Little to cheer about

Published : Mar 23, 2007 00:00 IST

Budget-making in India is hostage to a neoliberal view of the world, where the poor are at best a political nuisance, and government expenditure a necessary evil.

ANY analysis or commentary of the Union Budget must begin with the recognition that the Budget is only one, albeit a major one, of several economic policy instruments available with the government. Further, the policy framework of the government is constrained and conditioned significantly by the overall structure of the country's political economy in terms of the distribution of productive assets and wealth and of the political influence that is closely associated with this. In the current milieu of globalisation, the implications of the state of the international economy and the nature of integration of our economy with it also need to be factored in. Finally, the current economic situation, as perceived by the government, plays an important part in determining budgetary policy. In an economy like ours, characterised by extreme inequality in the distribution of productive assets and political power, it would appear that, after all these considerations are weighed in, there is little room for the hopes and aspirations of the people, as reflected in electoral verdicts, in the Budget.

The Economic Survey 2006-07 celebrates three years of "high growth". It identifies the economic policy agenda as consisting of "two issues" - maintaining high growth with moderate levels of inflation and the inclusive nature of growth - and sets out "three priorities": maintaining and managing high growth, bolstering fiscal prudence and high investment, and improving the effectiveness of government intervention in critical areas such as education, health and support for the needy. The implicit argument here is that high growth is necessarily inflationary and fiscal rectitude is the key to sustaining high growth. This neoliberal mindset permeates the Union Budget as well.

The Budget makes no effort worth mentioning to mop up even a modest portion of the considerable surpluses accruing to business from high growth, so as to mobilise resources to meet the goals of the National Common Minimum Programme (NCMP) of the United Progressive Alliance (UPA) government in areas such as health and education. The inflationary situation that has emerged is characterised by a particularly sharp rise in the prices of essential commodities, including food articles (which has benefited not the farmers, but speculative trade), implying a squeeze on the working people and a bonanza for business. Yet, the Budget makes neither a serious attempt to tackle inflation in essential commodities nor any effort to tax the inflation-induced windfall gains for the surplus receivers in the economy.

The direct tax proposals in the Budget are expected by the Finance Minister to yield Rs.3,000 crore by way of additional resources. The indirect tax proposals, the centrepiece of which is an enhancement of the across-the-board education cess by 1 percentage point, are expected to be revenue-neutral. In other words, there is practically no additional resource mobilisation through the Budget, and tax revenues are merely expected to rise pari passu with the growth of the gross domestic product (GDP). It turns out, for example, that even after taking into account the small enhancement in the rate of the dividend distribution tax and bringing IT sector profits into the minimum alternative tax net, revenue from corporate taxes will grow at more or less the same rate as nominal GDP. It is not just that the rates of direct taxation have remained untouched. One must note that the oft-repeated rhetoric of rationalising taxes and doing away with tax exemptions of all sorts finds little echo in the Budget proposals. An opportunity to capitalise on three years of booming surpluses in the hands of the rich and the super-rich, for the purpose of promoting inclusive growth through productive investment by government, has been missed.

When we come to the expenditure proposals of the Budget, it would appear at first sight that the Finance Minister is indeed delivering on NCMP promises with regard to education and health. Thus, compared to 2006-07, the Budget for 2007-08 provides for increases of 31.6 per cent in allocation for Bharat Nirman, the flagship programme for rural infrastructure; 34.2 per cent for education; and 21.9 per cent for health and family welfare. These appear to be very impressive increases, but the catch is that the base levels from which the increases are being reckoned are, to say the least, very modest. As the Economic Survey 2007-08 tells us, the combined expenditure of the Central and State governments on education as share of GDP has been 2.74 per cent, 2.88 per cent and 2.87 per cent respectively for the financial years 2004-05, 2005-06 and 2006-07. The corresponding figures for health and family welfare are 1.25 per cent, 1.41 per cent and 1.39 per cent. This is a far cry from the NCMP promise of 6 per cent of GDP for education and 2-3 per cent of GDP for health. In a context where the real GDP growth rate is estimated at over 9 per cent and the inflation rate at about 7-8 per cent, a nominal increase of 17 per cent would leave the share of the outlay as percentage of GDP practically unchanged.

While the increase in education outlay is indeed twice this figure, and thus very welcome, there is a decrease in allocation for the Sarva Shiksha Abhiyan or `Education for All' programme. While the percentage increase in allocation for health is marginally greater than the nominal growth rate of GDP, the increase in allocation for the Integrated Child Development Services (ICDS) programme from Rs.4,087 crore to Rs.4,761 crore is far too meagre when viewed against the Supreme Court directive that the ICDS must be made universal, with quality and equity. This would require, at the very minimum, a doubling of the number of ICDS centres in the country and more than doubling expenditure.

The Finance Minister has made the point that he devoted a sizable portion of his budget speech to agriculture. Unfortunately, the same cannot be said of the outlay he has provided for agriculture, although his response could be that agriculture is, after all, a State subject. Agriculture received a lot of announcements and a modest increase in allocation from Rs.7,391 crore to Rs.8,558 crore. The overall Central Plan outlay was Rs.254,041 crore in last year's budget estimate, but the actual spending was only Rs.244, 229 crore. The Central Plan outlay for this year has been enhanced substantially to Rs.319,992 crore. But, while the budgetary support to the Central Plan has been enhanced by 22.5 per cent, that for the States has been increased only by 8.5 per cent.

The National Rural Employment Guarantee Act was won after a long struggle as a limited expression of the right to work. But the commitment of the government to implementing it has been lukewarm in contrast to the alacrity with which the Fiscal Responsibility and Budget Management Act (FRBMA) was notified. In this year's Budget, though the National Rural Employment Guarantee Scheme has been extended to 130 more districts, the increase in outlay is disproportionately small. Of equal concern is the fact that, even as food security has been greatly endangered by rising food prices and stagnant foodgrain output, the outlay for the public distribution system has been enhanced only by 6.2 per cent, implying a decline in real terms.

The Budget has not only passed up an opportunity to eliminate loopholes in the tax system. There is no attempt in the Budget to recover what the Finance Minister himself referred to in an earlier budget speech as undisputed tax arrears. Going by the answer provided in Parliament to a starred question put by Tapan Sen, the Communist Party of India (Marxist) Member of Parliament, the direct tax arrears stood at Rs.96,000 crore and the indirect tax arrears at Rs.25,000 crore. Surely, the Finance Minister owes the country an explanation as to what the government is doing about obtaining these resources for productive use by the country.

Overall, one is constrained to observe, and not for the first time, that budget-making in India is hostage to a neoliberal view of the world, where the working poor are at best a political nuisance, and government expenditure a necessary evil. Electoral verdicts, seeking government commitment to provision of basic needs in areas such as education and health, and the viability of key occupations such as agriculture and small production, are not respected by neoliberalism. The Budget, unfortunately, has not been able to transcend the neoliberal barrier.

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