Project on MONITORING AND ANALYSIS OF BUDGETS IN MAHARASHTRA STATE

RESEARCH BRIEF - 1

INDIAS UNION BUDGET 2010-11 AND THE POOR R. Ramakumar, Aditi Dixit, Tushar Kamble

began. In this period, a large number of developed and developing economies opted to pump prime their economies to sustain levels of output, protect jobs and bail out financial institutions. Secondly, the union budget was presented in the midst of a continuing global food crisis; at least inspired by it in part, Indian food prices have skyrocketed in the recent months. The monthly figures for domestic food inflation range between 18 and 20 per cent, the highest since the mid-1970s. Given the adverse global and domestic economic environment, a number of expectations were attached to Budget 2010-11.
This budget belongs to the Aam Aadmi. It belongs to the farmer, the agriculturist, the entrepreneur and the investor. The opportunity is great. The time is right. (Pranab Mukherjee, Budget Speech, 2010-11)

First, it was expected to protect the Indian people from the adverse consequences of the crisis. In this context, the budget could have initiated the establishment of a comprehensive social security system and raise social sector expenditures substantially. Secondly, the budget was expected, particularly in the wake of double-digit food inflation, to put in place a universal system of food security as well as take measures to raise food grain production. A number of official committees have recently recommended the expansion, even if not universalisation, of the

The Context and Expectations Union Budget 2010-11 has to be evaluated based on what was expected out of it, and the economic environment in which it was presented. First, the budget was presented three years after the global economic crisis

Published 28 February 2010

public distribution system (PDS). With respect to raising agricultural production, the government needed to increase public investment in irrigation, research and extension and focus resources on specific production challenges in the dry land regions. Thirdly, the budget was expected to sustain and further expand the fiscal stimulus package as a demand booster for economic growth itself. Given Indias poor standard of living and low average incomes, increased public expenditure has a major role to play in raising the purchasing power of people as well as broad-base the pattern of economic growth.1 On all the three counts, the budget is a disappointment. The worldview Budget 2010-11 is driven by a strong neo-liberal worldview. It appears unconcerned with the global turn of debates after the economic crisis on the role of the state. Across the developed world, particularly Europe, the global crisis has marked the end of a phase where the minimalist role of the state was hailed as supreme. As even the right-wing French President Nicholas Sarkozy was to remark, laissez faire is finished. At the World Economic Forum in Davos in 2009, one of the major questions being asked was: could the much-maligned social welfare system in Europe end up being the model for the 21st century?2 Pranab Mukherjees budget begins with the statement that it is not the states responsibility to provide all social services to
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its citizens. According to the Minister, the role of the government is only that of an enabler in the period after economic reforms; the focus has shifted to non-governmental actors, who would make individual enterprise and creativity flourish. Indeed, this narrow and confused world view guides most of the recommendations in the budget. We plan to analyse Budget 2010-11 by looking at the allocations and means specified in the budget vis--vis providing services to the poor and working people, or the quintessential aam aadmi.3 As James OConnor (1973) famously argued, the volume and composition of government expenditures and the distribution of the tax burden are not determined by the laws of the market, but rather reflect and are structurally determined by social and economic conflicts between classes and groups (p. 2).4 We argue that far from giving precedence to the needs of the aam aadmi, the policy stance of the government and the budget tell a story of class bias, which has pushed inclusiveness down the priority agenda. 5 The non-governmental actors turn out to be none other than corporate houses, urban rich and real estate agents. Trends in expenditure To begin with, the total revenue expenditure of the centre is slated to rise by only 5.8 per cent between 2009-10 and 2010-11 (Table 1). Between 2008-09 and 2009-10, the revenue expenditure had risen by 12.8 per cent. With inflation ruling at about 7 to 8 per cent, the increase of revenue expenditure in nominal terms may actually be negative.

For instance, China decided in November 2008 to spend nearly $586 billion (Rs 29.3 lakh crore) over two years. It covers various areas of investment, such as low-cost housing, rural infrastructure, water, power, new technologies and environmental projects. To the contrary, the response in India has been primarily on the monetary policy front to raise levels of liquidity, as well as to extend tax concessions to select sectors. See Is Europes welfare system a model for the 21st century?, The New York Times, January 27, 2009.

