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Mainstream, VOL 62 No 6 February 10, 2024

Budgets in India Need Much Higher Commitment to Reducing Poverty and Inequality | Bharat Dogra

Friday 9 February 2024, by Bharat Dogra


As India is a leading developing country there is considerable interest worldwide in its fiscal policy and budgets and any interesting ideas generated here attract much wider attention. To give just two examples, India’s ability to start a rural employment guarantee scheme (even though the guarantee part has not been implemented in the true spirit) and more recently to extend the free food grain rations started during COVID times for a further five years (even though nutrition problems persist despite this) have been much appreciated at a wider level.

This year the budget season has started in India with the presentation of the union budget for 2024-25 today (on February 1, 2024), and this will be followed by the budgets of various state governments in due course. The union budget is particularly keenly awaited in India and even though the budget that was presented today was an interim budget, as happens in general election years, many aspects of the budget are keenly awaited by different sections of people. However from the point of view of the welfare of people, what is most important is the impact of the budget on weaker and poorer sections of society.

Budgets of various countries need to be specifically related to the most urgent needs of these countries and times. In India a very pressing need at present is of reducing inequalities which in turn will lead to more sustained and reliable reduction in poverty and help to strengthening the economic base of those people who have been at the bottom of this base for quite some time.

According to the World Inequality Report 2022 the bottom 50% of the people of India have only 5.9% of the country’s wealth while the top 1% have 33% of the country’s wealth and the top 10% have 64.6% of the country’s wealth.
Apart from wealth inequality, income inequality is also high in India. The bottom 50% of people have only 13.1% of the country’s income, while the top 1% have 21.7% share and the top 10% have 57.1% share.

Clearly this is a very high level of inequality and India has been fast moving towards joining the club of the most unequal countries in the world. Fiscal policy and budgets can make significant contributions to reducing inequalities and hence poverty in some ways (for instance by using wealth, inheritance, income and corporate taxes to raise more resources for schemes which help the poorer and weaker sections) while at the same time other structural measures (such as land reforms) are also needed to reduce inequalities at other important levels.

Recent claims of reduction of multi-dimensional poverty, as reflected in government data as well as UN data, should not lead us to neglecting what is clearly visible—that the bottom (at least) one-third of the population continues to face significant problems in meeting basic needs due to the combined impact of increase of extreme or erratic weather in times of climate change, structural inequalities, unemployment, stagnation of wages of significant sections of workforce and the still lingering impact of such sudden events as the pandemic, lockdowns related to this and the earlier demonetization.

A recent analysis of Labor Bureau data on male worker wage rates by Pulapre Balakrishnan (The Hindu January 30) for the period 2014 to 2022-23 revealed that for about 35% of India’s workforce , real wages have not grown since 2014. This agrees with my own extensive interviews of construction workers and domestic workers in Delhi and some other areas in 2023 (my interviews included both male and female workers).

Just before the presentation of the union budget a former governor of the Reserve Bank of India, Duvvuri Subbarao, wrote an open letter to the Finance Minister (published in The Times of India, January 30 under the provocative title ‘Budgets Job Not Done—Jobs’). In this he pointed out that despite employment generation being a declared priority of the government “unemployment rate has barely budged in last 10 years.” He added, “Indeed, youth unemployment is as high as 40%.” Further he said, “You can dispute the numbers but you can’t deny the problem.”

He added that jobless growth has led to increasing inequality. He reminded the government that the huge consumption base of population’s bottom half is biggest growth driver. “If we can’t put more income into their pockets”, he told the Finance Minister, “it will be a huge missed opportunity.”

This understanding of the economic situation led the former governor of the Reserve Bank of India to offer this sage advice to the Finance Minister, “Use this ( the interim budget) as an opportunity to outline government’s blueprint for improving quality of growth even as you emphasize quantum of growth—in particular government’s strategy for generating jobs and reversing widening inequality.”

It is in these conditions that the union budget presented today should be analyzed. Further it should be noted that when we are comparing any allocation for any program or sector, an approximate 5% increase is needed merely to cover the impact of inflation. If the allocation last year was INR 100 then to maintain the same real value it should be about INR 105 this year. A 5% increase is no real increase, it is only a nominal increase or money increase, while the real value remains the same.

Let’s look at the allocations for some ‘core of the core’ centrally sponsored schemes, as this classification also indicates importance from the point of welfare.

In the case of Mahatma Gandhi National Rural Employment Guarantee Program the Budget Estimate (BE) last year was INR 60,000 crore (one crore=10 million) while the Revised Estimate (RE) was INR 86000 crore. Both estimates were considered very low on the basis of the calculations of the amount needed to fulfill the mandate of this program and the legislation behind this. This year the BE has been placed at INR 86000 crore, which is again low compared to needs.

Last year the budget for the National Social Assistance Program, which provides pensions for most vulnerable groups, was INR 9636 crore while the RE was INR 9652 crore, considered very inadequate. This year the BE is again INR 9652 crore.

In the case of the Umbrella Program for Development of Minorities, the BE last year was 610 crore and the RE was INR 555 crore, considered very less. This year the BE has been raised to INR 912 crore.

Last year the Umbrella Program for the Development of Other Vulnerable Groups had a BE of INR 2193 crore and RE was reduced to INR 1918 crore. This year the B.E. for this is INR 2150 crore.

Last year the Umbrella Program for Development of Scheduled Tribes had a BE of INR 4295 crore and RE was reduced to INR 3285 crore. This year the BE for this is INR 4241 crore.

Last year the Umbrella Program for the Development of Scheduled Castes had a BE of INR 9409 crore and RE was reduced to just INR 6780 crore. This year this program has a BE of INR 9559 crore.

Of course many more programs need to be examined but confining ourselves here to just the core of the core programs it appears that there was significant reduction in the RE for some schemes last year while there was increase in the rural employment scheme (that was more due to shockingly low BE for this scheme). The BE for the new year 2024-25 has increased moderately or is almost stagnant or even lower in some cases in real terms, but there is nothing like a very big boost for these core of the core justice schemes. Much more needs to improve justice and equality in fiscal policy and budgets.

(Bharat Dogra is Honorary Convener, Campaign to Save Earth Now. His recent books include India’s Quest for Sustainable Farming and Healthy Food, Man over Machine and Protecting Earth for Children)

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