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Budget 2016: The real test will be in altering ground realities

union budget Updated: Feb 29, 2016 18:56 IST
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Finance minister Arun Jaitley unveiled a budget for the poor on Monday, announcing new rural aid schemes and skimping on a bank bailout.(Arvind Yadav/HT Photo)

Finance minister Arun Jaitley commended the Union Budget 2016-17 to Parliament on Monday, describing it as one which would transform the Indian economy. Jaitley read out a long and impressive list of proposals that touched on agriculture, industry, banking, education, health and sundry other vital areas. He has retained the fiscal deficit target of 3.9% of GDP for the present financial year. He has made the bold claim that with the measures he is proposing, farmers’ income would double in five years, by 2022. In assessing Jaitley’s budget, a number of issues need to be kept in perspective.

This was Jaitley’s third budget, and hence an important milestone. The Narendra Modi-led government has now crossed the one-third mark of its stipulated term of five years. In our first-past-the-post system, Modi rode in with a decisive mandate with barely 31% of the popular electoral votes. Since his chief plank was the ‘development’ agenda, one would have to say that so far, other than the catchy slogans of ‘Make in India’, ‘Stand up India’, ‘Skill India’ and such like exhortations, spoken with much oratorical flourish, there has hardly been any concrete result at the ground level. Time is ticking away inexorably.

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The industrial scene continues to be miserably sluggish and exports have been in decline for fourteen months in a row. Public sector jobs have actually shrunk from their peak reached in 1995. Contrary to popular belief, the size of public employment in India is not large, relative to its population. While the top-end young professionals from elite business schools and IITs can think of nothing less than seven figure starting ‘packages’ for themselves, the general employment situation has been nothing if not bleak, and there does not seem to have been any perceptible improvement in the past 21 months.

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Huge masses of young men and women are entering their working age with chances at best of landing some casual job typically in the informal sector. Public sector banks are severely stressed with unprecedentedly high NPAs and they need substantial doses of capital infusion from government funds. The list of major defaulters reads like a who’s who of the top industrial houses of the country. Above everything else, rural India is in serious distress after two to three years of near drought conditions. All of these do not add up to a pretty picture.

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It is indeed true, as the minister mentioned, that India has been hailed as a bright spot amidst a slowing global economy. At 7.6% India is possibly the fastest-growing major economy in the world today, having tipped China’s growth rate of 7.1%. We also certainly can derive comfort from the fact that most of Western Europe and Japan recorded only tepid growth in the past year, and some major economies like Brazil and Russia actually experienced negative growth. The Indian performance therefore is indeed gratifying. But, as with so many other paradoxical realities of our country, this too must be understood with a caveat. The tribe of Indian billionaires seems to be increasing, and certainly for some IT sector honchos in Bengaluru or Gurgaon, the world must look rosy but the story is totally different for the bottom third, or even half, of the population residing in the far-flung remote corners of the country.

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So the issue is not one of increasing the growth rate from the present numbers to the realm of 8-10% range. That would, ceteris paribus, no doubt be welcome, but not if it is to be driven principally by only the top 10 or 15% of the population. One might therefore even go to the extent of suggesting that if we can ensure better life chances to the bottom half of the population only at the cost of some diminution of the overall growth rate, then one should have the courage to say ‘yes’ to it.

Is it possible that this could be a critical matter of choice? We have a situation where we still have some 50% of the population living in villages and dependent essentially on the farm sector, but the share of agriculture in national income has plunged precipitously from about 52 in the early 1950s down to barely 13% now. Massive investible funds need to be channelised into the farm sector by way of expanding the irrigation network, and enhancing soil conservation measures etc.

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Or consider our appalling position in terms of the quality and reach of the public health system in the country. Public expenditure on health is a pitiful 1.3% of GDP whereas the figure for China is 2.9% and the figure for most of the countries in Western Europe is rather in the range of about 8 to 10%. In terms of the social sector, India’s position is a pitiful 130 in a listing of some 188 countries tabulated by the UNDP. If the shortfall in this sector is to be urgently addressed seriously, then substantial resources have to be channelised into these sectors. This might well weaken the growth momentum in the short run, but, of course, in the medium to long run, this can only contribute positively to the larger developmental agenda.

It is interesting that the budget should have allocated Rs 38,500 crores for MGNREGA, especially after Mr Modi had squarely ridiculed the scheme on the floor of the House, saying that he would continue the scheme only to think of it as a living testament to the failures of the UPA government. Jaitley has claimed this year’s allocation is the highest so far. Hopefully the amount allocated will actually be spent. But one cannot help detecting a degree of intellectual disconnect here. At the end of the day, everything will finally depend on the extent to which the ground realities change for the bottom half of the population.

Read full text of Jaitley’s Budget speech

The author was formerly Professor of Economics at the Delhi School of Economics.