People's Democracy

BUDGET 2011-12

Doublespeak in the Budget

C P Chandrasekhar

FINANCE minister Pranab Mukherjee tried to delude the nation but failed. While tiring listeners with trivial detail in a lengthy budget speech, he tried to persuade them that he is seeking to deliver much in terms of both growth and inclusion. What he did not report were the numbers that make clear that he and his government do not intend to provide the resources to deliver on any of those promises. He possibly thought that he could divert the nation’s attention by offering the vocal middle class and corporate India some direct tax concessions, and wasting time detailing programmes that are likely to remain unimplemented.

FURTHER EXCLUDING

THE POOR

The fundamental feature of this budget is that it lacks any focus or strategy whatsoever. In the process, while paying lip service to “inclusion”, it delivers little of it and combines a haphazard set of expenditure increases. In fact, if the position taken by the budget on subsidies is an indication, policy is geared to further excluding rather than including the poor.

On subsidies, the finance minister has  declared in his budget speech that: “To ensure greater efficiency, cost effectiveness and better delivery for both kerosene and fertilisers, the government will move towards direct transfer of cash subsidy to people living below poverty line in a phased manner.” While cash transfers are poor substitutes for subsidies and are therefore controversial, the statement also does not make clear what this “targeted transfer” would do to the volume of subsidies. An examination of the figures, however, makes that clear. It shows that aggregate subsidies which rose from Rs 141,351 crore in 2009-10 to an estimated Rs 164,153 crore in 2010-11, are expected to decline to Rs 143,570 crore in 2011-12.

There are two ways in which Mukherjee is expecting to achieve this reduction. The first is by reducing fertiliser subsidies by around Rs 5,000 crore and petroleum subsidies by a huge amount of nearly Rs 15,000 crore. Both these are possibly going to be realised through a shift to a cash transfer system. That would happen in a year when oil prices are expected to rule extremely high. Thus, for much of the population, higher prices of fertiliser and petroleum products and their knock-on effects on inflation seem inevitable.

The second way in which subsidies are to be capped is by ensuring that in a year when the Food Security Act is expected to be passed and implemented, the food subsidy in nominal, money terms would remain stable at the previous year’s level of around Rs 60,500. This despite the fact that food price inflation is high and the UPA’s promise was to extend and expand access to the public distribution system.

It must be noted that this cut in subsidies is likely to aggravate ongoing inflationary trends. And the finance minister’s decision to make up for the revenue loss due to his direct tax concessions with increases in indirect taxes would in a number of cases contribute further to inflation. The finance minister claims that he is addressing the inflation problem through supply side adjustments aimed at increasing the production of food articles and streamlining the supply chain with a set of small expenditures and some gratuitous advice to the states. But what is shocking is the complete lack of any effort to step up plan spending on the agricultural sector.

Central Plan outlays on Agriculture and Allied Activities which increased from Rs 11,014.14 crore in 2009-10 to Rs 14,361.55 crore in 2010-11 is budgeted to rise only marginally in nominal terms to Rs 14,744.15 core in 2011-12, which amounts to a significant decline in real, inflation-adjusted terms.  The corresponding figures for rural development are Rs 38,569.04 crore, Rs 46,104.1 crore and Rs 46,292.08 crore, which too points in the same direction. Unwilling to spend money on building rural infrastructure and enhance productivity to restore the viability of crop production, the finance minister seems to be hoping that the rural population will be able to borrow their way out of an agrarian crisis. Towards that end, he has called for an increase in credit flow to the rural areas from Rs                  375,000 crore to Rs 475,000 crore. Credit is indeed important, but debt is no substitute for investment.

Mr Mukherjee of course claims that he is making an effort to protect the really poor from the worst effects of inflation. An example he gives is the decision to link wages paid under NREGA to inflation. But those wages have been fixed in nominal terms at Rs 100 a day, which is less than the legal minimum wage. And when the minister declared that he is doubling the wages paid to anganwadi workers to Rs 3,000 a month, all he was doing was bringing that wage in line with what is paid under NREGA, which, as noted, is short of the minimum wage. But even faulty and inadequate measures of this kind are presented as a major advance towards “inclusion” of the poor.

