John Samuel
The first-budget of the new government
is an exercise in the art of delusions. On the one hand, the budget tends to
give policy signals to the core political constituencies of the BJP and on the other hand thee budget is more of recycling of the very same policy paradigm of
the UPA II and this budget looks more like that of UPAIII mode with a saffron
wrapper. “This is a budget which could have well been
presented by the UPA itself and I am happy the Finance Minister is keeping to
the fiscal deficit target, and hope he achieves it,'' the former Prime Minister
Manmohan Singh told NDTV in his response to the first budget unveiled by the
Narendra Modi government.
However, if one reads the budget in the
context of the series of policy pronouncements and tactical policy ‘leaks’ including the IB
Report on NGOs etc, one can see the emergence of a new brand of subversive politics. In the last two months governments already
gave indications of the policy priorities such as allowing FDI in defence and
insures sector, environmental clearances for big corporate ventures, allowing
hike in prices of non-subsidized LPG cylinders, raising train fares by 14.2
percent and freight rates by 6.5 percent, privatisation of services in the railways and
declaring potato and onion as essential commodities by bringing them under the
Essential Services Maintenance Act (ESMA). While the budget gives the semblance of
‘continuity with change’ and high on
pro-poor and pro-people rhetoric, this budget in a way is also a curtain-raiser to the forthcoming budget and
policy shifts in 2015 and the consequent shift in the policy paradigm of the
Modi- government.
1. A Sandwich
policy approach to ‘development’
This government has been trying to juggle
around three layers of policy and political approaches. On the foreground, the
government gives an impression of a pro-growth neo-liberal ‘developmentalism’
along with a high dose of rhetoric on ‘good governance’ (or with less
government and more governance). In a sense this neo-liberal ‘good governance’
development is nothing but a rehash of the same old pro-rich, pro-growth,
pro-FDI mode that Manmohan Singh- Alhuwalia and Chidambaram advocated for the
last twenty years. However, beneath this foreground of the ‘continuity’ of
neo-liberal economic policies, there is another layer of pro-crony capitalist
accommodative Hindu nationalism that seeks to enrich few corporate houses and
few sections of the society. And the base structure of this three-tier sandwich
approach is the hard-core hindutva politics of ‘exclusion’. One has to situate the budget in the context
of the larger political economy of the majority political party that controls
the government and also see how multiple modes of subversions is used to create a sense of ‘good-governance-
development’ delusion
The three tier sandwich approach of the policy and governance of the
government seeks to address four
different set of constituencies a) the neo-middle class( or emerging middle
class) in the urban-transitions in India; b)the big rich corporate houses with
crony capitalist tendencies that in many ways supported the election
machine of major political parties with money and media; c) the soft-Hindu nationalist neo-liberal
constituency that hope to get more jobs from the possible economic growth and d)
the hard-hindutva constituency that advocates an assertive Sangh Parviar politics of exclusion. The
government seeks to use different language register and different modes of
policy rhetoric to satisfy different set of constituencies woven together
during the last election. On the one hand
these policy rhetoric and policy priorities give hints to different
constituencies and on the other hand the government generally project a
‘liberal’ positioning in the broader constituencies at the national level. This
mock-liberal posturing often tend create a delusions about ‘development’,
‘democracy’ and ‘governance’. Because of this ‘mock-liberal’ veneer above the
hard-hindutva political core and because of the continuity with the neo-liberal
policy modes of UPA II, even the main opposition party tends to be more benign
as well as confused in their response to the Union Budget as well as the
macro-political posturing of the government.
In that sense, this Budget is also an indication of this politics of
subversion and politics of ‘mock-liberal’ delusions.
This government has come to power
making high promises of reducing prices, reducing inflation, increasing
economic growth, ensuring transparency and accountability and effective means
to address corruption. However, if we take a closer look at the policy
priorities there is so far no clear sense that government is making concerted
effort to fulfill any of these promises.
