Budget 2010-11 Basket Case?
When P Chidambaram was shifted out of the finance ministry last year despite presenting a politically correct but perhaps economically incorrect Rs 60,000 crore farm loan waiver proposal in his 2008 budget speech, many in the political circles did not raise an eyebrow. This was because the explanation offered by the powers that be was that India needed a finance minister who was a politician first and foremost, rest was secondary.
Having returned to power on the common man plank, UPA bosses did not want to mess around with the mandate as it anointed the veteran politician and a family loyalist Pranab Mukherjee as India’s finance minister. But even his worst critics would not have ever imagined that this politician who presented his first budget early eighties would have to face the first ever boycott of a budget speech in independent India.
Did Dada err in his judgment or else was it another case of an opposition turning a rebel without cause.
But opposition this time was not just the one time ally Left and arch rival BJP. The visuals beaming out on Indian news television minutes after Mukherjee had presented his latest budget had an unrivalled cast featuring the left, right and centre of Indian politics. With the Yadav brothers at the centre, the picture was bright enough to set the tone for what now appears to be a long drawn battle between the government, its allies, and of course the BJP and Left, all seeking a slice of action in this rare post budget bickering threatening to spill all over.
The UPA budget party this time has obviously got already spoiled but now what is at stake is the relationship between Congress and its allies. They might not have the numbers to trouble the government like Left party did in UPA part 1, but certainly they have the combined firepower of a Mamata, Lalu, and Karunanidhi, all up in arms against 2010-11 budget provisions announced by the finance minister on the floor of the House on February 26, 2010.
But the billion-dollar question is what did Mukherjee do to this budget to merit this all round thunder? He did indeed talk (though this time much less) of the common man, as also take a dig in his revenues by giving relief to about 60 per cent of salary class Indians by giving them income tax relief, as also reduce the corporate surcharge and to avoid being pro industry raise the Minimum Alternate Tax (MAT) rates. All this for a change (after four years) led to a budget bull rally at the stock market.
This would suggest that perhaps the growing outcry across various political shades is without reason. Not really! First, and foremost, there is a strong view that the government has failed to contain the galloping food prices, which has a bearing on the man on the street. The matters got worse on the price front with the finance minister announcing the duty change revision in the petroleum products that led to a rise in petrol and diesel prices the same night. There was evident and vocal opposition to any petroleum price hike with UPA allies set strongly against it. Therefore, the double whammy of the food price rise and the petroleum price hike has fuelled the onslaught against the government. Of course, Mamata has another reason to spew fire; she is upset as her camp is ramping up the charge that the railway minister was not consulted on extending the service tax charge on railways.
India did survive about 13 per cent inflation earlier but that was not all food led. This time the food inflation is spiralling out of hand. The budget as such is not an instrument to carry policies that would specifically mitigate the price rise situation. The problem lies in the fact that there was wide spread expectation that the finance minister would talk at length on the issue and spell out government’s strategy to counter the menace. Mukherjee did outline a few steps to carve out a better future for the agriculture and food cycle management but obviously this did not seem to be enough.
The finance minister said in his budget speech “a major concern during the food security during the second half of 2009-10 has been the emergence of double-digit food inflation. There was a momentum in food prices ever since the flaring up of the global commodity prices preceding the financial crisis in 2008, but it was expected that agriculture season beginning 2009 would help in moderating the food inflation.
However, the erratic monsoon and drought like conditions in large parts of the country reinforced the supply side bottlenecks in supply side bottlenecks in some of the essential commodities.
This set in motion inflationary expectations. Since December 2009 there have been indications of these high food prices, together with the gradual hardening of the fuel product prices, getting transmitted to other non-food items as well. The inflation data for January seems to have confirmed this trend.” The government is actually conscious of this situation and has set in motion steps, in consultation with the state Chief Ministers’, which should bring down the inflation in next few months and ensure that there is better management of food security in the country, he added.
BUDGET 2010 -11
WHAT IT MEANS FOR AGRICULTURE
Finance Minister Pranab Mukherjee has left the onerous task of increasing agricultural production to the monsoons.
