People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 11

March 12, 2006

Some Questions Raised By The Budget


Brinda Karat


THE budget surely should have been the occasion for the government to display its commitment to implement the common minimum programme (CMP). In a self-congratulatory mode the finance minister relied on percentage comparisons repeated ad nauseam on every TV channel to show how much more was being given for the “aam aadmi.” Although the budget scores compared to the NDA raj, it is simply not enough. Just to give an example, for the major eight programmes showcased as the “flagship’ of the UPA government ranging from mid-day meal schemes to rural employment guarantees and the rural health mission the percentage increase is 43.2 per cent but in terms of money allocated the total increase is only Rs 15,800 crore. This is far short of the promises made in the CMP in which expenditures on just health and education are to be 3 per cent and 6 per cent of GDP respectively would require much more than what was given for all the eight programmes. 


The government uses as a bar against more expenditure a self imposed restriction in the name of the Fiscal Responsibility and Budget Management Act 2003 (FRBM) which was pushed through Parliament by an alliance of the NDA and the Congress to ensure adherence to the IMF-World bank blueprint of “fiscal prudence” a euphemism for government reluctance to undertake social expenditures. In this context CMP implementation would require a substantial increase in resource mobilisation, one method being to tax the rich.




But the government has remained steadfast to the neo-liberal framework by protecting the interests of corporate India. Gross tax revenues are up by 19.9 per cent, which is all to the good. But the finance minister was way off mark if not directly misleading when he said that this proved that moderate taxes lead to greater mobilisation. On the contrary, even though the finance minister gifted corporates with a tax slash from 33 per cent to 30 per cent last year, the revenue receipt figures show a shortfall of Rs 7000 crore in the collection of corporate taxes. It is only taxes from the service sector and collections through customs duties that have increased.  Further, of the huge amount of Rs 99,000 crore in direct tax arrears only Rs 7000 crore collection is budgeted for the coming year. Corporates also owe huge amounts to banks, of over Rs one lakh crore. This is not an issue between the corporates and an over-indulgent finance minister. The country wants answers from the finance minister as to why he is not taking steps to punish delinquent corporates and recover the money they owe the exchequer. Why has he rewarded corporates by not withdrawing the tax exemption he gave last year, by not levying any new taxes and by refusing to tax long term capital gains of multinationals and foreign finance institutions who are making a killing on the stock market every day?


Yet another dismal collection is from wealth tax rate which is just one per cent. With an increasing number of self-proclaimed billionaires, the wealth tax from the entire country is just Rs 265 crore. Thus in spite of all the claims it is still the khas aadmi (special man) rather than the aam aadmi (common man) that dominates.




In sharp contrast to the approach to the corporate sector is what can only be called an inhumane approach to the agricultural sector and also the food economy in the budget. Nobody believes that the budget can solve all the problems that plague India’s farmers. But was it too much to expect that the finance minister would have shown some sensitivity to addressing the acute agrarian distress in large parts of India? Does he not know that 50,000 farmers are known to have committed suicide in the last eight years, driven by debts caused by huge increases in input costs and fluctuating prices of their produce? The Farmers Commission set up by this very government under M S Swaminathan recommended among other things, immediate debt relief, bringing down interest rates on bank loans to 4 per cent and importantly setting up a fund to stabilise prices. In the absence of such support how far will increased rural credit, welcome though it is, be able to make a change in the present dismal situation of farmers with smaller holdings? The only concession of bringing down interest rates from 9 to 7 per cent is hardly fair or adequate. At least if the finance minister had raised import duties of some of the agricultural products which are flooding the Indian market like cotton and which would have brought some relief to farmers it would have helped. However, the budget utterly fails to address the most burning issue of the Indian economy.





The most disturbing aspect of the budget is its approach to the food economy which erode food self-sufficiency and food security. Given the high rates of malnutrition confirmed in recent studies, there is every reason to enhance and strengthen the different aspects of the food economy including production, procurement and distribution of foodgrains. Instead this budget makes a cut in food subsidy by Rs 2000 crore. The government claims that there was a saving of around Rs 3000 crore in transportation and storage costs because of disposal of surplus stocks. The budget should have shifted the money from storage saving to implement the CMP assurance for a universal public distribution system. The disposal of stocks itself was done in a clandestine manner with the government not coming clean on the fact that it preferred to export foodgrains just like the previous NDA government and did so until July 2005 instead of using the stocks to expand the public distribution system. Then suddenly it realised its buffer stocks were below the norm and it imported 5 lakh tonnes of wheat for which it paid foreign traders at least three hundred rupees per quintal more than the minimum procurement price it paid to Indian farmers. The buffer stock shortfall was also due to the fact that procurement of wheat was less by as much as 4 million tonnes this year compared to four years ago.


The government wants to move towards a regime whereby the entire food economy is left to market forces. It wants to end open-ended procurement and replace it with a minimum quota regime thus leaving foodgrain producing farmers to the mercy of big traders who will soon include MNCs like Cargill. Given that the vast majority of peasants do not have staying power in the market there will be increasing distress sales. This will also severely erode food security and food self-sufficiency. At the same time food stocks in the PDS are sought to be cut down as suggested by the cabinet.


The assault on the public distribution system and the basic right of our people to food security was evident in Chidambram’s appeal for a consensus to cut down on food subsidies. It is shameful and shocking that the UPA budget did not add a single family to the Antyodaya or the BPL framework. The issue of food security and adequate rations at subsidised prices is one which most directly affects our people. The budget makes it clear that this government is moving in the opposite direction to a universal public distribution system. This is intolerable and must be fought back through effective public mobilisation.




A matter of concern is the jugglery of allocations between different rural employment programmes There was widespread welcome to the rural employment guarantee act and the peoples response in registration under the Act shows how important this initiative has been. However questions arise over the amount of allocations.


Earlier there were two major rural employment programmes, the Sampoorna Gramin Rozgar Yojana (SGRY) and the Food for Work Programme (FFWP). In 2005-2006 the budget allocated Rs 12,600 crore for these two programmes. During the year the government actually spent around Rs 7000 crore more, that is as much as Rs 19,350 crore on these programmes which presumably included the cost of the foodgrain component of the FFWP.


However in this budget the total cost of both these programmes is given as Rs 15,570 crore of which Rs 2700 crore is the allocation for the SGRY and the rest for the rural employment guarantee in 200 districts. In other words the budget estimates bring down the total allocations for rural employment by as much as Rs 3780 crore as compared to what was actually spent last year. There are two explanations possible. Firstly it could be a dishonest jugglery of not including the cost of the food component deliberately so as to remain within the targets of the FRBM. Secondly and this is quite likely it could be an attempt to actually cut down on the rights of the poor in the almost 400 districts outside the employment guarantee act which would be absolutely disastrous. In either case the finance minister owes an explanation to the country.



The budget deals a blow to the already heavily burdened state governments by cutting the grant component to States in the Normal Central Assistance scheme by almost Rs 2700 crore. The grant is the only unconditional assistance given to States and a reduction in it will hit them hard apart from contravening the Planning Commission assurance that assistance to States would increase this year. Shockingly the revised estimates show that under this component the central government gave around Rs 1500 crore less to the States than what it had budgeted for. The state governments are increasingly being pushed towards market borrowing which in turn will adversely affect the interests of the people and therefore must be resolutely opposed.


The budgetary exercise has increased the gender disaggregated data as gender specific demands for grants have risen from 10 to 24 in 18 ministries and departments. This is welcome and the states should follow suit. However gender sensitivity lies in specific allocations for women in the general direction of allocations. When that direction in key areas like agriculture, food and work are negative, then women cannot hope to gain.