India’s social-sector spending remains woefully low and despite claims of being a pro-farmer Budget, the effective allocations are nearly the same as last year.
This article was first published by the Scroll on 11th February, 2017
Some commentators expected that the Union Budget 2017-’18 would craft a sharp departure from earlier budgets of this government. This it would do to mitigate the immense suffering of millions of casual workers, farmers and small traders caused by the “shock and awe” of the astoundingly callous and ultimately pointless decision to withdraw 86% of the country’s currency overnight.
Prime Minister Narendra Modi, Bharatiya Janata Party President Amit Shah, the government and its supporters continue to put up a brave face while talking about the demonetisation move in public, claiming that the vast majority of Indians support it. But behind closed doors, there are signs of unease in the ruling establishment.
With a fifth of the country’s voters going to polls in the days after the budget – elections to five states are being held between February 4 and March 8 – the ruling party felt compelled to shed its image of being uncaring of the poor and allied to the interests of the super-rich.
This year’s Budget was therefore one of exceptional interest and expectations, with some commentators believing it would contain dramatic and high-visibility measures for welfare and developmental equity.
No yield for farmers
However, a careful study of the Budget reveals that it gives away little to India’s long-suffering poor and takes away even less from its super rich. It hopes instead that rhetoric alone will suffice to convince the mass of India’s workers and farmers that their government is committed to their well-being.
Take firstly the claim, repeated for a second year in a row, that this is a farmers’ budget and that it will double their incomes by 2022. The route by which farmers’ incomes will double has of course not been clarified – as in the last budget – neither has the government specified if it is speaking about real income adjusted for inflation.
But the severe reality remains unchanged that although agriculture still employs more than 50% of the country’s workforce, it is allotted a miserly and shocking 2.38% of Union government expenditure.This amounts to just 0.3% of the Gross Domestic Product. Even if we combine allocations to the Ministry of Rural Development and Ministry of Water Resources, this is still as little as 0.98% of the GDP – even below the level of 1.07% of the GDP in Arun Jaitley’s first budget of 2014-’15.
Much was also made by the finance minister of the “record level” of Rs 10 lakh crore in 2017-’18 for farm credit. “For a good crop”, Jaitley declared, “adequate credit should be available to farmers in time”. But as with much else he claimed to do for India’s poor, this announcement was somewhat disingenuous.
Firstly, farm credit is not funded from the budget from tax resources: it is a target set for banks. Second, this target is not much higher than the revised one of Rs 9.5 lakh crore in 2016-’17. And there is no roadmap for bringing in small, marginal and tenant farmers, who constitute more than eight out of 10 farmers, into the formal banking sector. These farmers depend mainly on usurious private money-lending. Interest subvention also bypasses this mass of vulnerable farmers – many of who are women farmers with the growing feminisation of agriculture – as they are unable to access bank loans.
It is once again these small and tenant farmers who are excluded substantially from crop insurance under the Pradhan Mantri Fasal Bima Yojana. Government admits that only about a quarter of farmers have been covered under the scheme and aims to increase this to 40% in the current year.
But, as pointed out by Yogendra Yadav, former Aam Aadmi Party leader who founded the Jai Kisan Andolan, it is not clear how the government will do this because the Budgetary provision for the scheme has come down to Rs 9,000 crore in the coming financial year, from Rs 13,240 crore in the last budget.
Moreover, these percentages exclude a majority of tenant farmers and sharecroppers who are most vulnerable but rarely recorded. We also need careful studies on whether the premium under this central scheme is benefiting insurance companies or if it is actually being extended to farmers and what the business model of this insurance scheme is.
Most of all, the claims of this being a farmers’ budget rings hollow because it side-steps three major requirements of farmers. The first is for effective farmer income protection, either through a minimum support price guarantee or a subsidy for every acre cultivated. The second is to repair the near-broken system of agricultural extension (educating farmers in the latest scientific developments in the field) and public-funded research and development for sustainable agriculture. The third is the massive need for watershed development and other measures for raising productivity of rain-fed small and marginal farmers.
Instead, the Budget announcement supporting the advance of contract farming, wherein the farmer enters into an agreement with a buyer on what to produce and how much, can also deepen the disquiet of small farmers, with another threat – of corporate takeover – adding to their multitude of everyday challenges for survival.
There was another dubious claim of “record” allocations in this Budget speech, regarding the Mahatma Gandhi National Rural Employment Guarantee Act. The irony of the government boasting of making the “highest” allocation to a programme that Prime Minister Modi had famously lampooned in Parliament as a “living monument” Congress’ misrule is hard to miss. But there’s another paradox in this claim too.