Like all his predecessors, beginning with Mr Manmohan Singh as the Finance Minister in 1991, Mr Mukherjee has also eulogised the farmer and stressed on the need to strengthen farming, but has failed to provide a definite roadmap to boost food production. Nor has he given any fiscal incentive significant enough to the beleaguered farming community, since they are not part of the urban aam admi class that he knows of, to bail them out of the prevailing economic hardship.
The crisis in agriculture is not as much as of stagnating productivity but is essentially driven by falling incomes in farming. There is a complete drought of thinking when it comes to mechanism that can make a definite contribution to farmers’ welfare. Increasing Minimum Support Price (MSP) has outlived its utility since the benefit goes to only about 30 to 40 per cent farmers who have something to sell in the mandis. More than 60 per cent of the farmers have remained outside the gambit of MSP and it is high to make a historic correction.
I wasn’t therefore expecting much from Budget 2010 as far as agriculture is concerned, knowing that policy makers do not have inkling about what is going wrong with agriculture, but considering the phenomenal food inflation and economic distress farmers faced from the extensive drought conditions in Kharif 2009, the Finance Minister could have been a little more generous to announce a slew of stimulus incentives/measures to prop up the sagging farm morale.
I am aware that the Finance Minister has little scope for financial manoeuvrability given the tight fiscal package at his disposal, but there could have been a more drastic cut in the stimulus package that was given
to the industry, and these benefits could have been easily passed onto farmers through a bonus on wheat, rice and coarse cereals like jowar, bajra and ragi. Farmers need economic stimulus, and it requires political courage to cutback on the industry stimulus and instead give it to the more needy farmers.
Coming back to the big ticket that the country was waiting for, Mr Pranab Mukherjee has very cleverly announced a four-point strategy to revitalise agriculture which is good on intent, but weak in content. I had expected the UPA government to really focus on rejuvenating agriculture and thereby giving strong signals for taking the farm sector to achieve a growth rate of four per cent. At present, agricultural growth rate is minus 0.2 per cent, certainly a drag on the economy.
Except for enhancing the credit package to farmers by an additional Rs 50,000-crore (taking the total credit to 3.75 lakh crores), and providing a interest subsidy of 2 per cent (including 1 per cent given last year) on timely repayment of crop loans, the four-point strategy that he announced is more of a token than anything meaningful. Proving Rs 300-crore for reviving oilseeds and pulses production in 60,000 villages in the dryland regions is also a misplaced strategy.
The shortfall in oilseeds production is not due to the inability of the farmers to increase productivity, but because of the government’s deliberate efforts to reduce import tariffs on edible oils as a result of which cheaper imports have flooded the domestic market. In 1993-94, India was almost self-sufficient in edible oils, but the continuous reduction in import tariffs over the years has turned the country into world’s second biggest importer.
Productivity of oilseeds and pulses therefore cannot be increased unless the government brings back the import tariffs. India can bind import tariff for oilseeds at 300 per cent under the WTO, but has brought it down to zero. Similarly for pulses, the import duty is zero. Unless the tariffs are restored, there is no way Indian farmer can compete with cheaper subsidised imports. Importing cheaper food is like importing unemployment.
Taking the green revolution to the north-eastern states, for which he has provided an allocation of Rs 400 crore, is also a flawed strategy. Why I am saying this is because it is the green revolution technology that has destroyed soil fertility in Punjab, Haryana, Western Uttar Pradesh and Andhra Pradesh. It is because of the devastation that green revolution has caused to the natural resource base that farmers have taken to suicides. To take the green revolution model to the northeast therefore means that the country hasn’t learnt any lessons from the debacle.
Budget 2010 does have some inkling of pragmatic approach. Pranab Mukherjee has done the right thing by not enhancing the llocation under NREGA. In 2009, he had made a budgetary provision of Rs 39,100 crore, and this year kept it at Rs 40,100 crore. This is a wise decision considering that NREGA is a new scheme, and has a lot of problems withimplementation. Making more allocation gives room for more leakage and corruption.
At the same time, I am delighted to find that the Finance Minister has extended the health insurance cover (that was initiated last year to BPL families) to also NREGA workers who have put in a minimum of 15 days of labour. In the years to come, there is a desperate need to extend health insurance cover to the entire farming class also, which has still not been given crop insurance.