This budget too does not give any indication any broad policy framework
to address any of these issues. While it is true that this budget may not have
the space to move drastically from the vote-on accounts budget presented by
Chidambaram in March 2014, there is hardly any significant shift beyond an
effort to ‘pay’ back those big business corporate
that lend a ‘helping-hand’ to the election campaign. There is also an effort to
send signals and messages to the core constituencies and the ‘new’
constituencies of the emerging Modi brand of politics.
If we further deconstruct the budget
signals, it is clear how the budget speech sent clear signal to each of the
four ‘special’ constituencies. The neo-middle class (or those who have at an
average monthly income of Rs 20000) got a tax exemption by increasing the
taxable annual personal income from 2 lakhs to 2.5 lakhs and corresponding tax exemption to the senior citizens. The ‘housing for all’ by 2022 is also policy
rhetoric to send signals to the neo-middle class constituency. The big business corporations and the rich and
powerful also get tax-exemption (largely excise and custom duties) in the tune
Rs 5.2 lakhs. The signalling of the
big-ticket investment in smart urban centres (Rs 7060 crore for hundred smart cities),
increasing the FDI cap from 26 per cent to 49 percent in the defense manufacturing and insurance sector, and the intentions to increase the number
elite institutions such as IITs, IIMs, and AIMS send signals to the upward
mobile middle class that seeks to have more ‘professional jobs’ and a greater
pie from the urban-centre economic growth model of the neo-liberal variety. The
soft- Hindu nationalism of this class gets addressed through liberal allocation
for the ‘unity’ (though the term is ironic) of Saradar Vallabhai Patel and also
for more war memorials. The co-option of Vallabhai Patel from the history of
Congress Party and the signifier of ‘war memorials’ as a sign of patriotism
send signals to the pro-neo liberal ‘ Shining India’ class that BJP always
sought to pamper. At the same time the
government also send positive signals to the core Sangh Parivar constituency by
appointing those with such ideological position to key posts such as the Chair
Person of the ICHR- and also by saffron wrapping to few new programmes in the
name Shayma Prasad Mookerjee, Deendayal Upadhaya, Madan Mohan Malavya gave
signals to the core Sangh –parivar Hindutva constituencies.
While the Rs 7060 crore allocated for
the hundred smart city projects is an
allocation of an average of only Rs 70 crore per city, it seems the government
hopes to get to the tune Rs 60,000 crore per city as new investment or Foreign
Direct investment. Since the government
will not have such resources to fund the development of full-fledged
infrastructure of hundred smart cities, one is still not clear where will such
a huge investment come from. The
government largely signalled investment in infrastructure development and also
some new investments in renewable source of energy such as solar power. A total allocation of Rs 37,880 Crore
(including Rs 3000 for North-East) for fast-track highways and improving road
infrastructure too is more or less in line with the policy frame work of UPAII.
In spite of the hope of getting new FDI
in core sectors such as defence industries, insurance and the intention to invest significantly in the new
infrastructure projects, one is not yet sure the projected economic growth will
be achieved in the next couple of years. The overall direction seems to be reducing
the direct tax, increase the indirect taxes (expecting Rs 7,525 crore more from this), more disinvestment and more
non-tax revenue along with the reduction of expenditure in a cumulative manner.
Though allocation for most of the flagship programmes( MGNREGS, food subsidy,
NRLM, NRHM) are more or less maintained as in the interim budget, given the track record there is a chance of
significant reduction in revised estimates, particularly in the enthusiasm to
cut expenditure and fiscal deficit. So, overall the first budget of the Modi
government looks more like the old wine in a new bottle with a saffron wrapper,
devoid of any new economic or political imagination.
Does the Budget address the key social and
economic Challenges of India?
The key question is to what extent the
Union Budget seeks to address some of the major challenges in the political
economy of India. As per the latest
Human Development Index (HDI) India ranked 136th among the 186
countries reported in the UNDP- Human Development Report (2013). The health and
education indicators of India are below than many countries in South Asia and
also to many of the developing countries. Every third illiterate person in the world is
an Indian and more than 80 million children in the school-going age are out of
school and it is reported that more 35 % of the students drop out before
reaching class VIII. India has one of
the highest infant (and maternal mortality rate in the world; Infant mortality
rate of 44 per 1000 live birth in 2011 and maternal mortality ratio at 178 in
2010-2012, far behind the global targets. The reported unemployment rate (as
per the current daily status) is 5.6%, though the real figures may be much
higher in most of the states of India. A major issue that has immense
implication for the political economy of India is the growing inequality in
India. As per the analysis of the National Sample Survey, the spending gap
between the rich and the poor in India almost doubled in the last five years.
