ON a first reading, it may appear that the Union government's Budget for 2008-09 is very different from the neoliberal Budgets of the last decade and a half or more. The Budget speech contained an announcement of loan waiver for small and marginal farmers and 25 per cent write-off for all other farmers on loans owed to banks and cooperative credit institutions, the quantum of waiver being estimated at Rs.60,000 crore. This step was estimated by the Finance Minister to benefit approximately four crore farmers. The Budget proposals on income taxes increased the minimum income level at which the income tax kicks in to Rs.1,50,000 from its current level of Rs.1,10,000, and lowered rates of income tax for the income brackets from Rs.1,50,000 to Rs.5,00,000. These tax concessions would result in a reduction of tax liability for persons earning Rs.5,00,000 and above to the tune of nearly Rs.50,000. There was also a lowering of Cenvat from 16 per cent to 14 per cent and reduction in excise duties for a number of commodities. These measures were promptly read by most commentators and the print and electronic media as signifying an early general election. The usual characterisation of any pro-poor measure as populist, with an implied pejorative connotation, was also applied to the debt relief measures, with much moralising on the moral hazard implications of such a measure. While moral hazard can be an issue, and several other questions on the waiver can be raised, it is significant that such concerns were conspicuous by their absence during all the years that the corporate borrowers merrily saddled the public sector banks with non-performing assets. As usual, there has been little informed discussion on the expenditure proposals in the Budget, in contrast to the loan relief and tax proposals.
In contrast to a quick first reading, a more careful perusal of the Union Budget shows it to be a half-hearted attempt to address concerns related to the governments own commitments embodied in the National Common Minimum Programme (NCMP). The Left parties supporting the United Progressive Alliance (UPA) government from the outside have consistently drawn attention to the failure of the government over the past three years and more to implement the pro-people components of the NCMP. In well-argued proposals on Union Budgets during the UPA regime, they have made concrete suggestions on what could be done even within the rather restrictive parameters of the neoliberal framework underlying the UPA governments economic policies. In previous years, their proposals were systematically ignored. What is distinctive about this years Budget is that at least some of the proposals made by the Left parties have found expression in the Union Budget proposals, even if not quite in the form in which they were made. These include the promised waiver on farm loans for small and marginal farmers and the partial reversal of the ten percentage point cut in the short-term capital gains on the stock markets from 20 per cent to 10 per cent made by the Finance Minister a couple of years ago. Also welcome is the introduction of a commodity transactions tax along the lines of the existing security transactions tax. The peak import duty remains unchanged at 10 per cent, which is no surprise, given the context of rupee appreciation and the already low level of the peak rate. However, no attempt has been made to eliminate the plethora of exemptions that enable large corporations to get away with an effective rate of tax of 19 per cent on profits as against the nominal figure of 34 per cent, including the surcharge and the education cess. Nor is there any attempt to introduce higher marginal rates of taxation on very large incomes. The tax on long-term capital gains on stock market transactions has not been restored either.
On the expenditure side, the Budget does a lot less than what the Left parties had proposed, and what is feasible given the growing revenues with the government resulting from high growth rate of GDP and profits. The Central Plan outlay provides for a very modest increase in capital expenditure. While the proposal to waive farm loans has hogged the limelight in the media, the fact of the matter is that it cannot even begin to address the structural problems underlying the crisis of the agrarian and rural economy, of which the occurrence of farmers suicides on a massive scale is a deeply distressing manifestation. The agrarian economy has been a victim of the mindless pursuit of neoliberal policies. These policies have made the reduction of the fiscal deficit of the government the cornerstone of fiscal policy, and in the process led to increasing input costs and worsening terms of trade for farmers.
With the removal of quantitative restrictions on the import of farm produce in 1999, there has been a crash in farm product prices. The process of financial liberalisation has led to a decline in institutional credit for agriculture (sought to be reversed only recently) and to an increase in real rates of interest on farm loans. The decline in rural development expenditures by the state has led to demand deflation and a weakening of infrastructural support for agriculture by way of farm extension services, research and expansion in irrigation. The collapse of the public distribution system (PDS) in large parts of the country following the misguided policies of targeted PDS has also contributed to rural distress. But the expenditure proposals in the Budget do not address these concerns seriously. For instance, the Central Plan outlay for agriculture and allied activities, rural development and irrigation and flood control taken together shows only a modest nominal increase from Rs.30,145 crore in 2007-08 (revised estimates) to Rs.34, 316 crore in 2008-09 (Budget estimates). In the context of a growth rate in GDP in excess of 8 per cent in real terms and over 13 per cent in nominal terms on top of three successive years of such growth and the fact that agricultural growth has been lagging, being forecast to grow at only 2.6 per cent in the current year, this is indeed pathetic. Similarly, while the loan waiver may provide some well-merited relief in the short run for small and marginal farmers, there is no recognition in the Budget of the enormity of the problem of usurious interest rates and the grip of moneylenders over farmers in many parts of the country. The official response that there is no provision in law to address this issue is an evasive one, when we have the example of the State government of Kerala, which has sought to address this problem seriously by setting up a State-level debt relief commission for farmers with powers to negotiate settlements between farmers and the moneylenders.
On the other key areas of expenditure, the Central Plan outlay on social services has been increased from Rs.80,315 crore in BE 2007-08 to Rs.95,919 crore in BE 2008-09. While this is an increase of 18 per cent in nominal terms, it implies only a marginal increase as the share of GDP, since the GDP is assumed to grow at 13 per cent in nominal terms. In particular, the combined outlay on education by the Centre and the States will still fall far short of the NCMP promise of 6 per cent of GDP, while that on health will fall well short of the 2-3 per cent envisaged in the NCMP. The announcement that the National Rural Employment Guarantee Programme (NREGP) is being extended to all the 596 districts of the country is welcome, but the allocation for this expansion is very small. The Finance Ministers assurance that money will be found to finance this scheme as and when needed makes a mockery of his Budget numbers. The rise in wages to anganwadi workers, long overdue and still a very modest increase, is welcome, but the Budget allocations for the Integrated Child Development Services (ICDS) scheme are far too meagre to even begin to implement seriously the Supreme Court directive that the ICDS scheme should be universalised with quality and equity.
In a word, while electoral considerations may have weighed with the Finance Minister, Union Budget 2008-09 is far from a serious effort to deliver on the NCMP promises. It reflects, instead, the continuation of the core of neoliberal policies pursued for over a decade and a half with disastrous results as far as addressing mass deprivation is concerned.