Union Budget 2016-17

The great deception

Print edition : April 01, 2016

Prime Minister Narendra Modi and Arun Jaitley at a conference on sustainable development in New Delhi on March 4. Photo: ATUL YADAV

Finance Minister Arun Jaitley leaving Parliament House after presenting the Union Budget for 2016-17 on February 29. Behind him is Information & Broadcasting Minister Rajyavardhan Singh Rathore. Photo: Kamal Narang

At a protest against the Union Budget in Patna by members of the Rashtriya Janata Dal. Photo: Ranjeet Kumar

By launching a frontal attack on several major sections of society, Union Budget 2016-17 probably marks a turning point in the way the Narendra Modi government is perceived by the people who brought it to power.

Jumla (Urdu): Loosely translated as a platitude or an empty, vapid promise that is not meant to be taken seriously.

AMIT SHAH, president of the Bharatiya Janata Party (BJP), is credited with having brought the term jumla to the political centre stage a year ago. Reminded by an anchor of a TV channel about Prime Minister Narendra Modi’s electoral promise (2014) that he would launch a frontal attack on the black money menace and put into the pocket of each Indian a sum of Rs.15 lakh, Shah responded: “That was a mere election jumla, not meant to be taken literally.”

Arun Jaitley’s Union Budget for 2016-17 appears to be a jumla too. This is primarily because of the manner in which it has focussed on the optics of the exercise instead of substance. The immediate welcome it received in the media as a “farmer and rural-focussed” Budget or the applause it received for its attention to public health was replaced by surprise, anger and indignation as it became evident that subterfuge and cynical play with the budgetary numbers were the reality.

This Budget may well mark the turning point in the fortunes of the Modi government, simply because of the onslaught it threatens on diverse sections of the working population. First, in terms of allocations for agriculture (tangentially aimed at “doubling” farmer incomes), health, education and other welfare schemes, there is a serious lack of intent, let alone purpose. As the accompanying piece by R. Ramakumar demonstrates, the Budget’s “farmer friendly” edifice is riddled with serious anomalies, assumptions and conditions that suggest a serious lack of intent or sincerity. Similarly, the allocations for health schemes are premised on the participation of insurance companies rather than of the state for delivering such services.

Hacking welfare

The approach of the Budget suggests that instead of providing support to the poor, especially in a situation of the widely documented distress in the countryside, the Budget may well impose an additional burden on vast sections of the people. The proposed allocations for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are an illustration of the forked tongue at work in this government. In his Budget speech, Jaitley referred to the allocation of Rs.38,500 crore in 2016-17, which he said would be the “highest ever”. Activists countered the claim the same day, pointing to the fact that this level of allocation was, even in nominal terms, lower than the allocations of Rs.40,100 crore made by the United Progressive Alliance government in 2010-11. It is also important to recognise that the allocations for the scheme in 2015-16 were frozen at the same level as in the previous year (Rs.34,000 crore), implying that allocations for the future require a correction to compensate for what has not been provided in the past.

Long-time campaigners for the employment guarantee Act pointed out that the allocations in the current year (until February 2016) were already in the region of Rs.37,000 crore; moreover Rs.6,000 crore was pending to various States. If a conservative estimate of Rs.3,000 crore for March 2016 is added, this brings the total to about Rs.46,000 crore. Adding for inflation, the total allocation to keep the allocation for the next year at its real level in 2015-16 would require a minimum funding of Rs.50,000 crore, 30 per cent more than what Jaitley has provided in the Budget. The underfunding, which would result in spreading resources thin on the ground, implies that the statutorily prescribed “guarantee” of 100 days of employment is unlikely to materialise in most parts of the country. In fact, the government’s eagerness to pass the Aadhaar Bill (moved as a Money Bill in order to avoid the Rajya Sabha, where the ruling coalition is in a minority) could constrain the scope of this critical employment guarantee Act that has the potential to offer relief in a time of severe distress.

Significantly, the allocation, despite the lack of serious intent, marks a grudging recognition of the potential of the MGNREGA. One needs to only recall the manner in which Modi ridiculed the scheme with his characteristic brand of sarcasm in Parliament, referring to it as a rural dole initiated by the Congress. A more charitable explanation of this change of course would be to view the budgetary allocations, however inadequate, as a belated admission of the potential of the scheme. A less generous view, one that sees a jumla in this too, would view this as mere banality in the face of a grim crisis brewing in rural India.

The allocations for another notable “welfare” head, health, smacks of the same doublespeak, lack of detail in terms of the nuts and bolts of the scheme and an obvious lack of serious intent. The most striking aspect of the new health “scheme” is that it is insurance based, not one that is need based or even illness based. Jaitley did not specify, but merely hinted, that the proposed scheme, with an insurance cover of Rs.1 lakh per household, would be targeted at those below the poverty line, implying that about eight crore households (or about 40 crore people) would be covered by the scheme. These numbers, it is important to recognise, are not mentioned in Jaitley’s Budget, but are only a surmise in the absence of such data in the documents. The fact that allocations for the new scheme, the Rashtriya Swastha Suraksha Yojna, are pegged at Rs.1,500 crore implies serious underfunding even if the coverage is expected to reach eight crore households.

The nature of the scheme, especially its insurance-based approach, makes one wonder whether the intended beneficiaries are the poor or the fast-growing health insurance industry that has already benefited from Jaitley’s policies. Indeed, the insurance-based approach serves the neoliberal cause well simply because it can be used to justify the continued neglect of the already crumbling public health infrastructure in the country.