A detailed analysis of the Union Budget prepared by the Centre for Budget and Governance Accountability, New Delhi is available at: http://www.cbgaindia.org. James OConnor (1973), The Fiscal Crisis of the State, St. Martins Press, New York. For a critical analysis of the extent of inclusiveness in the UPA governments policies, see Nirmal Kumar Chandra (2010), Inclusive Growth in Neoliberal India: A Faade?, Economic and Political Weekly, February 20, pp. 43-56.
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As a ratio to the GDP, total revenue expenditure formed 14.7 per cent in 2009-10 (Table 2). In 2010-11, if we assume that the GDP would continue to grow by 7.2 per cent, the budgeted revenue expenditure would actually decline to 14.5 per cent of the GDP. The reduction in the growth of aggregate spending is in line with the calibrated exit strategy from the fiscal stimulus package recommended by the 13t h Finance Commission (FC). The Commission has recommended that the augmented debt stock of the central government should decline to 45 per cent of the GDP by 2014-15. Thus, Budget 2010-11 has begun the process of returning to the neoliberal dogma of reducing deficits; as is the spirit of the dogma, deficits are to be reduced by cutting expenditures, and not raising revenues. In India, about 80 per cent of the social sector expenditure is undertaken by the States. The centres support to the State and UT plans is slated to increase by only about Rs 6500 crore in 2010-11, or about 7.5 per cent higher than in 2009-10. Again, in real terms, there is no increase. The FC recommendation for States to return to their fiscal correction path by 2011-12 has already ended the possibilities of autonomous fiscal expansion at the State-level. According to the FC, all States have to achieve zero revenue deficit, and fiscal deficit of 3 per cent, by 2011-12. Further, it has recommended that the Fiscal Responsibility and Budgetary Management (FRBM) Acts be amended in States so that the fiscal reform path (or the annual targets for the reduction of revenue and fiscal deficits) are incorporated within the Act itself. In what is a bizarre logic, the FC even goes on to recommend that any State that has a revenue surplus along with a higher fiscal deficit should compress its capital expenditure, or alternately, increase its surplus on the revenue account.

Expenditures on Social and Economic Services As mentioned, many economies across the world have taken the economic crisis as an opportunity and used their fiscal stimulus packages to fortify social security systems.6 In India too, the crisis presented an opportunity to allow fiscal deficits to rise so as to finance new and innovative social security schemes. However, given the overall context of stagnant revenue expenditure, the Finance Minister left for himself little room to raise social sector expenditures in any substantive way. Thus, if the revenue expenditure on Social Services grew at 13.3 per cent between 2008-09 and 2009-10, it grew at a slower rate of 11.2 per cent between 2009-10 and 2010-11 (Table 1). As a ratio to GDP, the revenue expenditure on Social Services would be staying constant at 1.5 per cent in 2009-10 and 2010-11 (Table 2). There are variations across sectors in the distribution of this reduced growth of expenditure. The growth of revenue expenditure on General Education shows a rise from 6.3 per cent between 2008-09 and 2009-10 to 21.6 per cent between 2009-10 and 2010-11 (Table 1). However, this rise is largely an illusion. In 2009-10, the actual expenditure under General Education was about Rs 3000 crore less than what was budgeted; the higher growth between 2009-10 and 2010-11 appears to be a result of the lower base year expenditure than a real increase. If we compare the budget estimates of 2009-10 and 2010-11, the increase is only by 10.2 per cent. On the other hand, the growth of expenditure on Medical and Public Health shows a fall from 21.6 per cent between 2008-09 and 2009-10 to 13.4 per cent between 2009-10 and 2010-11 (Table 1). In terms of ratio to GDP, the increase has been paltry from 0.12 percent to
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In 2009, China unveiled a health care reform plan to provide free basic health care to the countrys 1.3 billion inhabitants by 2011. Costing $124 billion, the plan is to subsidise basic medical insurance programs, support grassroots-level health facilities and invest in the underdeveloped western and rural regions.
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0.13 percent (Table 2). Similarly, for Water Supply and Sanitation, the growth of expenditure shows a fall from 102 per cent to 39 per cent. The revenue expenditure on Economic Services shows a rise by a meager 1.3 per cent between 2009-10 and 2010-11 (Table 1). Within economic services, the revenue expenditure on Agriculture and Allied Activities continued to fall in absolute terms: at (-) 1.8 per cent. In the categories of Rural Development, Rural Employment and Irrigation and Flood Control also, the growth of expenditure fell between 2009-10 and 2010-11, when compared to between 2008-09 and 2009-10 (Table 1). In all the categories presented under Economic Services, the expenditure as a ratio to the GDP is slated to fall between 2009-10 and 2010-11 when compared to between 2008-09 and 2009-10 (Table 2). Expenditure on Flagship Schemes

