the poor, have been announced with fanfare but with no plan to implement them as policy.

Finance Minister Arun Jaitley with Minister of State for Finance Shiv Pratap Shukla at a press conference after presenting the Union Budget 2018-19.

A Budget is not a mere statement of intent but a financial commitment that the government makes to actualise its intentions that are part of its explicitly stated set of policies. The most striking aspect of Finance Minister Arun Jaitley’s Budget for 2018-19, which bears the heavy imprint of Prime Minister Narendra Modi, is its focus on the spectacle rather than substance. This is evident throughout: in its so-called “farmer-friendly” focus, its unveiling of the “world’s largest health care programme”, its approach to revive sagging investment in industry, and its approach to employment and social security programmes. As the accompanying articles in this issue demonstrate, Modi’s focus has been on the optics of the spectacle rather than on addressing the needs of a slackening economy that has resulted in stressed livelihoods.

This Budget is unique in many ways but most of all for what it does not contain instead of what it actually does.

The farm-focus myth

It was a full week after his Budget speech when Jaitley finally explained in the Rajya Sabha what “costs” he would consider while calculating the minimum support price (MSP) for agricultural produce. In his Budget he unveiled a grand scheme to set MSPs for farmers that would be 150 per cent above their cost of production. The only catch in this was the fact that the Budget papers provided no clues as to what “costs” he planned to consider: was it the consideration of all input costs plus an imputed cost for family labour (A2+FL) or was it the more comprehensive consideration of costs that includes the cost of finance, rents and fixed assets that contribute to output? Immediately after his Budget was unveiled, M.S. Swaminathan, eminent agricultural scientist and Chairman of the National Commission on Farmers, which is now defunct, sought a clarification on this critical question.

While these issues are addressed elsewhere in this issue of the magazine, two important aspects of Jaitley’s “historic” announcement are critical, especially because they highlight the Modi government’s approach to long-standing and weighty issues. The first is that several aspects of his Budget impinge on the rights of the States within the Indian federal framework. The second aspect reveals a lackadaisical approach that does not really address the substantive issues that he claims to address.

Those who followed Jaitley’s Budget speech closely could not have helped noticing his thinly veiled attempt to woo popular opinion. He spoke in Hindi while announcing the “historic” decision to set higher procurement prices. Yet, he chose to speak in English when he addressed the substantive issue of how he planned to operationalise a procurement system that would actually ensure that farmers got the higher prices that he was promising. It is not difficult to imagine why he sought refuge in English while addressing the latter; after all, he was saying that the modalities of actualising a regime of guaranteed higher minimum prices were to be formalised in the future. To the wider audience—read a beleaguered peasantry that has in the last year suffered because of the unprecedented and relentless collapse in commodity prices—he was offering the solemn promise of higher prices. But how could he tell this same audience that the modalities of this scheme would be established over time by the NITI Aayog in consultation with the States? Understandably, he lapsed into English to convey the important caveat that it would take time to sort out the many imponderables.

Prices and incomes

The second aspect of the “farmer-friendly” focus—and one that has not attracted as much attention as the matter of what costs Jaitley had in mind—pertains to the fact that prices and incomes are two completely different issues. As even a school student of economics understands, the only way higher prices translate into higher incomes is when the farmer’s produce is actually bought at that particular price. This is highlighted by what happened in the countryside in the last year, especially after demonetisation triggered a dramatic collapse in agricultural commodity prices. The market prices for most commodities across the country were well below the MSPs because there was virtually no State procurement to arrest the precipitous collapse in prices.

The expansion of the notion of support prices—from merely setting a price level to guaranteeing actual realisations to peasants—is critical if Jaitley means what he says. In effect, this means that Food Corporation of India and other State and Central procurement agencies should not be passive participants but should actively guarantee the minimum prices set by the government. For instance, the Turkish Grain Board guarantees that produce from farmers will be bought at the minimum price set by the Turkish government if farmers are unable to sell their produce at a higher price; this is what an iron-clad guarantee of support prices ought to be. The fact that the “consultation” process with the States, aided by the mediation of NITI Aayog, is yet to commence indicates an utter lack of seriousness.

For state procurement of agricultural produce to happen on a countrywide scale, two primary conditions need to be fulfilled: coordination among States and financial backing from the Centre. The first, by Jaitley’s own admission, is yet to be undertaken. As for the second, in terms of budgetary allocations there is nothing in the Budget papers to indicate that intent is backed by a credible allocation of funds to run such a nationwide scheme. The expansion of the MSP-based procurement system that Jaitley has announced—not just in terms of geographical space but also in terms of the range of agricultural produce that would be procured by the state—requires a massive expansion of not just fund allocations but also the establishment of institutional structures that enable it.

Even at the lower bound of the costs (A2+FL), it is estimated that between about Rs.40,000 crore and Rs.80,000 crore will be needed to fund the procurement, which Jaitley has promised will encompass not just wheat and rice but a range of other crops. The actual expenditure by the government will depend on the extent of the deficit between the prevailing market price and the MSP that has been set. Yet, there is nothing in the Budget to suggest that Jaitley has planned to actually implement this scheme. Given that a Budget, properly understood, is fundamentally about how the Minister plans to raise and spend resources, the lack of any allocation to cover this critical expenditure can only mean one thing: he does not intend to do what he has proclaimed as “historic”.

