The Budget fine print
Jaitley has correctly addressed the three most grieving sectors of the Indian economy. The test will be of successful implementation
Finance Minister Arun Jaitley has attempted to do what he ought to have done long ago, precisely because he cannot ignore the sentiments of the people, particularly those of the farmers, informal sectors, and rural folk, who have been hit hard by severe distress, mainly because of demonetisation. The imperfect rollout of GST and demonetisation has rattled the farm and rural sectors, primarily dependent on the cash economy. Though there are positives in the budget for the poor and the middle-class, there are some drawbacks as well.
Taking a cue from the Pre-Budget Economic Survey, which had highlighted three areas of distress that needed to be addressed immediately, Jaitley rightly outlined the intent in the budget to uplift the sagging morale of the farmers and the rural poor in an election year; but, without making the necessary allocation. The three areas that the Economic Survey stressed upon for reversing rural distress are agriculture, job creation and education, which now needed unbridled attention. Jaitley rightly made his budget speech look like an election manifesto without spelling out how he is going to find the resources, especially when there are already fiscal slippages. When one reads the fine print of the budget, the allocation to the farm sector has been increased by mere 13 per cent when there is a general increase of about 10-10.5 per cent for other sectors. Jaitley has not spelt out how he is going to find the resources for providing 150 per cent increase in the Minimum Support Price that too to all crops in the forthcoming Kharif season.
A more grandiose intent proposed in the budget is the healthcare programme. This is a welcome development but the question is: does the government have the necessary resources? There is no allocation made in the budget and indications are that it may cost the exchequer at least Rs 1.5 lakh crore. Some six states already have a more modest scheme of providing up to Rs 1-2 lakh health cover for the poor and this costs various states put together Rs one lakh crore. Tamil Nadu was among the first states to start it in 2008 and it is working well because the state already had a good hospital network and now, many government hospitals are benefitting because they receive some money for insurance companies and this contributes to the upkeep of hospitals, hitherto pathetic because of inadequate government funding. But, many of the North Indian states, particularly Uttar Pradesh and Bihar, do not have a good network of government hospitals, the primary healthcare centres are abysmal and hence, implementing this healthcare scheme is going to be difficult. The hospital network has to be first improved in these states, which by itself requires huge resources and a long gestation time, perhaps several years.
The healthcare scheme, now come to be known as Modicare, just as Obamacare, may, therefore, take years to be rolled out fully as huge resources would have to be found even if states were to share a part of the burden as proposed. Also, experience shows that any central programme implemented in collaboration with states is tardy and the level of implementation and quality vary from state to state. The rollout is, therefore, going to be difficult and it could lead to serious fiscal slippages that too at a time, as the Economic Survey points out when the economy is showing robust growth and broad-based revival after a double whammy of demonetisation and implementation issues in the rollout of Goods and Services Tax.
Such mega plans for rural India are good if India has to shine for all, but the question is: can it be implemented without glitches and spreading thin the scarce resources ahead of elections next year?
Perhaps Jaitley had at the back of his mind the India Shining campaign of the ruling NDA in 2004 led by Atal Bihari Vajpayee. The India shining campaign did not go well with rural India even though it had good support in urban India. The BJP party, therefore, was defeated in the general elections. So perhaps Modi, aware of this mistake of ignoring rural India, wanted to bring cheers to struggling Bharat during the last year of his term after rural India was mauled by one bad economic decision, demonetisation. The recent Gujarat Assembly elections and the more recent Rajasthan by-elections to three seats are eye-openers. The farmers are no longer a mere pushover. They will see through unless the government makes an earnest effort to implement these grand schemes, which are not going to be easy.
Jaitley's health scheme to 10 crore below poverty families, which translates to 50 crore persons, is like the UPA government's food security programme ahead of the 2014 elections. The programme was announced without proper provisioning in the budget, for a whopping food subsidy of Rs 1.25 lakh crore. The rural people saw through the game and the UPA lost the elections. It would have been better if the Modi government had discussions with all stakeholders including the states and created necessary infrastructure and resources before announcing such schemes. Perhaps, it could have been a good election promise in the manifesto for the 2019 elections as failure to implement in a short span of one year may cost the ruling party dearly in the elections. Former finance minister P Chidambaram is right in saying that Arvind Subramanian, the chief economic advisor, who authored the Economic Survey, is a good doctor as he has rightly flagged the ills of the economy but the government seems to be a bad patient as it has failed to listen to the advice of the doctor.
Another significant measure in the budget is the impetus provided to the rural economy and farm distress, which would be a force multiplier for overall growth, likely to surge to 8 per cent. This would help India become the fastest growing emerging economy, now at $2.5 trillion and move two notches up in the coming months to overtake France and Britain. This would make India the fifth largest economy in the world.
The package provided to pump-prime MSMEs through better access to finance or lowering of the corporate tax rate to 25 per cent to companies having a turnover up to Rs 250 crore would also help to spur both employment and growth in this vital segment of the economy. MSMEs account for nearly 40 per cent of manufacturing and 45 per cent of exports in the country. It employs many times more compared to large industries, which are increasingly becoming capital intensive. The stress on jobs in the budget will help generate meaningful employment going ahead. This will also help to solve the problem of disguised unemployment in the rural area.
Measures to boost rural livelihoods are a welcome development. Spending more on livelihood, agriculture and allied activities, and construction of rural infrastructure is perhaps implementable in the budget. The total amount to be spent by the various ministries will be Rs 14.34 lakh crore, including extra-budgetary and non-budgetary resources of Rs 11.98 lakh crore. Apart from employment due to farming activities and self-employment, this expenditure will create employment of 321 crore person days, 3.17 lakh kilometres of rural roads, 51 lakh new rural houses, 1.88 crore toilets, and provide 1.75 crore new households with electric connections besides boosting agricultural growth. Accordingly, the government substantially increased the allocation of National Rural Livelihood Mission to Rs 5750 crore in 2018-19.
In sum, the script on rural India is good but lacks depth as there are no answers as to how the government is going to get the wherewithal for successful implementation.
(The views expressed are strictly personal)