government has to now implement the Right to Education Act, which aims to universalize primary education, the rise in allocations appears barely enough. Given these trends, the delays in reaching the investment targets of 6 per cent of GDP in education and 3 per cent of GDP in health are going to be inordinately large. Much of the increases in expenditures on flagship schemes noted above are based on budgeted expenditures in the last budget. However, in the light of the fact that the actual expenditures for most schemes remain below the budgeted allocations, these increases mean little. For instance, according to data from the NRHMs website, Rs 6171 crore from the budgeted amount for 2009-10 remains unspent. In 2008-09, the corresponding unspent amount was Rs 1080 crore. Similarly, for NREGS, the total unspent balance for the scheme was Rs 9050 crore in 2008-09 and Rs 7804 crores in 2009-10. Tax Exemptions and Revenues Foregone

If we consider the flagship schemes of the central government in the social sector, the slow and inadequate rise of expenditures become clearer. For National Rural Employment Guarantee Scheme (NREGS), there has only been a meager increase in allocation of Rs 1000 crore (or 2.5 per cent) over 2009-10. Also, if we make price adjustments for inflation, the real allocation for the scheme has actually declined. The insignificant additional expenditure for NREGS appears specious, since the recent Presidents Address actually held the scheme responsible for higher food prices. Was additional expenditure on NREGS held back to control the rising food prices? Similarly, for the National Rural Health Mission (NRHM), the increase is only of Rs 1500 crore. The allocation towards strengthening elementary education through Sarva Shiksha Abhiyan (SSA) is Rs 15,000 crores, a rise of Rs 1900 crores from the allocation made in the last budget. However, taking into account the fact that the

The lack of seriousness in raising social sector expenditures is also clear from the various tax exemptions given away in the budget. The budget works on the myth that growth is possible only through the private sector and that it is important to incentivise them to undertake investment. The total revenue foregone of the government (by way of various tax exemptions) has already risen from Rs 4.1 lakh crore in 2008-09 to Rs 5 lakh crore in 2009-10. In 2010-11, about Rs 26,000 crore is to be lost by way of direct tax exemptions to the urban elite and real estate companies. Ironically, the same budget thrusts new indirect taxes that are considered regressive and against the poor worth Rs 60,000 crore on the people. It is well argued in the literature on public finance that in the Indian context, any redistribution of incomes in favour of the poor must rely on greater direct tax measures. Greater reliance on indirect tax measures, as opposed to direct tax measures, is the most
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telling feature of the anti-people bias of Budget 2010-11. Increase in indirect taxes also reflects the core ideology of neo-liberalism as a system longing for self-proclaimed stability at any social cost. The Sidelining of Food Security Food security is another critical area totally sidelined in the budget. This is quite surprising, given the background of high and rising food prices. The need of the hour is to expand the PDS to larger sections of people, and with more number of commodities, in order to protect them from the vagaries of inflation and meet the long-run challenge of generalized malnourishment. Progressive political movements have also demanded a universal right to food, with a 35 kg allocation of food grain for every Indian household at Rs 2 per kg. However, the expenditure on food subsidy, so essential in sustaining the PDS, has actually been cut in absolute terms by Rs 424 crore between 2009-10 and 2010-11. The cut in food subsidy is well in line with some of the recent policy stances of the government. Take an illustration: in January 2010, the Union Cabinet approved an additional allocation of 10 kg of wheat or rice to all eligible card holders under the PDS. The catch was that the price of sale was to be not the present central issue price, but higher. At present, a BPL card holder gets rice from PDS at about Rs 5 per kg. For the additional allocation of 10 kg of rice, a BPL card holder was to pay a price three times higher. Similarly, for wheat, a BPL card holder was to pay a price that was double the present price. A lower issue price implies higher food subsidy; the lower food subsidy bill in 2010-11 indicates that there are no plans to expand the PDS and reduce the pressure of food price inflation in the recent future. Thus, for all practical purposes, food price inflation is here to stay.

