There
is always a statement that a government makes with
its annual fiscal statement, even if the actual speech
is presented in as boring and sleep-inducing a manner
as Finance Minister Pranab Mukherjee's speech was
for Budget 2012-13. So what exactly is the political
economy statement being made in this budget?
On the face of it, it may appear that the Budget is
as directionless and haphazard as all of the UPA government's
current policies. But in fact there is a clear economic
strategy. Unfortunately, it is a strategy that has
already failed to deliver more ''inclusive growth''
and it is unlikely that a new omelette can be made
with these clearly broken eggs.
The strategy broadly seems to be based firstly on
the premise that we must have economic growth at all
costs, regardless of whether that growth delivers
more decent employment or better living conditions
for the people or is sustainable beyond a temporary
bubble. Secondly, such growth can only really be delivered
by large capital, whether foreign or domestic, and
that in particular foreign capital is desirable because
it will also fill the growing gap in the current account.
Thirdly, the government must therefore do all it can
to provide more incentives, including fiscal sops
and viability gap financing, to attract foreign capital.
Fourthly, that therefore there is no need to be overly
concerned with the other aspects of ''inclusion'' such
as employment or food security, since these will come
about through trickle-down.
Once we recognise these features, then a lot of what
was presented (not in the Budget Speech, which was
masterful in its use of banality to disguise reality,
but in the actual fiscal data) makes much more sense.
In terms of tax collection, this is a very regressive
Budget, shifting the dominant burden of tax payments
on to ordinary citizens, and particularly the poor.
Direct tax concessions are being provided to amount
to an estimated loss of Rs 4500 crore. Meanwhile,
the very significant increases in excise duty rates
and the extension of services taxation to a wider
range of activities are estimated to bring in massively
increased revenues of nearly Rs 73,000 crore. Direct
taxes have declined to only 35 per cent of total tax
revenues in the proposed budget estimates, compared
to 38 per cent in 2010-11.
This increase in indirect taxes will obviously lead
to rising prices, which will disproportionately hit
the poor (in terms of share of their incomes). This
will be aggravated by the attempt to reduce the subsidy
burden by cutting fuel and fertiliser subsidies. Of
these, the proposed reduction in fuel subsidies (by
almost Rs 25,000 crore) will have the greatest inflationary
impact, because fuel is a universal intermediate and
there will be cascading effects on all other prices.
There can be no illusions about whom this will hit,
and the smokescreen of providing ''direct cash transfers''
to intended beneficiaries cannot hide the crude attempt
to shift the burden on to consumers, since the total
subsidies are projected to come down so sharply. It
emerges that the greatest winner from the high and
volatile global oil prices will be the central government,
while the greatest losers will be Indian consumers,
particularly the poorer sections.
In terms of expenditure too, this Budget disappoints.
It is true that some social sector spending has increased,
which is certainly welcome - but only because we are
now so grateful for any crumbs.
For example, allocations for school education have
been increased by around 17 per cent compared to the
current year's revised estimates, though the increase
is mostly in elementary education. As it happens,
secondary education increasingly needs much more money,
but the increased outlay barely keeps pace with the
projected inflation (which incidentally is likely
to be much higher than the anticipated 7.2 per cent
because of the inflationary effect of the Budget itself).
The outlay for health and family welfare has gone
up by nearly 22 per cent compared with the current
year's revised estimates, but at a total of only Rs
30,702 crore it is still embarrassingly small in relation
to India's projected GDP - only 0.3 per cent! There
has been a substantial increase in outlay for the
ICDS compared to the previous year's budget estimates.
But this essentially reflects the increase in remuneration
for anganwadi workers and helpers, which was implemented
in the middle of this fiscal year and therefore raised
the actual spending by about Rs 3,000 crore. In fact
the increase in outlay needs to be much more, because
the ICDS is still not fully universal despite seven
years of Supreme Court strictures, and because the
ICDS workers still do not receive legal minimum wages.
A big disappointment comes with respect to food. The
UPA government had trumpeted the proposed Food Security
Bill as the fulfilment of its promise to aam aadmi.
But in the past four years food prices have skyrocketed.
They are likely to increase in the coming year, not
only because of global pressures but because of the
impact of this budget on fuel and fertiliser prices.
In this context, the fact that the Finance Minister
has maintained the food subsidy at more or less the
current level (Rs 75,000 crore compared to Rs 73,000
spent in 2011-12) seems to reflect a rather cynical
approach to the proposed Food Security Bill.
Clearly, the Finance Ministry at least does not see
this coming Food Security Act in any way as increasing
the central government's spending commitments in order
to ensure minimally adequate food grains to all citizens.
Instead, we are supposed to be grateful that the food
subsidy bill has not actually been cut (as have the
fuel and fertiliser subsidies). Indeed, the fact that
there was clapping in Parliament when the FM announced
no cut in food subsidy shows how low our expectations
have become.
Finally, the employment scheme - the Mahatma Gandhi
National Rural Employment Guarantee Act - is being
given such obvious step-sisterly treatment that it
is now an open question whether the scheme will actually
survive in the medium term. The combination of vested
interests that have come together to undermine this
scheme need not be gone into here, but the effects
are obvious in the spending data. In the current year,
only Rs 31,000 crore was spent out (around three-quarters
of the budgeted amount) and the Government has been
quick to reduce the allocation to only Rs 33,000 crore
in the coming year. Since on average less than half
the promised 100 days of work are being provided across
India, this suggests that the government has stopped
taking its own scheme too seriously, and may even
be part of the attempt to undermine it.
So where does this leave us? The likelihood in the
coming year is uncertain growth (because it is not
at all clear that these fiscal sops will be enough
to bring in lots more foreign capital in a very uncertain
global environment) combined with higher inflation
and continuing shortfalls in employment. This is a
recipe for more than economic; given the complex and
rapidly changing political situation and the rising
social tensions, it may even be a recipe for disorder.
The blandness of the Finance Minister's Budget presentations
may still have much more dramatic, if unfortunate,
consequences.
*This article was originally
published in sify.com and is available at http://www.sify.com/finance/the-greatest-losers-from-this-budget-will-be-the-indian-consumers-news-budget-mdqsdSebihi.html
