The budget proposals by now would have been firmly decided upon and canned. There is hardly any real possibility of any alteration or reorganisation of priorities at this stage. Yet, it might not be completely out of place to consider what ought to inform the budget-making exercise in our present context.
The economy seems set to record a near 9 per cent growth for the fourth straight year now. It has been precisely coterminous with the tenure of the UPA government. This should be a matter of no small comfort to a government that would need to be going back to the voters in about 15 months’ time. There are many features of the economy that would seem to be quite upbeat. The savings and investment rates have now recorded unprecedented levels of around 34 per cent of GDP. These alone give hope for a sustained growth rate of upwards of 8 percentage points on a crude Harrod Domar formulation if the capital output ratio is assumed to be around 4. Tax revenue collections seem to be booming. The foreign exchange reserves are at their most comfortable level ever. Business and industry seem to be optimistic and the stock market in the past year has had a series of sustained rallies.
But all this ought not to mask some of the deep- seated difficulties with the nature of the economy and the developmental process that we have had over the past six decades. The percentage of the absolute poor continue to be somewhere around 28 per cent of the population. But it is also relevant to consider that there is a significant fraction of the population that is technically above the poverty line but is virtually at the margins of subsistence. Using this somewhat wider notion, the National Commission for Enterprises in the Unorganised Sector estimates that the percentage of population that may be regarded as being ‘vulnerable’ is around 77 per cent of the population. The notion of vulnerability could be one where, for example, a single illness in a family may constitute a major setback that would drive the family to penury.
If one were to look at the composition of the population that is vulnerable, then one finds that it is predominantly comprised those belonging to the SCs and STs, the minorities and the OBCs. They are typically individuals with low or negligible assets and with minimal education. The real issue is, therefore, whether the budget- making exercise can bring about any difference to this huge segment of the population.
One of the most significant conundrums of the development process in the past decade and a half has been an apparent duality where the top fifth of the population seems to have made good in a substantial way whereas the bottom four-fifths have been more or less bypassed. Stories of suicide deaths by farmers from Andhra Pradesh to Maharashtra and even Punjab are routinely reported in newspapers. While the salaries of corporate honchos in the metropolises are reaching dizzying heights, the mass of unskilled labourers from the countryside can only aspire to jobs as factory workers or security guards in the urban informal sector at pittance wages. These are wages at the bare margins of survival. These are calibrated by employers across the country to ensure that a potential worker is given just the barest minimum wage and no more. The demographic pressure from the countryside is so huge that there is indeed an unlimited supply of labour at the subsistence wage as was theorised
by W. Arthur Lewis and earlier emphasised by classical writers like Ricardo and Marx. But this has also meant that the share of profits in national income is increasing. This is evident in the thousands of crores that apparently get mobilised in the matter of a few seconds when some major corporates come up with IPOs.
There are clearly two major imperatives that any serious economic intervention ought really to address. The first is to channelise massive resources into the agriculture sector so as to substantially enhance productivity in this sector. This has to be done by strengthening rural infrastructure, especially irrigation. The high growth rate of the Indian economy has been largely fuelled by the services and the industry sectors that have grown at 10 or more percentage points. Agriculture, in contrast, has barely managed a growth rate of around 2.5 percentage points. The share of agriculture as a fraction of GDP in consequence has secularly declined from about 60 per cent at the time of independence to about 19 per cent now. But the share of the population dependent on the rural sector continues to be as high as about two-thirds. This has resulted in significant immiserisation of the farm sector in per capita terms vis-a-vis industry and services. There has been a significant increase in rural landlessness in recent years which has direct consequences on the issue of poverty. However, this is a more fundamental issue that can hardly be expected to be addressed in any single central budget.
The other issue has to do with the allocation of expenditure into education, health and more generally the social sectors, which is something that is well within the purview of the budget-making exercise. The expenditure on public health in India is an abysmal 0.9 per cent of GDP whereas most major industrialised countries spend in the region of 6-8 per cent of GDP. Public expenditure on education in India is higher at around 3.8 per cent of GDP but clearly much more needs to be done, and more effectively, especially in the realm of basic literacy. China spends half of the Indian percentage as a fraction of its GDP but has clearly much more spectacular results to show for itself.
The single major deficiency in the recent Indian growth process is its poor showing on the employment generation front. For those in the countryside who are landless and without any other asset other than their labour power, the only means of redressing poverty would be to offer them employment. It is in this context that the National Rural Employment Guarantee Scheme (NREGS) assumes importance that is expected to be expanded to all districts of the country on April 1 this year.
There is much that has been put out in the media by influential policy-makers about the futility and the fiscal profligacy that this scheme represents. But this is again part of a mindset that the urban, well-heeled professionals have that is so totally insensitive to the needs of the bottom third of the population. It can be nobody’s case that there would be no corruption in this scheme. If that were to be the deciding criterion then perhaps the entire public sector activity would need to be closed down. Early evaluation studies of the NREGS reveal that where the administration is purposive and imaginative the results are extremely encouraging. The responses to the questionnaires from the beneficiaries across the country reveal overwhelming support for the scheme.
In terms of the human development index, India occupies the 128th place in a listing of some 177 countries, and any serious redressal of this must address the question of social sector spending for the common masses in a much more substantial way than we have done so far.
Pulin B Nayak is Director, Delhi School of Economics