Last year’s initial budget allocation for NREGA was Rs 38,500 crore. At first glance, this seems like a significant 25% increase. However, the reality is that after a series of raps by the Supreme Court, the total allocations in 2016-’17 were raised to Rs 47,500 crore. Therefore, the effective increase this year is just by 1%. And we factor in inflation, this year’s allocation does not even match the previous year’s.
There have been widespread reports of job losses in the informal sector and many people are turning to MGNREGA to tide over these bad times. The Right to Food Campaign comments that the allocations are “woefully inadequate” to cope with the fall-out of demonetisation. They noted in a statement:
“The Economic Survey suggests that the number of migrant labour is to the extent of nine million. If we presume that 25% percent of them have been adversely affected and are unlikely to be absorbed in labour market in near future, they need support through MGNREGA. The additional minimum requirement would be for Rs 4,500 crore. Therefore total minimum allocation for MGNREGA should have been not less than Rs 60,000 crore keeping in view annual wage increase with commitment for need based extra allocation, if not Rs 80,000 crore as was demanded by concerned citizen groups. The budget therefore fails to ensure food security of tens of lakhs of poor migrant labour who have been adversely affected by the demonetisation exercise. By allocating Rs 48,000 crores and projecting this as highest ever the finance minister has misled the nation.”
The claim of the budget serving the interests of the poor could have carried some credibility if the government had made significantly higher allocations in sectors other than agriculture, such as education, health-care and social protection. But here again, there is a stagnancy, and in real terms even a decline in allocations.
The Sarva Shiksha Abhiyan sees a 4% rise in allocations this Budget and for mid-day meal schemes, the increase is just 3%. If we account for inflation, which is around 5%, this is a decline. Costs norms for school meals and Integrated Child Development Services meal plans (allocation for which too has been increased by just 5%) have not been revised for many years, despite sometimes galloping food inflation. In real terms, children are being fed less and less.
The Centre for Budget Accountability and Governance, in its customary careful and insightful analysis of the Budget, notes that as a share of the total Union budget, allocations for education have remained stagnant at 3.7%. The share of school education has actually fallen from a very low 2.4% to an even lower 2.34%.
Higher education, although also very poorly resourced, has in comparative terms been prioritised over school education as has technical education over general education. The share of Union spending on education as a percentage of GDP fell further to 0.47%. Even the budget rhetoric regarding education was watered down. In his last budget speech, Jaitley spoke of “education, skill development and job creation” as one of the pillars that would transform India. This year, he only spoke of education as something that would transform the youth and did not discuss Right to Education.
With his continuing neglect of education, the finance minister has chosen once again to ignore the constitutional obligations placed on government under the Right to Education Act. The public school system is in a shambles and widely lacks the infrastructure and trained teachers that the RTE Act prescribes.
The Centre is therefore defying and disobeying laws passed in Parliament that oblige it to commit sufficient budgetary resources to enable all people to access their legal rights to education, rural wage work and food. There are specific provisions for educating children outside the formal schooling system who are in the toughest circumstances, such as street children, migrant workers’ children and child workers.
Ailing health sector
The public health sector does only marginally better. The Centre for Budget Accountability and Governance observes that the Centre’s allocations for the health sector as a proportion of the GDP saw a marginal increase to 0.30%, from 0.26% in 2016-’17.
However, this falls distressingly short of the long-standing demand to increase allocation to the health sector to at least 2.5% GDP, despite the fact that India has one of the most shamefully privatised systems of health care in the world. National Sample Survey Organisation data tells that nearly 70% of out-of-pocket expenditure is on medicines. Making free medicines available in all public health facilities would substantially reduce distress due to health costs and improve the access and the credibility of the public health system. But this Budget misses the opportunity of ensuring the availability of free generic medicines in all public health facilities.
Stagnating social spending particularly hits those sections of the population that are most vulnerable and actually deserve the greatest state support. The National Social Assistance Programme (which covers old age pension, widow pension and disability pension schemes) has been allotted Rs 9,500 crore rupees in 2017-’18 – the same level as 2016-17.
In real terms this is a decline. With nine out of 10 workers in informal and mostly uncertain employment, it is only the state that can secure pensions for all through public spending. It is unconscionable that government covers only those older people that it designates through its notoriously poor targeting to be BPL or below the poverty line, and that too with a Union government contribution of as low as Rs 200, unchanged for several years. Contrast this with the small percentage of us in the formal sector who will retire and receive half their last drawn salary continuously, indexed for inflation.
