THERE are few who seem to believe that their expectations have been met by the budget for 2009-10 presented by Finance minister Pranab Mukherjee. This is partly because for most sections of the population it takes away with one hand what it seeks to give with the other. For example, a marginal increase in the exemption limit and the abolition of the surcharge on income tax for personal income tax payers is accompanied by increases in indirect taxation that are bound to impinge adversely on this section. The abolition of the Fringe Benefits tax and a further extension of the tax holiday for export-oriented units, which must please corporations, is accompanied by a hike in the Minimum Alternate tax that would hurt a significant number of them. And the promise of inclusiveness for the poor has not been accompanied by outlays that match that rhetoric.
This lack of coherence implies that first responses to the budget are bound to be mixed and muted. But this is not the only reason why this budget disappoints. Its principal failure is that though the Finance minister gifts himself significant resources from non-tax sources, such as about Rs 35,000 crore from the sale of 3G spectrum and massive borrowing reflected in a 6.8 per cent fiscal deficit to GDP ratio for 2009-10, he has not done much to either spur investment or deliver benefits for the poor and deprived.
Consider the claim made by the minister that he intends reversing the recent economic downturn and restoring the buoyancy the economy has displayed in recent years. Though the increase in total expenditure in 2009-10 relative to the revised figures for 2008-09 amounts to 2 per cent of GDP, much of this increase is the consequence of previously committed expenditures. Prominent among these are the increased salary bill resulting from the implementation of the Sixth Pay Commission’s recommendations and the increase in interest payments resulting from the larger borrowing in recent years. Little of it is due to new initiatives of the current government and much of it is non-plan expenditure rather than plan expenditures with long run effects. Thus, the budgetary support for the central plan relative to 2008-09 is projected to increase by just around one half of one percent of GDP. That much for the Finance minister’s claim that his budget seeks to stimulate growth and induce buoyancy. In fact, his speech is disingenuous when it claims that the difference between the actual fiscal deficits of 2007-08 and 2008-09, amounting to 3.5 per cent of GDP, constituted the purposively delivered fiscal stimulus to combat the downturn. Much of this was due to a pre-committed set of expenditures which have since been justified by the need to deal with the recession.
This is not to imply that the Finance minister does not have a “vision” as to how growth will occur. Query him about the insubstantial increase in expenditure on rural development in its various forms and he would refer to his promise to increase the flow of credit to agriculture (from the banks and not the budget) from Rs 2,87,000 crore in 2008-09 to Rs 3,25,000 crore in 2009-10. Ask him about the adequacy of the support provided to crucial infrastructure sectors in terms of additional public investment and he would point to the fact that the India Infrastructure Financing Company Limited (IIFCL) would provide banks refinance to the tune of 60 per cent of their exposure to infrastructure projects in the private-public partnership (PPP) mode. In sum, expenditure to stimulate growth does not come fully from the government but substantially from an ostensibly independent banking sector offering credit to the private sector.
AFFECTS INCLUSIVE GROWTH
The problem of inadequate financing is not limited only to growth. It also affects the promise of being inclusive and benefiting the common man. Consider, for example the Finance minister’s claim that allocations for a flagship programme like the National Rural Employment Guarantee programme have been hiked by 144 per cent. That is true when you compare the budget estimates for 2009-10 with the budget estimates for 2008-09. But, the fact of the matter is that since the NREGA is a demand driven programme, the allocation for it in the 2008-09 budget was just notional, with the promise that more would be provided in response to demand. Even with the still limited implementation of the NREGA, actual allocations in 2008-09 were much higher than budgeted for and rose to Rs 36,750 crore. Compared to this the budgetary allocation for 2009-10 at Rs 39,100 crore is just Rs 2,350 crore or 6.4 per cent higher. Assuming that implementation improves and states get their act together, this figure would be far short of what is needed.
There are many other examples of such inadequacy. The Rural Health Mission has been allocated only Rs 1730 (or around 1.2 per cent) more than what was spent last year, although the evidence shows that India is a country where private expenditure dominates total health expenditures and leads to indebtedness in rural areas. Despite the fact that the Supreme Court had ordered a few years back that the Integrated Child Development Scheme should be universalised, the increase in allocation for this still sparsely delivered scheme is only Rs 361 crore or 1.1 per cent more than earlier. While the Right to Education has been recognised, the increase in budgetary allocation for elementary education is less than Rs 200 crore. Above all, while the UPA has made much of its proposed Food Security Act (which will reduce allocations of rice or wheat to the poorest from 35 kg to 25 kg per month), the subsidy on food is expected to increase by just Rs 8862 crore, even though the minimum support price and, therefore, the required subsidy per kg has gone up substantially.
Put all this together and it appears that this budget is not merely incoherent and self-contradictory, but also inadequate to meet its own objective of higher growth with a human face. This, however, is not to say that this budget lacks direction altogether. One thrust in the budget is to sustain concessions offered to private capital in the name of the recession. As has been noted by many, a significant part of the government’s stimulus aimed at combating the downturn triggered by the global financial crisis was the sanction of large excise duty reductions that were expected to sustain demand. These cuts were seen as temporary. But this budget, despite proclaiming that the worst of the downturn is over, has chosen to stick with these reductions.
More than this, the budget pushes ahead with or promises to undertake further economic reforms that would please financial capitalists. One direction such reform has taken is a range of tax concessions that have been provided to investments made by the New Pension Scheme (NPS) Trust in private equity. Besides dividend tax concessions, these investments have also been exempted from the Securities Transaction tax. This would only encourage the diversion of savings in pension funds to the stock market in the hope of higher returns. This would benefit stock market operators, but would also increase the vulnerability of the life savings of middle class citizens deposited in the NPS. This implicit sanction for speculation of the kind that triggered the ongoing financial crisis has been strengthened by the abolition of the Commodities Transaction tax, despite the evidence that transactions in commodities markets have grown at a pace where they point to speculative trends that clearly need reigning in.
BUDGET SERVES INTERESTS
OF BIG PRIVATE CAPITAL
Finally, an important direction of renewed reform is the new drive for privatisation, which had been advocated in the Economic Survey released a few days back. While promising to sustain public control over public sector assets the Finance minister has made the case in the budget for creeping privatisation. To quote him: “The public sector undertakings are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51 per cent government equity in our enterprises, I propose to encourage people’s participation in our disinvestment programme.” The privatisation agenda is now being promoted in the name of “people’s participation”. The idea ostensibly is to obtain resources for the budget through sale of public equity to the public at large. In itself, this is not merely shortsighted but, given the growing profitability of the public sector, irrational.
Moreover, the Finance minister does know that the truly common man does not invest in equity. The “people” he speaks of here are members of the small elite who directly or indirectly participate in trading in the stock market. The idea is to sell public assets to them, so that they can sell it on to higher bidders, leading inevitably to influence if not control by big private capital. It is these interests that the budget serves. But judging by the first response of the stock market even they are not impressed. And that possibly is because the Finance ministry, by converting Economic Survey 2008-09 into a pamphlet advocating accelerated reform of a kind that sounds irrational given the lessons of the recent crisis, created expectations of “reform” and liberalisation that it could not itself meet. This time around this could not be blamed on an intransigent Left that was unwilling to accept the reality of modern India. It is because the advocates of irrational neoliberal “reforms”, which restructure policies in favour of private capital, seem to be out of tune with what is feasible in actually existing capitalist economies – especially those that are functioning political democracies.
Note:This article took from the cpim.org