MISMATCH BETWEEN

CLAIMS AND POLICIES

The mismatch between claims and policies with regard to inclusion is visible elsewhere as well. For example, the minister claimed to have increased allocations to the social sectors substantially.  In fact, if we look at the figures on central plan outlay on social services such as education and health, they are budgeted to rise from Rs 136,941 crore in 2010-11 to a much higher Rs 153,182 crore in 2011-12. Much of this is because of revenues expected from the special cess introduced for the purpose last year. Further, that increase is almost matched by a budgeted decline in non-plan expenditures on this sector from Rs 35,085 crore to Rs 20,862 crore.

The crux of this budget is that the finance minister has chosen not to increase aggregate expenditures significantly. Plan expenditures as a ratio of GDP that rose from 4.6 per cent in 2009-10 to 5 per cent in 2010-11 are budgeted to fall to 4.9 per cent of GDP. And non-plan expenditures that fell from 11 to 10.4 per cent of GDP during the first two of those years are budgeted to fall further to 9.1 per cent of GDP. There is likely to be a contraction, if anything, in expenditures.

In fact, the contraction is likely to be even more, since the finance minister would not have the benefit of the additional Rs 72,000 crore in non-tax revenues relative to budget that he obtained this year, because of the sale of 3G and wireless broadband spectrum. Thus, non-tax revenue receipts are estimated to fall from Rs 220,148 crore in 2010-11 to Rs 125,435 crore in 2011-12. But what is surprising is that despite that fall, aggregate revenues are expected to rise marginally from Rs 783,833 crore in 2010-11 to Rs 789,892 crore in 2011-2012. This is to be ensured by projecting an increase in tax revenues of more than Rs 100,000 crore from Rs 563,685 crore to Rs 664,457 crore. This increase is not to come from additional resource mobilisation. As the budget speech makes clear, while the finance minister expects to garner additional revenues of Rs 11,300 crore from indirect taxes, he expects to lose Rs 11,500 crore from the concessions he gave on the direct tax front. So revenues are expected to increase because of buoyancy and better compliance. There is reason, therefore, to suspect that the revenue estimates for the next year are exaggerated. In all probability the increase will not be realised and expenditures will have to be cut further.

This kind of enforced austerity which affects expenditures directed at the poor is expected in a year when the finance minister expects to obtain Rs 40,000 crores by selling public assets under the garb of ensuring people’s ownership of the public sector. This is because much of that money is to be directed at realising fiscal deficit reduction targets aimed at satisfying finance capital, especially foreign finance capital. The government is obviously keen on attracting more foreign finance, which it now hopes would invest in the bond and mutual fund markets that have been opened up further and provided a substantial concession in the form of a reduced withholding tax that is down to 5 per cent.

There are many more concessions to the private capital. Privatisation of the public sector is one. Entry for corporates into banking is another. The revenue foregone on account of exemptions and tax concessions for corporate tax payers is projected to increase from Rs 72,881 crore in 2010-11 to Rs 88,263 crore in 2011-12. That, far exceeds the subsidy on food for example that is to be curtailed.

This kind of exclusionary policy is sought to be whitewashed by focusing on the growth achievements of the country led by the private sector. The obsession with growth has had some fall out in terms of a desire to increase capital spending on certain areas. Central Plan outlay for the energy sector that rose only from Rs 114,307.9 crore in 2009-10 to Rs 126,225.24 crore in 2010-11 is projected to rise to Rs 155,495.16 crore in 2011-12. The corresponding figures for industry and minerals are Rs 30,690.33 crore, Rs 38,851.66 crore and Rs  45,213.76 crore respectively and for transport Rs 86,453.03 crore, Rs 98,726.87 crore and Rs116,860.91 crore. The UPA government is conscious that its growth obsession requires that the infrastructure needed for the private structure to flourish has to be invested in. But given the absence of any semblance of economic governance and the evidence of fiscal conservatism associated with neoliberal ideology, even these objectives may not be realised.

In fact, the effort to term privatisation as people’s ownership tells us much. To suggest that a poor and starving “people” can and would want to own shares in public firms shows how far the UPA II government would go to defend policies meant to appease domestic capital and foreign investors who are now to be allowed even freer entry into the country. Rather than indulge in this kind of double-speak, the finance minister should have used the benefits in terms of enhanced revenues to address the bottlenecks and the institutional weaknesses that generate inflation and deprive much of the country’s people of the benefits of growth.