Likewise with maternity benefits. The National Food Security Act mandated the payment of Rs 6,000 to most women during pregnancy, but the Union government refused to fulfill its legal obligation for this. Modi chose to use his much-awaited end of 2016 speech – in which he was expected to give the country a report card on demonetisation but instead offered homilies and some welfare promises – to announce near-universal maternity benefits. But despite the imperatives of the law, and the prime minister’s prime-time announcement, the budget provision for maternity benefits is only Rs 2,700 crore for 2017-’18.
The Right to Food campaign estimates that about Rs 16,000 crore (0.2% of the GDP) is required for near-universal maternity benefits (Rs 9,600 crore from the Centre, as the amount is divided 60:40 with states). I have argued earlier in Scroll.in that the law provides for 26 months of fully paid leave for all women working in the formal sector. Rs 6,000 would be less than a quarter even of statutory minimum wages for unskilled work for 26 weeks. Even this has come so late and so reluctantly, and yet the Union government has not made the necessary budgetary provisions for this despite the law and the prime minister’s public pledge.
Overall, India remains what development economist Jean Dreze memorably described as the “world champions of social under-spending”. As the Lokayat, a socialist group of activists in Pune, observes in a scathing press statement on the Budget, the total social sector expenditure of the government (Rs 4,92,635 crore) as a percentage of the GDP is only a lowly 2.92%.
This is even lower than the 3.23% level budgeted by Finance Minister Jaitley in his first budget of 2014-’15, and 3.43% in the 2010-’11 Budget of the United Progressive Alliance government. The total social sector spending of the governments at the Centre and states combined is a mere 7% of the GDP, which is far lower than not only that of industrialised countries (where it is upwards of 30%) but also other emerging market economies, like the Latin American countries, which spend about 18% of their GDP on the social sector.
In the end, below a very thin veneer, this remains a routine pro-rich Budget, with as little to offer the farmer, the worker, the woman, the child, the aged and the disabled as past budgets. To expect differently from this government would mean it was willing to move far from its ideological moorings of market fundamentalism and fiscal prudence.
In the first place, this would have required the government to substantially raise the levels of public spending. However, as calculated by the Centre for Budget and Governance Accountability, the total Union government expenditure as a percentage of the GDP has further fallen from 14.2% in 2012-’13 to 12.7% in the current budget.
The tax effort of the UPA government was already very low by global standards, but the BJP-led government contracts this effort further. The refusal of the government to expand its tax base means there just aren’t enough public resources for agriculture, education, health care and pensions. In the global recessionary context, it makes even less sense for India to adhere to the neo-liberal dogma of contractionary fiscal prudence. Higher levels of public spending will boost economic growth.
But a larger tax effort would require the government to tax big business much higher than it does at present. Economist Amartya Sen has criticised the budgets over the last several years for “revenues foregone” or gigantic tax holidays to the private sector of over Rs 5 lakh crore annually, enough to fund universal health care and substantial improvements in public education.
Since criticism mounted as these tax holidays grew further under the Modi government – with no convincing evidence that this proportionately benefited the economy – this regime responded to these criticisms typically by simply changing the system of calculations and presentation of figures in the current budget document. However, experts observe that there is no evidence these tax concessions have been withdrawn or reduced.
Massive unpaid dues by big corporations also continue to be handled with kid gloves and taxpayers’ money. As the Right to Food Campaign observes, the government continues to use public money to safeguard the interests of big business by bailing out banks that have huge non-performing assets. The finance minister said government has provided Rs 10,000 crore for the recapitalisation of banks and has also raised the allowable provision for non-performing assets from 7.5% to 8.5% “in order to give a boost to the banking sector.” For corporate tax as well, there have been concessions with a reduction of tax rate to 25% for 96% of companies.
A truly redistributive budget would require the government to marshal the courage to tax the country’s super-rich higher, more resolutely and more transparently, with an inheritance tax or higher corporate and wealth taxes. The government would also have to reduce significantly the many tax exemptions and subsidies to the rich, instead of offering them sky-high tax concessions.
The influential French economist Thomas Pickety made a strong economic and moral case for an inheritance tax, but there is little chance of this becoming a reality in India in the foreseeable future. There are also no signs on reviving the wealth tax.
As I have observed elsewhere, I am anguished by the newest Budget of the Modi government, but not surprised. Even with its back to the wall, I do not expect this government to muster the moral and political resolve required to undertake large redistributive expenditures for India’s poor masses. To do so would run entirely against its ideological grain.