The budget’s deficits
There is considerable surprise that this year’s budget was not an election budget as widely expected. An election budget in the sense that it should contain many concessions for various sections in order to woo their support for the forthcoming general elections.
By now it is fairly clear that the UPA will approach the general elections with three new flagship proposals — the direct benefits transfer, food security, and a new land acquisition law that will provide greater remuneration and benefits to the owners. All these three will require separate legislations to be approved by the Parliament. The cash transfers are based on Aadhar. The parliamentary standing committee has given its report expressing complete dissatisfaction with the current Bill, and has asked the government to come forward with a new Bill. The Land Acquisition Bill has a similar status. Notwithstanding the negative effects of these on the people in the long term, the UPA hopes that these will attract a larger electoral support for itself, on the basis of illusory hopes that these schemes may generate in the short term.
This budget, however, is a recipe for mounting greater burdens on the people, and it thus makes the realisation of 'inclusive growth’ a mirage. Further, these budget proposals are unlikely to turbo charge our economy toward a higher growth path. This budget confirms the economic slowdown and endorses the Central Statistical Organisation’s estimation of our GDP growth rate of 5% for 2012-13, and is in contrast to the finance minister and the ministry contesting this figure on grounds that it is an underestimation. The Economic Survey notes that the growth rate has slowed down from 9.3% in 2009-10 to 6.2% in 2011-12 to 5.0% in 2012-13. Amongst the factors responsible for the slowing down, it notes the impact of the boost to demand provided by stimulus packages following the global economic crisis that began in 2008. The boost in demand saw consumption growing at an average of 8% annually between 2009-2012. This fell to around 4% in 2012-13.
Despite this, there is a near stagnation in expenditure allocation this year. A 12% increase means little in real terms, given the near 10% inflation rate. Total subsidies have declined by R26,571 crore. The finance minister highlighted food security with the additional allocation of R10,000 crore. The total food subsidy is actually only R5,000 crore more than last year’s revised estimates. MNREGA allocations remain unchanged and the petroleum subsidy was cut by more than R30,000 crore. The disinvestment in the public sector, i.e., selling our people’s assets, is expected to earn R50,000 crore. On top of this, the allocations for health, rural development and education are lower as a proportion of the GDP this year than last year. Likewise, the allocation for SC and ST sub-plans are substantially lower than what is constitutionally mandated. Not only will all these measures make the life of a vast majority of the Indian people more miserable, such a contraction of expenditures also further reduces the people’s purchasing power, thereby lowering overall consumption in the economy.
This budget seeks to provide greater and easier access to foreign and domestic capital to invest. Even if more funds come into India, this does not automatically lead to growth, unless people have the purchasing power to buy what is produced. It is precisely this that is going to decline even more with this budget. Unless this is reversed, no amount of making available funds for investment can result in growth. In the absence of this, available resources will not flow to productive investments, but to speculation, as has been reflected in the recent rise in the prices of gold and landed property.
All this comes in the backdrop of a fiscal deficit, which the budget in its revised estimates projects as R5,20,925 crore. The same 2012-13 budget shows that the tax revenue foregone by the central government was R5,73,630.1 crore, i.e., nearly R53,000 crore more. While fiscal consolidation is imperative, it should have come not by squeezing expenditure but by expanding the tax GDP ratio, by widening the tax net, which has fallen from 11.9% in 2007-08 to less than 10%. Tax concessions for the rich and India Inc are nothing but subsidies. But these are treated as incentives for growth! The resultant fiscal deficit is then sought to be met by cutting the already meagre subsidies for the poor, considered as burdens!
Fiscal consolidation can also happen by collecting a large part of this tax foregone. This can help lowering the fiscal deficit and, at the same time, it can make available resources for large scale increases in public investments to build the much-needed infrastructural facilities in our country. These are not necessarily only economic, but include social infrastructure such as universal health, education, sanitation, etc. Such investments would vastly expand employment opportunities. This, in turn, would lead to higher purchasing power in the hands of the people, boosting aggregate domestic demand. This would be the basis on which today’s ailing manufacturing sector can restart its engines.
As is universally acknowledged, growth rates alone do not and cannot capture the overall health of the economy or the people. In terms of human development indicators (HDIs), India has seen a further worsening of the situation. In terms of major HDIs, India ranks the lowest among all BRICS countries.
Unfortunately, fiscal fundamentalism has triumphed in this budget at the expense of our failure to vastly expand domestic demand through high doses of public investment to build our much- needed infrastructure. Instead, the hiatus between the two Indias will only widen further, enriching the rich and further impoverishing the poor.
Sitaram Yechury is CPI(M) Politburo memberand Rajya Sabha MP
The views expressed by the author are personal