Dwindling Budget, public spending won’t yield prosperity

While the government highlights its top priority and penchant for lavish spending on the social sector and productive investments, the opposition assails the claims outright. But both sides conveniently forget their concerns once the annual Budget rituals, and the related euphoria, die down.

More particularly, the critics' worry is mostly on the Budget year’s figures but not on what happened to the previous year’s allocations and of the year before that -- the revisions of last year’s Budget and the actual spending budgeted two years back. That means, the present hullabaloo, too, is transient as usual.

Forgotten questions

At the time of Budget presentation, it is undoubtedly the democratic responsibility of the opposition to demand and pressure the government into making adequate allocations for different sectors. It should question and expose the inadequate allocations and neglect of important areas. But that responsibility to question does not end with the presentation and approval of the Budget.

It is the genuine responsibility of the opposition and the critics who work in the public interest to look at the way the budgeted monies are spent. The questioning of Budget outcomes is as important as the allocations. Also, they should see if the budget is spent to the extent earmarked. They should question when there are deviations in spending approved by Parliament. The questions raised on the discrepancies, which are seldom noticed, would discipline the governments on the proper allocations, revisions and spending outcomes.

In the absence of such questioning, there is no guarantee that whatever is now budgeted would actually be spent on important sectors like the social sector, including health and education, and on income and employment generating activities.

Therefore, thorough scrutiny of the budget details – of current and previous years -- going beyond the Budget speech of the finance minister, is necessary to assess the actual impact of the Budget on society. Even a cursory look, after the Budget season, at the overall trends, gives a fair idea on the direction and utility of government spending.

The happenings in at least two broad areas seen in the past several years give us clues on the low investment, in general, and on social sectors, in particular, with the resultant gaps in economic growth and social development.

Perilous parsimony

The first thing to observe is that the government’s overall spending itself has been on the wane. The Union Budget’s volume as a percentage of GDP has declined from 17.43% in 2009-10 to 13.52% in the latest budget, 2020-21. Although it is a notch higher than the previous year’s 13.20%, the actual may turn out to be still lower than what is apparent, going by the experience in recent years.

With the overall Budget size itself coming down drastically, the spending on the social sector and capital investment, too, will get downsized. The government has no choice because of its poor revenues and high, unavoidable expenditure needs in other areas, although both of them are the outcomes of the policies it has been pursuing.

Certain expenditures on which it has no control, like interest payment, defence, subsidies, Finance Commission and other transfers, and Pensions, accounted for about 50% of the Budget rupee as seen in recent years. It was a little less, but still a high 48% in the 2020-21 Budget. In addition, the states’ share in taxes has been hovering around 23%, which was 20% in this Budget. In effect, the government is left with about 20-25% of the Budget rupee for state and central schemes, social spending and capital investments.

Huge gap

Second, the government has not been able to actually spend money even to the extent allocated in the Budget. As per the latest available data, the actual spending in 2018-19 was Rs 1,27,100 crore lesser than the Budget estimate; thus, the overall spending was equal to 94.79% of the Budget amount. Of course, there were times when the actual spending was more; it was 100.74% in 2015-16. That is not going to happen now.

There is no guarantee that the government is going to actually spend even to the low extent budgeted in the latest Budget. The constraints of the government were freshly evident when it revised downwards the current year (2019-20) Budget by Rs 87,797 crore (from Rs 27,86,349 crore to Rs 26,98,552 crore). So, the actuals in the current year or the Budget year are unlikely to stay at least at the revised/estimated extent. And the actual figures of 2020-21 will be known only when the opponents are busy with their criticism of the 2022-23 Budget; nobody is going to bother about the shortfall, anyway.

Unhealthy pruning

Naturally, the expenditure on health, education and other sectors is going to be much less than needed. No further detailed exercise is necessary to understand this, after knowing the eroding overall size of the Budget and the residue left after the government’s compulsory spending.

In fact, the allocation made in the Budget for social sector are evidently paltry. For instance, the health sector allocation of Rs 69,000 crore (equal to 0.3% of the anticipated GDP of Rs 2,24,89,420 crore), which is apparently higher by 10% over last year’s Budget, is no increase if inflation is factored in (the consumer price index inflation was 7.5% in December 2019). Also, it is nowhere near the 2.5% of GDP level recommended to be spent on the health sector. The poor allocation is not going to speed us on the path to universal healthcare.

Similarly, the shrinking Budget won’t help the government to increase its own capital investment or to facilitate that of the state governments or the private sector; and it will not be possible to expand output, incomes and jobs without increased investment.

Without boosting investment, the current economic crisis of low growth, high unemployment and demand compression cannot be solved. Therefore, the government should not contract, but expand its expenditure in the productive sectors.

(The writer is a Development Economist and commentator)