The Finance Minister, in the speech, gave much emphasis on introducing a food security bill. In the light of the absolute cut in spending on food subsidy, the sincerity of the government in bringing in a meaningful food security bill stands in serious doubt. It is not just that the PDS is sought to be weakened in the times of high food prices. The budget also contributes to the upward pressure on food prices by raising indirect taxes on petroleum products. There is to be a 5 per cent increase in the customs duty on crude petroleum and Rs 1 per litre increase in the central excise duty on petrol and diesel. In paragraph 18 of the budget speech, the Mr Mukherjee actually accepts the fact that:
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 raising of fuel prices in the same budget speech shows nothing but a callous attitude to the problem of food prices. The Focus on Agriculture According to the Economic Survey 2009-10, released a day ahead of the budget, food production in India is expected to decline in 2009-10 by 16 per cent over 2008-09. The growth rate of agricultural GDP was negative at (-) 0.2 per cent between 2008-09 and 2009-10, compared to 1.6 per cent between 2007-08 and 2008-09. As the Economic Survey admits, these trends have brought the need for improving food production and productivity to the forefront of national strategy. There is much rhetoric in the budget speech on agriculture. However, this rhetoric sits uncomfortably with the absolute reduction of Rs 2000 crore in the revenue expenditure for Agriculture and Allied Activities between 2009-10 and 2010-11. The Finance Minister has
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spoken about a four-pronged strategy for agriculture that includes (a) increasing production; (b) reducing wastage of produce; (c) increasing credit support to farmers; and (d) encouraging the food processing sector. Apart from (a), which at least looks pro-poor, the remaining three strategies are openly biased towards promoting large business interests in agriculture. The two measures that mark the Ministers strategy (a) to increase agricultural production appear to be a cut in fertiliser subsidy and an absolute cut in the allocation for the flagship National Horticulture Mission (NHM) by 3.5 per cent. The total fertiliser subsidy has been cut by Rs 3000 crore in 2010-11 over 2009-10. Costs of cultivation are certain to rise with the cut in fertiliser subsidy. From 1991 onwards, the cuts in fertiliser subsidy have led to a sharp rises in the prices of fertilisers. In 1990-91, the price per tonne of Urea, Di-Ammonium Phosphate (DAP) and Muriate of Potash (MOP) were Rs 2350, Rs 3600 and Rs 1300 respectively. By the mid-2000s, the prices of the three fertilisers had risen to, respectively, Rs 4830, Rs 9350 and Rs 4455. In February 2010, the government decided to increase the price of urea by another 10 per cent, or Rs 50 per bag. By announcing a shift to a nutrient-based subsidy scheme, what the government did then was to fix as constant what it would pay to the private fertiliser companies, and leave the companies free to charge any price from the farmers. With the subsidy cut announced in the present budget, the government has indicated how much it plans to save by exiting from this critical sector. The points (b), (c) and (d) in the Ministers strategy go patently against small and marginal farmers. The reduction in wastage of produce is to be brought about by opening up of the retail trade and encouraging private sector participation in food grain storage. It is strange that the storage capacity of the Food Corporation of India (FCI) is not being

increased by direct public investment, but through promoting private investment. In agricultural credit, the target for 2010-11 has been raised to Rs 375,000 crore from Rs 325,000 crore in 2009-10. Experience tells us that this increase, as the earlier increases in agricultural credit, is aimed primarily at financing new forms of commercial, exportoriented and capital-intensive agriculture, including by corporate houses. Let us look at the trends in agricultural credit from 2000 onwards.7 About one-third of the increase in credit flow to agriculture between 2000 and 2006 was on account of the increase in indirect finance. The entire growth of indirect finance to agriculture originated from a major expansion of loans with a credit limit of more than Rs 10 crore, and particularly more than Rs 25 crore. Within direct finance to cultivators too, there was a major rise in the share of advances with a credit limit of more than Rs 1 crore between 2000 and 2006.

