Sunday, April 25, 2010

India’s 2010-11 Budget: Where’s the Money Going by Kobad Ghandy ?

This article originally appeared in Economic and Political Weekly. Kobad Ghandy is a political prisoner in Kolkata and a member of the Political Bureu of the Communist Party of India (Maoist).

by Kobad Ghandy

An analysis of the Union Budget 2010-11 must take account of the fact that while expenditure on infrastructure is geared primarily towards meeting the long-term development needs of the business community, social welfare expenditure merely serves the purpose of immediate political gains of the parties in power.

Over the last two years of world recession, additional aggregate demand as a result of the huge fiscal stimulus packages and the Sixth Pay Commission award has sustained India’s GDP growth. The former pumped in over Rs 2,00,000 crore in increased government expenditure each year, while the latter increased money in the hands of 15 lakh central government employees by Rs 20,000 crore. Such growth is unsustainable because the government cannot go on doing more of the same in view of the burgeoning fiscal deficit.

At a time when the world economy is in serious crisis, with external demand continuously shrinking, the Indian economy can only sustain the process of growth through the creation of a mass internal market for domestically produced goods and services. This is what any economic planning or budgetary exercise needs to address. But the present budget does not have this longterm vision; it reveals its call bias in the handing over of a whopping Rs 26,000 crore in direct tax concessions to the top 20 million of the population, those with an income of more than Rs 3 lakh per year.

As for the masses, the budget, in fact, reduces their purchasing power, thereby shrinking the demand for industrial products. It extracts a massive Rs 50,000 crore from them through an increase in indirect taxes. Over and above that, it does nothing to deal with the food inflation which has been hovering at 20% year-on-year. With more of their incomes spent on basic necessities, the masses will have less to purchase industrial products, thereby restricting demand further.

No doubt, the massive outlay on infrastructure will give a boost to the cement, iron and steel, and some other industries. With as much as 46% of the plan outlay – Rs 1.73 lakh crore – allocated for infrastructural development, the government will generate some demand. The direct tax concessions to the rich will not boost consumption as much as the Pay Commission award to government employees did last year. As a result, overall, the economy will continue to drift, with government infusion of funds compensating for the shrinkage of mass consumer demand.

Budget Blows

The rural areas, where the bulk of our population live, have got stepmotherly treatment in this budget. The rise in the price of diesel by Rs 2.55/litre will be a double blow. First, it will result in an extra burden of Rs 200 crore on farmers who consume 10 lakh kilo litres of diesel to run their tractors and for irrigation purposes. Second, it will increase the cost of transport of all goods to and from the villages.

The finance minister (FM) has reduced the subsidies on food, fuel and fertilisers by as much as 12% for 2010-11 over last year. The subsidy on the public distribution system (PDS) has dropped by Rs 2,500 crore in absolute terms and that on fertilisers by Rs 3,000 crore. If one factors in the 20% food inflation, the adverse effect of the decline in food subsidy is going to be substantial.

In addition, the provision for rural development is just 6.3% over that in 2009-10. The tax cuts for the upper classes are five times the amount of increase for rural development. And the hike on the much hyped National Rural Employment Guarantee Scheme (NREGS) is a mere 2.5%. Again, in both cases, after taking account of inflation, it would entail an actual reduction in expenditure.

In yet another instance of acute shortsightedness, the Finance Minister Pranab Mukherjee has announced that he intends to take the failed green revolution to five states in the east. When the green revolution has collapsed in Punjab and other such places due to the disparity between the prices of inputs and outputs, how is it to succeed in the five states if the same neoliberal policies are followed? Besides, he has allocated a measly Rs 400 crore to promote it. And with the production of pulses 37% below the targeted figure, a pathetic Rs 300 crore has been allocated for promoting pulses and oil seeds. Overall, the FM has cut the allocation for agriculture and allied activities by 2%.

In addition, non-plan expenditure on all social services is to decline by a massive 14% from Rs 35,146 crore in 2009-10 to Rs 29,483 crore for 2010-11.

What is scandalous is that the FM hardly takes any account of one of the worst droughts the country has faced in the last few decades. From all angles, there has been a total neglect of the rural economy, notwithstanding the spiralling suicides and drought. Compared to the pittance handed out to the poor and rural populace, look at the largesse to the corporate and urban elites.

Budget Bonanza

It is estimated that the union government lost a gigantic Rs 5.4 lakh crore – i e, 86% of the actual tax collections – in the year 2009-10 on account of various exemptions, rebates and concessions given to individuals and corporates. (This includes about Rs 38,000 crore on export-related subsidies and exemptions, what with the tax-free treatment of income from software exports of $48.7 billion.) While the rate of corporate tax is 33% of gross profits, big companies (with a turnover of Rs 500 crore or more) are paying an average of a mere 22% in tax. Besides, over and above all these huge concessions, the FM has reduced the surcharge paid by corporates by 2.5%.

Not surprisingly, the wealth of the superrich skyrocketed in the year 2009 with the number of billionaires nearly doubling, from 27 in 2008 to 52 in 2009. According to the Forbes magazine, the combined wealth of India’s 100 richest people in 2009 was $276 billion (Rs 12,70,000 crore) – almost a quarter of the country’s national income. Mukesh Ambani by far tops the list with a net worth of Rs 1.5 lakh crore. With union budgets such as this one, the gap between the super-rich and the poor is going to widen even further to the detriment of the economy as a whole.

Fire-Fighting or Concerted Planning?

The trouble with India’s budget and economic planning is that the funds allocated to social welfare are basically geared to the vote bank needs of the ruling parties. Instead of long-term capital development towards increasing the welfare of the people, sops are handed out on a yearly basis to garner votes. For example, the vast amounts spent on NREGS do not entail mobilising the unemployed population to achieve a central/ state objective in enhancing long-term capital projects like irrigation or watershed development or afforestation. Instead, the allocations are utilised in some futile local projects rife with corruption.

The money allocated for Muslims in this budget increased by 60% to Rs 2,500 crore and for dalits by 80% to Rs 4,500 crore. Dalits and Muslims, comprising 30% of the population, are, by and large, among the most oppressed, but the allocations do not really reach many of the deserving among them, serving merely as a sop to garner a vote bank.

Thus, while the expenditure on infrastructure is geared primarily to meet the long-term development needs of the business community, the social welfare expenditure is not oriented towards the ultimate extrication of the masses from poverty and misery. The social welfare allocations are more in the form of a dole for immediate political gains. Besides, even by the official count, only 10% of such allocations really reach the needy while the rest are swallowed up by intermediaries – officials and politicians.

The first step is to stop all the massive concessions to big business and garner these huge funds for rural development – particularly in the sphere of irrigation, watershed management, soil rejuvenation and afforestation. Here, the returns may not come in the form of rising stock exchange indices, skyrocketing profits to big business, etc, but will be evident in the long-term benefits to the masses and the country as a whole.

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