The budgetary proposal of a tax on withdrawals from the Employees’ Provident Fund (EPF) was met with such quick and widespread resistance that Jaitley was forced to roll back the move. But the damage may well have been done. While he justified the proposed tax, claiming that it was only aimed at providing a level playing field vis-a-vis the National Pension Scheme, he discreetly omitted mentioning the fact that the two primary beneficiaries of this new tax proposal were his government and private insurance companies waiting to scale up their business. The proposal was structured in such a manner that those wishing to draw from their savings in PF would be taxed unless they invested in annuity schemes offered by insurance companies (read, primarily private insurers).

The defence of his proposal, that this would affect only a tiny minority of wage/salary earners, also crumbled as it became evident that the numbers of the “tiny” minority could swell later to include many more. Indeed, the EPF tax has clearly alienated the “middle-class” sections, which were supposedly a critical part of the Narendra Modi electoral support base that brought this government to power. The reversal of the proposal, done without grace, is unlikely to have altered the suspicion that the government may slip it back in at a later, more opportune moment. The prevailing wisdom in government that an employee-funded pension scheme ought to replace a scheme like the EPF, which even if insufficient is grounded in the logic of a social security benefit, is a giveaway of Jaitley’s motives. It is this very same logic that has resulted in EPF funds being diverted to the stock markets in recent years.

It is not as if the Budget threatens only the poor. Jaitley’s announcement that 100 per cent foreign direct investment (FDI) would be allowed in the food industry has already been met with protests by traders, a key constituency that is widely believed to have propelled the BJP to power in 2014. The Confederation of All India Traders (CAIT), which has in the past been receptive to policies initiated by the government, accused the government of deviating from its promise to not allow FDI in the Indian retail business. “Trade fears that today it is [the] food sector and tomorrow [the] entire retail may be opened on one pretext or the other,” a CAIT statement said. “We see it as a major shift in policy of the government, and that too without taking traders into confidence,” it added.

A skewed tax regime

If the grudgingly made allocations for what is euphemistically referred to as “social sector” programmes are indicative of the intent of the government, Jaitley’s tax proposals barely hide the inequities that are being actively promoted. Revenues from taxes on companies and personal income in 2015-16 fell short of Budget Estimates by Rs.46,000 crore. This has serious implications for State governments because this would result in a lower share of mandated transfers from the Centre. In fact, total revenues would have fallen much shorter if not for the “excess” of Rs.56,000 crore that came because of higher excise duties. Ironically, the higher revenues were possible because of the higher rates of excise on petroleum products, even as their prices fell following the dramatic slide in international crude oil prices.

In net terms, the direct tax proposals, following the tinkering with corporate tax, would result in a loss of Rs.1,060 crore. This would be more than compensated for by the across-the-board imposition of cesses and taxes, which would result in revenues amounting to Rs.20,670 crore. This duality in approach is patently wrong for two reasons. First, as would be confirmed by elementary notions of taxation, indirect taxes levied on commodities or services are regressive in their impact because the rate is the same irrespective of who buys them. Moreover, the message conveyed by Jaitley, in the form of his newly labelled amnesty scheme for tax defaulters, is that he is all for promoting further inequity.

The meagre allocations, combined with the sleight of hand, exemplified for example by the shifting of expenditure from one budgetary head to another in the case of agriculture to create an illusion of an increase, indicate that this Budget is primarily aimed at creating a show of concern, another jumla. The noises made by Jaitley that the government is open to a more “flexible” approach to the question of the fiscal deficit ought not be taken to imply that it is open to a more expansionary fiscal policy, one that has the potential to put incomes in the hands of ordinary working people. It would be useful to recall that the neoliberal cause is not anchored in an absolute notion of what a given level of a fiscal deficit ought to be. Instead, once it is understood as a powerful ideological construct, the issue is posed differently: it is not the level of the deficit that is important but what it is used for that is critical. After all, Ronald Reagan, the politician who seared into the popular imagination the notion that the national deficit is similar to a household’s deficit, also ran among the biggest deficits in American history. What Jaitley has done, ingeniously, is to keep open the option of a “relaxation” of the extent and scale of the fiscal deficit in order to justify more largesse to a tiny sliver of the elite in the country.

Meanwhile, the fiscal deficit bogey will come in handy to cut outlays to the vast majority of the population, while simultaneously using it as a pretext to sell more of the government’s silver in the market. Thus, banks and several industries, many among them leaders in their fields of operation, would be sold off through “strategic” sales at vastly reduced prices. For instance, hidden innocuously in Jaitley’s speech is a reference to the government’s plan to divest its stake in the general insurance business. The capital and reserves of the four public sector general insurance companies are in excess of Rs.26,400 crore, Amanulla Khan, president of the All India Insurance Employees’ Association, told Frontline. Although a valuation of these companies has already been done, the information is not in the public domain. However, the four companies command a market share of more than 50 per cent of the Indian general insurance business. An industry source said New India Assurance Company, the biggest of the four, may well be the first target when the government decides to divest a part of its equity in the company. This, then, is the double-edged nature of the fiscal deficit—at one time it can be used to justify selling public holdings in what can only be termed as national wealth or be used to curtail vital services to people at large and, at another time, be used to justify sops from the national exchequer to the most opaque projects implemented as public-private partnerships.

The jumla of this Budget probably marks a turning point in the functioning of the Narendra Modi government. The Budget indicates clearly to large and diverse sections of the population that the gloves are off, revealing that it is willing to indulge in deceit if necessary, as exemplified by its adventure with the EPF tax, for instance, to promote the interests of a tiny few at the cost of the vast majority.

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