Reading the Economic Survey 2010 along with the Budget allocations, it is quite clear that the agricultural reforms that the government is focusing on aim only at allowing more private and corporate control over agriculture. The food policy initiatives that are spelled out in the Economic Survey indicate more thrust on food retail and industrialisation of agriculture, which means more will be the burden on the farmers from external inputs.
This is a misplaced emphasis, and comes from a class of economists who are not in tune with the ground realities. Already, the wish-list spelled out in the Economic surveys of past three to four years has pushed agriculture to an unmanageable crisis. It is high time that a sincere effort is made to reverse the disturbing trend, and bring back the smile on the face of the farmer. This can be done, provided the political leadership demonstrates willingness.
By Devinder Sharma
The failure to announce a specific timeline to contain the food inflation as also apportioning the blame to the global commodity prices externally and the state government’s internally obviously did not go well with the opposition. To give credit to the finance minister, he did separately outline a series of steps to give agriculture, which recorded a negative, a leg up, to ensure that the growth was spread across all sectors. These included apart from targeted allocations for certain regions in the country, a calibrated approach to tackle the food and food processing sector. The government would follow a four-pronged strategy, covering agricultural production, reduction in waste of produce, and credit support to farmers and impetus to the food-processing sector.
Under the agriculture production category, the finance minister announced Rs 400 crore provided to extend the green revolution to the eastern region of the country comprising Bihar, Chattisgarh, Jharkhand, Eastern UP, West Bengal and Orissa; Rs 300 crore provided to organise 60,000 “pulses and oil seed villages” in rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting, watershed management and soil health, to enhance the productivity of the dry land farming areas; Rs 200 crore provided for sustaining the gains already made in the green revolution areas through conservation farming, which involves concurrent attention to soil health, water conservation and preservation of biodiversity.
As far as reduction in wastage of produce, Mukherjee talked about the government’s resolve to address the issue of opening up of retail trade to bring down the considerable difference between farm gate, wholesale and retail prices; meet deficit in the storage capacity through an ongoing scheme for private sector participation FCI to hire godowns from private parties for a guaranteed period of seven years. As regards the credit support to farmers, the budget said banks have been consistently meeting the targets set for agriculture credit flow in the past few years. For the year 2010-11, the target has been set at Rs 3, 75,000 crore. In view of the recent drought in some States and the severe floods in some other parts of the country, the period for repayment of the loan amount by farmers extended by six months from December 31, 2009 to June 30, 2010 under the Debt Waiver and debt relief Scheme for farmers, incentive of additional one per cent interest subvention to farmers who repay short-term crop loans as per schedule, increased to two per cent for 2010-11.
The budget offered impetus to the food processing sector while announcing that in addition to the 10 mega food park projects already being set up, the Government has decided to set up five more such parks; external commercial borrowings to be available for cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.
Government intent is thus well outlined by the finance minister but even he admitted as much in his budget speech when he said that there is need to improve the delivery mechanism. If government is keen to open the retail trade to multi formats, who is stopping it from implementing it? The other measures announced in the budget on the food management though welcome would only have a medium to long-term impact on the food management crisis. The man on the street that the government as also the opposition claims to serve needs immediate succor to be able to manage a daily two square meal. Time, Mr Mukherjee, for some out of the box thinking!
By K Anjna
INDIA’S HEALTH BUDGET 2010-2011
THE MALAISE CONTINUES
The National Budget of India for fiscal 2010-2011 was announced in the context of an environment wherein food inflation is over 22 per cent. Finance Minister Pranab Mukherjee declared in good faith that the “… Budget cannot be a mere statement of Government accounts. It has to reflect the Government’s vision and signal the policies to come in future. With development and economic reforms, the focus of economic activity has shifted towards the non-governmental sectors, bringing into sharper focus the role of Government as an enabler. An enabling Government does not try to deliver directly to the citizens everything that they need. Instead it creates an enabling ethos so that individual enterprise and creativity can flourish. Government concentrates on supporting and delivering services to the disadvantaged sections of the society.”
For the first time since the economic reforms began the government has openly acknowledged in the budget speech that they want to abdicate development to the private domain and become predominantly a facilitator or enabler. In this context the FM sees three challenges going back to high economic growth of nine per cent plus, making development more inclusive and more specifically for food security, education and health, and making the public system governance and delivery mechanisms efficient, effective, transparent and responsive.
