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Mainstream, Vol XLVII, No 31, July 18, 2009

Union Budget 2009-10

Saturday 18 July 2009

The first Budget presented by the United Progressive Alliance (UPA) Government since being re-elected to office was supposed to send a signal of its intentions. Of course, there were wide differences about what that signal would be. There were those who argued that since the UPA Government no longer has to rely on outside support from the Left, it will finally be able to implement all the market-friendly and corporate-oriented policies that big business and other elements have been asking for, such as large-scale privatisation, further tax cuts and financial liberalisation.

Others argued that the political mandate of this government is based on a completely different set of assurances, which it is the duty of the government to implement. After all, the Congress party that leads this UPA Government had made many electoral promises to the aam aadmi on increasing employment, ensuring food security to all, comprehensive social security to those in the unorganised sector, improving public health provision and guaranteeing the right to education. These are not only necessary and desirable in themselves, but also effective forms of counter-cyclical spending that can make a positive difference during the economic downswing.

The Budget, presented by Finance Minister Pranab Mukherjee, was a bit of a surprise since it did not seem to send either of these signals. There was talk in the Budget speech of privatisation of state-owned assets (sugar-coated in the coy phrase “people’s participation” in public sector undertakings) but there is no estimate of likely earning incorporated in the projected receipts of the government. Some tax cuts have been announced—raising of income-tax exemption limits and removal of the surcharge, abolition of the fringe benefit tax and commodity transaction tax—but these have been counterbalanced by an increase in the minimum alternate tax paid by companies, from 10 to 15 per cent of profits. But these measures are not really enough to gladden the hearts of committed liberalisers.

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On the other side, those looking for relief for the common people and fulfilment of election promises are also likely to be disappointed. The allocation provided for in this Budget for social sectors and flagship programmes are so low as to suggest lack of seriousness on the part of the government in meeting its own stated objectives.

Take, for example, the flagship programme based on the National Rural Employment, Guarantee Act (NREGA) which is widely credited with being a major cause of the electoral success of the Congress. The Finance Minister promised to increase the minimum wage rate under this scheme to Rs 100 per day (from Rs 80) and assumed that it would provide a minimum of 100 days of employment to every rural household, up from the 45 days that is currently provided. This would require a significant increase—even a doubling—in funds to the NREGA, especially if it is also to be implemented in every rural block in the country. But the allocation in the Budget is only Rs 39,100 crorers, which is a paltry increase of Rs 2350 crores over the amount spent last year.

Similarly, the government has promised a law (and associated scheme) to ensure food security to all, especially the vulnerable groups. But the allocation for food subsidy in the Budget is only Rs 8862 more than what was spent last year, and most of this is already accounted for by the increase in Minimum Support Prices for the rabi harvest. Additional funds will clearly be necessary to make such a law effective. But by reducing the amount given to poor households at a lower price, from 35 to 25 kg per month, the Finance Minister already indicated that genuine food security may not be the aim.

On education, the Budget allocations are truly surprising. The Right to Education Bill has been tabled in Parliament and is due to become law quite soon, entitling every child in the country to good quality education up to the age of 14 years. This will necessarily require significant financial inputs from the Centre. But the proposed increase in spending on elementary education is less than Rs 200 crores, which suggests a complete lack of seriousness about implementation. Secondary education gets an increase of only Rs 2000 crores, while higher education gets double that amount.

More than three years ago, the Supreme Court required the Central Government to universalise the Integrated Child Development Scheme, and several deadlines set for this have passed. To do this properly would require at least around Rs 12,000 crores—but the total budgetary allocation is still only around Rs 6000 crores, a measly six per cent increase in nominal terms from the previous year’s spending.

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A major gap in the Budget is the lack of adequate resources for agricultural regeneration, especially in the context of last year’s disappointing harvest and this year’s uncertain monsoon. The increase in proposed spending on agriculture is only Rs 1588 crores, and on agricultural research and extension less than Rs 300 crores. Focusing on bank lending to agriculture is just not good enough: more than half the farmers in the country do not have access to any institutional credit, and in any case the real problem is that of ensuring the viability of cultivation in terms of amount and costs of inputs relative to quantity and prices of crops. This requires a systematic package that will necessarily require more resources, but there is no such generosity displayed to the largest group of economic agents in the country, at least compared to the favours shown to large companies that have been hit by the slowdown.

One thing is clear: if the government really wants to do what it has promised to the people, it will have to spend more. But that is difficult because it has tied its own hands by continuing with the supposedly temporary tax cuts and other incentives to corporates that were introduced in the wake of the global crisis. So the chances are that when the need to increase social spending becomes pressing, the government will engage in blatant sleight of hand by selling off shares in public enterprises to finance such spending.

This is sad not only because it smells of subterfuge. It will deprive the state of resources from its own profit-making enterprises and prevent the public sector undertakings from serving the needs of society as a whole rather than a privileged few.

But maybe that is already part and parcel of the government’s behaviour. Given the various tax and other measures in this Budget that disproportionately benefit one particular group of companies dealing in petroleum and petro-chemicals, one could be forgiven for thinking that this is not a Budget for the aam aadmi so much as for some vishesh aadmi or group.

(Courtesy: The Asian Age)

The author is a Professor of Economics at the Jawaharlal Nehru University, New Delhi.

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