Budget 2005 : Reality Check


A lot was expected from this Budget, as indeed a lot was expected from the UPA government in terms of changing course and showing a new direction for both the Indian economy and the polity. Sadly, both these hopes now appear to have been over-optimistic. Economically, so far, the government has simply not shown enough determination or even desire to move away from the neo-liberal policy framework that has had such negative implications for the economy over the past decade and more.

Thus, both the proposals of this year's Budget (2005-06) and the evidence of taxation and spending patterns in the current fiscal year are disappointing. As has become usual with this Finance Minister, the rhetoric employed in the Budget speech was rather different from the actual outlays. 

Consider the Budget's contribution to the Central Plan. This is supposed to go up in the aggregate from Rs 82,529 crore in 2004-05 (Revised Estimates) to Rs 110,385 crore in the coming year, with an increase from Rs 8,589 crore to 11,494 crore under rural development (under which employment programmes fall). But the actual figure for 2002-03 was Rs 11,939 crore and for 2003-04 Rs 11,369 crore. In short, the budget support for rural development, which had gone down last year, is only being raised back to the level that had prevailed in the preceding two years. 

Arguably, the single most important promise in the national Common Minimum Programme (CMP) is related to employment generation, which the government (to its credit) at least recognised as a major problem requiring direct public intervention. But the draft Employment Guarantee Bill (now placed in Parliament) has been diluted so that its provisions come nowhere near providing a genuine employment guarantee; and now the Finance Ministry is providing hardly any increased allocation for such a scheme. The government's own estimates are that such a scheme would cost at least Rs 25,000 crore per year, while other estimates go up to about Rs 45,000 crore per year. 

In the current budget, the proposed allocation for Food for Work (FFW) is only Rs 5,400 crore, a relatively small increase of Rs 3,582 crore, while the allocation for the Sampoorna Grameen Rozgar Yojana (SGRY) has actually been cut by Rs 990 crore! This suggests that even the piffling amount being set aside for EGA (Employment Guarantee Act) is at the cost of other employment programmes, rather than in addition to them. 

Since FFW covers only 150 districts, what is happening is simply that the central government plans to scale down employment programmes in the rest of the country to accommodate FFW. This is, in fact, a regression from universality to district-wise targeting. This is very unfortunate since it is clear that the main problem facing most rural women is lack of employment - both for themselves and for other family members - and the employment scheme is critical to ensure that this most pressing problem is addressed.

The other area of declared policy priority of the UPA government has been agriculture. The agrarian crisis has led to a generalized depression in the rural economy that has particularly affected rural women. There is no question that both expenditure and allocations to agriculture have increased - the actual spending in the current year (at Rs 4,799 cr) is estimated to be higher than the original plan outlay of Rs 4,643 crore and even more (Rs 6,425 crore) has been budgeted for coming year. 

But these are still trifling amounts in relation to the extent of the crisis. Further, instead of providing much-needed protection to Indian farmers who have been battered by the extreme volatility and highly subsidized prices prevailing in world markets, the Finance Minister has left unchanged the current tariff rates on most agricultural commodities. Nothing has been done to protect cotton and oilseed farmers, who have been in great difficulties in recent times.

It is not only that the FM's tax projections for the coming year are clearly unrealistic, just as they have proven to be for the current year. The other major area of "window-dressing" is with reference to fiscal deficit. There is a substantial "off-loading" of borrowing from the budget to off-budget entities. 

At least three such methods deserve mention. The first is state governments, who will now have to borrow nearly Rs 30,000 crore for their Plans from the market, whereas earlier the Centre would have borrowed this amount and handed it to the states. The problem is that many state governments may not be able to borrow this, and state governments remain the most critical with respect to spending that matters for ordinary women - in infrastructure, health and education.

The second method is with regard to the Infrastructure Development Fund, whose capital of Rs 10,000 cr is not provided for in the Budget, since the new agency will do the borrowing. The third is that there is no mention of the food component of the Employment Programmes in the Budget documents. The 5 million tonnes promised by the Finance Minister as the food component of the FFW - and which does not figure in the Budget - will obviously be loaned by the Food Corporation of India to the FFW programme. 

Off-budget transactions like these are likely to create future budgetary problems as well as problems for public sector entities. For example, the Food Corporation will not be paid for the food-grain it provides for the employment schemes - surely this cannot be good for its financial viability.

Most of the tax concessions given in the Budget lack any justification. For instance, the reduction in import tariffs on a range of agricultural goods is precisely the opposite of what the government should be doing if it wished to undo the damage already done to this sector.

The real problem is that it is now clearly evident that no real change of course in economic policy is being contemplated. But this is precisely what most Indian women really needed. Without such a basic change of course, mere palliative measures - as in the present Budget - are not likely to be adequate.   


More by :  Jayati Ghosh

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