The FM further states that “For the UPA Government, inclusive development is an act of faith. In the last five years, our Government has created entitlements backed by legal guarantees for an individual’s right to information and right to work. This has been followed-up with the
enactment of the right to education in 2009-10. As the next step, we are now ready with the draft Food Security Bill which will be placed in the public domain very soon. To fulfil these commitments the spending on social sector has been gradually increased to Rs 1,37,674 crore which now stands at 37 per cent of the total plan outlay in 2010-11. Another 25 per cent of the plan allocations are devoted to the development of rural infrastructure. With growth and the opportunities that it generates, we hope to further strengthen the process of inclusive development.”
Let us test this act of faith by assessing the budget of the Ministry of Health and Family Welfare.
Health Budget Estimates
The total allocation for health by the national government is estimated at Rs 251.54 billion. This is barely 0.36 per cent of the projected GDP. But this is about 28 per cent of the total national public health expenditure, estimated at Rs 625 billion for 2010-2011 because states contribute nearly three-fourths of the national governments health budgetary allocation as much as 40 per cent is grants to the states for the various national programmes which state governments implement. But the overall national health budget as a proportion of the GDP is clearly on a downward trajectory hitting a low of 0.89 per cent of GDP (when the actual expenditures come out this is even lower). This is in keeping with the act of faith which the FM talks about in his budget speech an act of faith to make governments an enabler and move out of provision of care and wanting to focus on selective care and for targeted populations. Table 1 summarises the priorities of the national government in the health sector.
What the Table 1 tells us is that in most instances the revised estimates are lower than budget estimates and generally previous years’ expenditure data also reveal that actual expenditures tend to be even lower. Thus the budget estimates for 2010-11 may appear to give the impression that over the previous fiscal it is higher by nearly 14 per cent we know that this will be much lower when expenditures are accounted for. Further given an inflation of over 9 per cent even this increase is not really impressive.
One interesting feature of the 2010-11 budget is that for the first time the externally aided component is being shown within the line budgets of the Ministries. This is certainly a positive development in
the direction of transparency clearly telling us where donor interests lie in financing health budgets.
This is the second tenure of the United Progressive Alliance government at the Centre. At the end of their first tenure the UPA managed to take public health spending barely to one per cent of GDP, no where close to their target of achieving 2-3 per cent of GDP. The rural public health system continues to suffer from the same malaise as earlier not enough doctors and nurses, inadequate medicine supplies, poor maintenance etc. What was worse is that the reasonably robust urban public health system has also begun to collapse with rapid private sector growth and expansion, including the support of private health insurance. Thus the inadequate public investment in health during the previous UPA regime actually led to the boom of private healthcare which has now jumped to 5.5 per cent of GDP. Since private insurance covers barely two per cent of the population, most of this expenditure is out-of-pocket indicating a huge burden on households who often have to sell assets or take loans for their hospitalisation needs. Thus the UPA-1 government had failed to make any significant impact in the public health domain and the current budget tells us that it is unlikely to make any impact in its current avatar. The allocations will certainly not address the above indicated problems which require a financing strategy and budget allocations which are structured very differently.
The failure is both political and bureaucratic because there is a complete lack of political will to push radical reforms or the architectural changes the NRHM strategy document talked about as well as the inadequate capacity of the bureaucracy to facilitate the structural changes. During the period of the UPA regime we saw in Thailand a major transformation where social insurance and increased public financing catapulted Thailand to the status of a universal access country assuring equitable access to basic healthcare for all.
If Thailand could do it given a very similar historical trajectory to that of India then why can’t UPA facilitate the same for India? The answer lies in viewing the entire health system, both public and private, as a single system and creating a regulatory mechanism and a financing strategy of a single-payer instrument to accommodate that under a single umbrella.
Thus the FM’s “Government as an Enabler” strategy needs re-interpretation. It should not mean abdicating state responsibility to the private sector which the budget trajectory clearly indicates, but it should mean actively engaging the private sector to deliver public health goals by regulating them and reining them into a public contract. Well the first 8 months of the UPA-2 regime does not show any inclination towards that end. Hence civil society has a long struggle to get the UPA-2 on track to achieve the goals of universal access to basic healthcare.
The author is a senior Trainer and Health Analyst International Budget Partnership
By Ravi Duggal