The monthly per capita consumption expenditure of the top five percent of the
rich in urban areas is 14.7 % more than
the bottom five per cent of the population. In rural area the top five percent
of the rich consumes 9 times more than those at the bottom five per cent of the
poor. The economic inequality combined
with social inequality also creates the conditions for the politics of
exclusion. Most of those at the receiving end of socio-economic inequality and
exclusion happened to be those from the marginalised communities such as
Dalits, Adivasies and minorities in India. The challenges faced by economy are
many. The high rate of inflation, particularly food-price inflation of 9.5 per
cent, and the consequent increase in price of food and essential commodities
will undermine the household economy of a large majority of poor and
marginalised people. The economic growth
rate also has been suboptimal and the rate of GDP growth is at 4.5 percent in
2012-2013 and 4.7 percent in 2013-14 further took away jobs of many people,
particularly in the manufacturing sector. The industrial growth is more or less
stagnated (provisionally estimated at 0.5 percent). While the growth rate of
agricultural sector is still around 4 percent, as per the latest economic
survey, the growth of tertiary sector is 9 percent, though even there is a
job-less growth. While the Economic
Survey identified some of these issues, and there is a liberal use of high
rhetoric in the budget speech to identify some of these issues, the budget
priorities in themselves do not give any adequate indication to address some of
these challenges. While the budget has more or less retained or marginally
increased the budget allocation for the MGNREG(34000 crore) and for food
subsidy(1.15 lakh crore), there is
hardly any new initiative to address some of the debilitating challenges to the
social and economic development of India. Many of the farmers organisations and Dalits
organisations have already pointed out the inadequate allocation for agricultural
and allied services and also the much less than proportionate allocation for
the Special component plans for SCs and STs. The budget does not do justice to
the Agricultural and Allied Sectors, Rural Development and Social Services. There is also a concern that the proposed
reduction of petroleum subsidies by Rs 22,054 will lead to further increase in
the cost of transports, irrigation and resultant increase in food price. Given
the near-drought situation and given the over-optimistic revenue estimation,
the chances are the economic growth will be below the projected level of above
five percent and the chances are that
there will be further decrease in budget allocation for social sector in the
revised estimates. So , despite the high rhetoric, the budget does not give any sense of
economic or political imagination to boost growth or to increase taxation or to
ensure strategic redistributive framework to address the causes and
consequences of poverty and marginalisation in India.
Whose Budget is
it any way?
The total size of the Union
Budget ( 2014-15) is Rs 17.94 lakh crore, slightly higher than
the figure of interim budget of Rs 17. 63 lakhs crore. Of this increase between the
interim budget and the main budget, of Rs. 31000 crore, two-third is in the
Plan Expenditure domain (going up from Rs. 5.55 lakh crore to Rs. 5.75 lakh
crore) while the remaining one third has gone up in the Non-Plan Expenditure
part (from Rs. 12.07 lakh crore to Rs. 12.19 lakh crore. While the Finance
Minister Arun Jaitley gave a road map of
fiscal consolidation over a period of next three years , there is no indication
of the comparable increase in the revenue.
He on the one hand follows the Chidambaram-line of cutting fiscal
deficit to 4.1 per cent of GDP in
2014-15 an on the other hand he proposes
to reduce from the proposed 4.6% this year to 3 percent in 2016-17; and reduction of
revenue deficit from 3.3 percent to 1.6 percent in three years. During the next three years, the gross tax
revenue is expected raise from 10.2 percent in 2013-14 to only 11.2 percent in
2016-17. This means, there will be sharp decrease in expenditure in the years.