Intent as policy

If the intent were real, there could not have been a better time than 2017, when prices collapsed after demonetisation, to have initiated such an expansion. In fact, an urgently expanded scheme of state procurement by the Modi government could have been an expression of atonement for having triggered large-scale and unprecedented rural distress in November 2016. Although the Modi government actually spent 15 per cent more than what it had budgeted for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) in 2017-18, much of this increase would have gone towards clearing the backlog of payment due to rural workers. Allocations for 2018-19 have been frozen at the same level, which in inflation-adjusted terms constitutes a decline, apart from declining as a proportion of the gross domestic product (GDP). Indeed, an end-to-end solution to the remunerative price issue in Indian agriculture requires a system of procurement to be complemented by the expansion of the public distribution system. Alas, the fact that subsidies have been curtailed indicates that this is far from being the Modi government’s objective.

This same approach has characterised the government’s treatment of health care schemes in the Budget, which have been audaciously touted as the “world’s largest”. The insurance-based approach, following in the footsteps of the American model of health care, which has been exposed as a grand racketeering scheme that promotes collusion between private insurance and health care companies, is now being offered as a blueprint for health care in India. Two aspects are particularly shocking. The first is that the insurance scheme, which is primarily aimed at providing inpatient care, fails to address a large part of the health expenditures of poorer households. Doctors, public health care campaigners and other specialists familiar with morbidity patterns have repeatedly pointed to the rising out-of-pocket expenses of poorer households. Studies also show that this component of expenditure has been increasing as a proportion of household expenditures, especially in the poorer households. The collapse of public health care—in terms of both availability of infrastructure and personnel—has been repeatedly identified as a major reason for escalating costs of outpatient care. That an insurance scheme currently being envisaged does not even address this basic day-to-day health concern reveals its utter irrelevance to actual needs.

States sidelined

The other critical aspect of the proposed insurance-health scheme, which, incidentally, shares features very similar to what has been touted as sops to farmers, is that the Budget actually allocates very little for the grand plan. It is remarkable that Jaitley has provided Rs.2,000 crore for this scheme, an amount that is roughly similar to what the Kerala State Finance Minister Thomas Isaac has provided for the State’s scheme! Even conservative estimates indicate that an amount not less than Rs.50,000 crore may be needed to get the scheme up and running on a countrywide basis. In interactions with the media after the Budget, key officials of the Finance Ministry, the Health Ministry and the NITI Aayog claimed that funds would be set aside on an as-we-go-along basis. This reasoning implies that funds will be set aside as the scheme gets operationalised in consultation with the States. But that is precisely the point of a Budget: to allocate resources on the basis of a plan to actually fund what the government says it is committed to. Meanwhile, it is not clear that a key participant in this grand scheme, the insurance companies, have even been consulted.

A common feature of both “Modicare” and the Budget’s “farmer-focus” vision is the role it envisages for the States. Several States already have health insurance schemes of their own. It is unlikely that they will surrender what they have achieved to a grand scheme over which they will have little control. Considering that both health care and farm price issues are of immediate concern to States, it would have been obvious to all that States are given not just the authority but the funds to implement the schemes. Many States are currently implementing schemes that are similar to the grand schemes unveiled by the government; with the advantage of being closer to the ground, they might have a better chance of being successful and accountable to the population they seek to serve.

A case in point is Modi’s Pradhan Mantri Ujwal Yojana (PMUY), which is aimed at providing subsidised cooking gas to poorer households. In Karnataka, the PMUY identified 2.25 lakh households for the scheme. However, the Karnataka government recently launched the Anila Bhagya Yojane, seeking to expand the scheme to cover 20 lakh households. While the PMUY provides an LPG connection without any deposit for one cylinder, a free regulator and pipe to identified women beneficiaries from BPL (below poverty line) families who do not have an LPG connection, the Anila Bhagya Yojane provides one extra cylinder (without deposit) and a stove as well. The Union Petroleum Ministry has warned the State government not to proceed with the scheme. Even more shockingly, it has roped in the public sector oil companies to attack the State government’s scheme. This, despite the fact that Karnataka is not seeking a subsidy from the Centre and is willing to pay Rs.4,040 per gas connection to the oil-marketing companies. Why should the Centre treat it as a turf war when a State is willing to provide the same benefit to a larger section of the population? Is this what Modi means by his brand of “cooperative federalism”, actively undermining the States’ role in promoting welfare?

The Budget, despite Jaitley’s claims, does little to boost investment, especially capital formation, which would lay the basis for growth in the future. The outlay for the Railways is artificially boosted by the expectation that private investments will flow in, a surmise that has been repeatedly betrayed in the past. One view of a separate Railway Budget was to see it as a vestige from the colonial past. But a different view saw it as a tool to focus attention on the country’s largest public undertaking with critical forward and backward linkages in order to harness it as an engine of overall growth. Sadly, after jettisoning the Railway Budget, Jaitley has failed to utilise the opportunity to use railway investments as a vehicle to drive growth; more importantly, he continues the abject neglect, which is reflected in the repeated derailments and accidents in the Indian rail network.

Populism as palliative

The term populism, shorn of its currently fashionable pejorative connotation, cannot be such a bad political course for a government that claims to be addressing the concerns of the many. After all, populism simply means any set of policies or actions that address the concerns of the overwhelming majority of the population. It rests on real action targeted at specific sections of the population with the credible promise of action.

This Budget, properly understood as Modi’s Budget, has obviously used the annual event to showcase the government as a welfare promoter. The cynical use of the event to provide all good things to all people in the context of elections that some see as not very far away also poses grave risks. Modi’s track record in office has rested on the use of hyperbole even if there is little to show for the four years and more that he has been at the helm. His clever use of rhetoric, demonstrated after demonetisation, has managed to confuse intent with actualisation of policy.

But populism can also be double-edged. The audience may now appear to be sympathetic to Modi’s statement of intent, unveiled on his behalf by Jaitley in the Budget. But if and when the same audience sees no progress from intent to actualisation when the elections are actually held, the recoil could be sharp.