Will eco contract or expand? Clue in the Budget detail

That we should still be looking to understand the Union Budget figures more than a month after it was presented in Parliament and the Finance Bill, too, has been passed says something about the numbers presented.

Usually, the opponents of the government of the day hasten to rubbish the Budget barely after the finance minister’s presentation. Supporters, on the other hand, tend to hail it as the ‘Brahmastra’ for all economic ills. Both types of commentators just rely on the Budget speech, as if that single document tells the whole story. But the Union Budget comprises 13 documents, including the Budget speech.

The Budget speech does give an overview but cannot contain all the details. In Nirmala Sitharaman’s first Budget, the finance minister further handicapped her speech by not mentioning in it, for the first time ever, the allocations made for different sectors. Yet, she could not hide the Budget’s direction when she declared, although after commending the Budget, the fiscal deficit target to be 3.3% of GDP, down from 3.4%. 

Holding the fiscal deficit at that level, while not doing much to raise revenues, indicates the contraction of government spending, more so of social spending. That is what the devil in the detail of the Budget documents confirm.

Dwindling budget cake

The fiscal deficit limit constrains the government’s spending. The Budget size of Rs 27,86,349 crore equals 13.20% of the GDP. In fact, Budgets have been hovering around that size for the past five years. It was 14.64% of GDP in 2013-14, which too was way below the 2009-10 level of 17.43%.

It should be noted here that a small percentage change amounts to a big change since 1% of the estimated GDP for this year is Rs 2.11 lakh crore.

Then look at how much of the Budget is spent on each head of spending. The ‘Rupee goes’ chart in the ‘Budget at a glance’ chart gives a clue. But that, too, needs reworking because it includes in it the states’ share in central taxes of 23%, not specified in the chart.

As per this revised calculation, only 58 paise per rupee spent (equal to 7.66% of the GDP) would remain for other sectors after spending 42 paise on only three items: Interest payments (23 paise), Defence (12 paise) and Pensions (7 paise).

The three important sectors of Health Education and Agriculture have therefore got much less than they deserve because of this Budget constraint. The Education sector got Rs 94,853.64 crore, which translates to 0.45% of GDP. The Health sector got Rs 64,999 crore, that is 0.30% of GDP.

The combined spending of the Centre and state governments on Education has been hovering around 3% of GDP, although successive governments have talked of doubling it, as per the Kothari Commission’s recommendation of 1966. Similarly, the Health expenditure of state and central governments together is around 1.2% of GDP, not even half of what the high-level experts’ group on universal health coverage has recommended.

Although the spending on Agriculture was apparently high at Rs 1,51,518 crore – or Rs 64,916 crore higher than the revised estimate of 2018-19 — it accounts for only 0.72% of the GDP.

Peanuts don’t help

Of the Agriculture outlay, Rs 75,000 crore goes into the income support scheme, PM-Kisan, introduced in the pre-election interim budget. The PM-Kisan, as its critics convincingly explain, doesn’t do much to improve farmers’ incomes because the Rs 6,000 per farmer’s family per annum translates to only Rs 500 a month or Rs 100 per person per month or Rs 3.33 per person per day for an average family of five.

Meanwhile, the crop insurance scheme got Rs 14,000 crore. Although governments – central and states -- take the substantial burden of insurance premium, the benefit of this public spending is reaching the insurance companies more than the farming community. For instance, 11 insurance firms paid claims worth Rs 31,612.72 crore against the gross premiums of Rs 47,407.98 crore they had received in two years, 2016-17 and 2017-18. Thus, they have reaped a whopping profit of Rs 15,795.26 crore from Fasal Bima Yojana, as can be seen in a government reply to an RTI query.

Much more than these measures may be required to reach the goal of doubling farm incomes by 2022. The incomes of farmers are not only unsustainably low but there are great disparities in them. NABARD’s All-India Rural Financial Inclusion Survey shows that the average farm income in the country is Rs 8,931. But that is the average. The bottom 10% of farmers have an income less than Rs 1,000, and the farmers in the next decile group have Rs 2,500 or less; the top 20% have incomes ranging between Rs 22,375 and Rs 48,333. So, doubling the average is not going to increase the incomes of the poor, unless the policy focuses on income disparities and on real, not nominal, incomes.

And the major goal is to achieve fast growth, which is treated by the government as a panacea for all the ills. It wants India to become a $5 trillion economy in the next few years, from the present $2.7 trillion level.

But that growth may not be possible without a comprehensive strategy to increase, not contract, spending, thereby increasing employment and output. 

Even if the expected growth takes place, it would be a futile growth if it doesn’t focus on the distribution question. Prof. D N Reddy and Prof. T Haq have shown the increasing inequalities during the times of high economic growth.

The deeper we go into the Budget documents, the more we understand of the impractical and inadequate means being deployed to achieve the government’s economic and social progress goals.

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