And the indication is that the sharp decrease in expenditure would further
erode the budget allocation for social sector, human development and
eradication of poverty. There is already
a constructed ‘consensus’ built through the pro-neoliberal media discourse
against ‘subsidies’. Though this budget has not drastically reduced subsidies,
however the ‘targeted’ subsidies and also ‘freeing’ up the diesel price etc are
indication of reduction of subsidies that will have implication for the rural
poor and farmers in India.
When
it comes to revenue there are clear indications of who is being favoured. While the neo-middle class got a bit of tax
concession raising the tax-bar from Rs 2 laks to 2.5 lakhs, the major
beneficiary of the tax concessions are the rich and powerful corporate houses
of India. While there is a tax concession of around 40,000 crore to
middle class, there is a tax concession of a whopping Rs 5.32 lakhs to the rich
business corporations of India. This tax-write off is from the direct corporate
income tax, customs and excise duties. This include writing off 76,116 crore of the
corporate income tax and forgoing Rs 1, 95, 679 crore excise duty and giving
away Rs 2,60, 714 crores of custom duty. In 2012-13, the total revenue foregone
in favour of the rich was Rs 566, 235 crore and the total revenue foregone
in 2013-14 was Rs 572, 924 crore( 5% of the GDP). In an incise
analysis of the pro-rich tax regime, P Sainath has pointed out that from 2005-06 onwards , over a period of nine
years, the government of India written off tax worth Rs 36.5 lakh crore and
sixth of that is just corporate income tax.
If one considers the present allocation Rs 1.15 lakh core for Public
Distribution System, the cumulative tax concession of Rs 36.5 Lakh crore would
have been good enough to run the PDS for
the next 31 years or for that matter MNREGS( current allocation of around Rs
34,000 crore) could have been run for
105 years. As Sainath has rightly pointed out the real continuity between
UPA and the present government is that
both favoured the rich and powerful corporate business houses. While the governments gave huge tax
concessions to the rich and powerful corporate business there was no dearth in
the pro-poor rhetoric along with reduction of expenditure for social sector. It
has been pointed out that the amount written off in favour of the rich
corporations in 2013-14 is 132 percent more than the tax concessions to them in
2005-06. This trend clearly shows the
politics of budget. There is high rhetoric in
the budget speech favour of poor and ‘marginalised’ and there is high
tax concession to the rich and powerful and there is marginal concession to the
neo-middle class. While in the budget estimates, there is allocation for the
social sector, often in the revised estimates these allocation decreases.
India
has one of the lowest Taxes –GDP ratio among the emerging economies. The central tax-GDP ratio fell from 10.2
percent in 2012-13 to 10 per cent in 2013-14.
This is largely due to the fall in excise and customs duty collection and
forgoing corporate income tax. The relatively less Tax-GDP ratio adversely
affect the fiscal policy space available to the government for ensuring
adequate resources for social protection and public provisioning of basic right
to education, health and shelter, particularly to the poor and marginalised
sections of people.
While the intentions to increase investment in
the road network, hundred new smart cities and exploring the options for
renewable energy give the intentions to work towards the economic growth, the
tendency of more tax exemption for the rich and possible reduction of the
effective allocation for social protection point out to the political bias
towards the rich and urban middle class sections of the people. This class
forms hardly less than fifteen percent of the population. Unless there is new
investment to regenerate rural economy, sustainable agriculture, and social –economic infrastructure to
include the large majority of the poor and marginalised sections( including
rural farmers, dalits , Adivasies and minorities), India will not be able to
increase the human development index or reduce the alarming level of social and
economic inequality in this country. The question remains whether the rhetoric
are for the masses and the larger policy framework is meant for the ‘shining
India’ class of articulate urban class of India. The chances are that the present budget is
merely a curtain raiser to a three –tier approach of combining pro-‘shining
India’ class neo-liberal economic policy along with comforting the soft-Hindu
Nationalist aspiring ‘mock-liberal’ middle class and actually serving the core
Sangh Parviar agenda through political and policy subversion. The mock-liberal
veneer could be a sign of the ‘good days’ to come to make the ‘Shining India’
class happy, though the poor and marginalised will be put under the carpet of
high rhetoric on ‘development’ and ‘good governance’
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