Thus, there is little evidence to argue that the major beneficiaries of the revival in agricultural credit in the 2000s have been the small and marginal farmers. In fact, official policy has gradually brought in the corporate sector into the fold of agricultural credit through a number of definitional changes. For instance, the Reserve Bank of India (RBI) has stipulated that from April 2007 onwards, loans given to corporates, partnership firms and institutions for agricultural and allied activities (such as beekeeping, piggery, poultry, fishery and dairy) in excess of Rs 1 crore in aggregate per borrower would be

See R. Ramakumar and Pallavi Chavan, Revival of Agricultural Credit in the 2000s: An Explanation, Economic and Political Weekly, 42 (52), December 29, 2007, pp. 57-64.
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considered as agricultural finance.8 Indeed, meeting the task of increasing agricultural credit has been made much easier for banks through these definitional changes. In Budget 2010-11 too, the picture is no different. The budget speech promises to relax borrowing limits and conditionalities for cold storages, under the guise that they would benefit farmers. In reality, such borrowals are made only by large-scale agri-business firms and retail chains. The budget speech states that:
as a part of the farm to market initiative, External Commercial Borrowings will henceforth 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. Changes in the definition of infrastructure under the ECB policy are being made.

logical steps would be to leave the farm sector totally to private corporate interests. In many States, land reform laws are being amended to raise land ceilings, so that private firms could cultivate unlimited areas of land. Four States have already implemented these amendments in land reform laws: Karnataka, Maharashtra, Tamil Nadu and Gujarat. In Conclusion In sum, the union budget for 2010-11 misses the grade on most counts that matter to the poor. The overconfidence that it displays in having addressed the global slowdown, even in the face of a negative growth rate in agriculture, is misplaced. In the midst of the crisis, the poor have been left to fend for themselves. Far from protecting the standards of living of the poor, the enabling government is increasingly disabling their capabilities to protect livelihoods.

It appears that given the stated role of the state as a facilitator and enabler, the next

For more details and the nuances of definitional changes, see ibid.
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Table 1 Percentage growth rates in allocations to Social Services and Economic Services, Revenue, 2008-09 to 2010-11, in per cent
Head Social Services General Education Technical Education Sports and Youth Activities Art and Culture Education, Sports, Arts and Culture (sub-total) Medical and Public Health Family Welfare Water Supply and Sanitation Housing Urban Development Welfare of SC, ST and OBC Labour and Employment Social Security and Welfare Nutrition Economic Services Agriculture and Allied Activities Rural Development Within Rural Development: Rural Employment Irrigation and Flood control Total Revenue Expenditure Source: Budget documents. Selected sub-heads Percentage (%) increase in allocation between 2008-09 and 20092009-10 (RE) and 10 (RE) 2010-11 (BE) 13.3 11.2 6.3 18.4 111.1 15.2 11.9 21.6 12.1 101.5 0.6 112.2 -0.4 -4.8 10.1 -1.2 -39.6 -21.7 6.3 6.4 19.2 12.8 21.6 14.4 -30.6 -2.0 16.3 13.4 18.4 39.0 15.0 -10.3 23.6 24.1 -12.9 6.4 1.3 -1.8 5.8 2.6 4.5 5.8

Table 2 Share in GDP of allocations to Social Services and Economic Services, Revenue, 2008-09 to 2010-11, in per cent
Head Social Services General Education Technical Education Sports and Youth Activities Art and Culture Education, Sports, Arts and Culture (sub-total) Medical and Public Health Family Welfare Water Supply and Sanitation Housing Urban Development Welfare of SC, ST and OBC Labour and Employment Social Security and Welfare Economic Services Agriculture and Allied Activities Rural Development Within Rural Development: Rural Employment Irrigation and Flood control Total Revenue Expenditure Source: Budget documents. Selected sub-heads Share (%) in GDP of allocations for 2008-09 2009-10 2010-11 1.47 0.50 0.07 0.02 0.02 0.61 0.11 0.11 0.06 0.15 0.01 0.01 0.04 0.31 8.07 2.51 0.73 0.66 0.01 14.41 1.51 0.48 0.08 0.04 0.02 0.62 0.12 0.11 0.11 0.14 0.01 0.01 0.03 0.30 4.41 1.77 0.70 0.63 0.01 14.70 1.56 0.54 0.08 0.03 0.02 0.67 0.13 0.12 0.14 0.15 0.01 0.01 0.04 0.25 4.17 1.63 0.69 0.61 0.01 14.51

This Research Brief was prepared at the School of Social Sciences as part of the project titled MONITORING AND ANALYSIS OF BUDGETS IN MAHARASHTRA STATE, internally funded by the Research Council of the Tata Institute of Social Sciences, Mumbai. Corresponding email: rr@tiss.edu. Research Briefs are envisaged to be short and structured summaries on important research and policy issues. The opinions and comments in the research briefs are the personal views of the authors, and do not reflect the official positions of the institutions with which they are associated.

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