Repeating The Rhetoric, Escaping Accountability

Cover pageen feb 2017 Wed, 15 Feb 2017

Repeating The Rhetoric, Escaping Accountability

 Union Budget 2017

Repeating The Rhetoric,  Escaping Accountability

 The Union Budget 2017-18, the fourth Budget of the Modi government, was presented in the midst of a financial and economic exigencies hurled by unintelligent move of demonetization of unprecedented scale, failed to recognize the gravity of the situation faced by different stakeholders of the economy. After a massive “manmade calamity” of demonetization and its attendant disruptions in economic activities countrywide the union Budget had presented them a golden opportunity to redeem its mistakes and start pursuing course corrections.

 The opportunity was wasted in an exemplary way by paying only lip service to the sectors including farmers, small and medium scale units and rural population who were hit the hardest due to severe cash crunch inflicted through the mindless and abrupt withdrawal of 86 % of the cash denominated in higher value currencies from circulation.

It was arrogant on the part of the government that it didn’t bother to provide any equity capital relief to the unorganized sector to resurrect itself that employs roughly 90 % of the industrial workforce. It may be recalled that the situation in labour market is grim during the last three years or so. The Labour Bureau data (The Employment and Unemployment Surveys) show rising unemployment, coupled with poor quality of jobs (less remunerative and casualisation of work) even during 2012-2015.  

 The plight of the labour must have worsened  because of closure of factories in the last couple of months in the post demonetisation period. Agriculture and rural employment growth will not be sufficient enough to compensate for the severe joblessness in the unorganised manufacturing and construction sector. Indeed, the farmers’ lobby has lashed at the Government’s insensitivity to the continuing woes in the agricultural sector. The farm sector is least likely to provide jobs in rural areas. The rural sector is not likely to witness much job creation in the non-farm segment, apart from construction of roads. Migration from rural to urban areas is unlikely to be contained in this context. 

 Indeed, small and medium enterprises and micro industries don’t stand to gain any stimulus despite being dismantled due to currency crunch in the aftermath of demonetisation episode. This Budget has pretty little to offer to any sector- be it economic or social. Even the corporate sector has burdened with the a new tax while it was expected that   the corporate tax rate would be rationalised to a level of 25 % from the current rate of 30 %

 In the following sections we will reflect on the implications of the budgetary provision/announcements for the key aspects of the economy. 

 The GDP growth Prospects, Capital Formation and public sector lending: 

 As per Union Budget 2017-18, the projected growth rate of nominal GDP is 11.75 % for 2017-18 which translates into real growth of 6.75-7.25% given the inflation projections of 4.5 -5.0%. Even these subdued growth projections seem to be ambitious given the disruptions in organised sector economic activities and significant reductions in cropped area of Rabi seasons as suggested by various surveys in the farm sector.

Furthermore, as per Economic Survey, for India to regain the 8% growth path, exports would have to grow at 15%. Today, however, there are some fundamental constraints: the world, led by the U.S., seems to be turning the wheels of globalisation in backward direction. Thus to realise the growth figure of 8 %, we need to significantly rely on trusted and tested internal sector from consumption & production-both sides. 

 Public investment figures are far from sufficient in the Budget while private investment is not picking up because big corporate are saddled with too much debt and non performing assets. It may be noted that loan accounts that were ‘performing’ as on 31-3-2014 have become ‘non-performing’ under the NDA government, thanks to the deteriorating economic situation. The government can no longer airily dismiss the problem as a ‘legacy’ issue. 

The NPA positions of public sector banks are becoming bad to worse: Gross NPA ratio (% of Gross Advances) was 4.5% as on 31st March 2014 and it surged to 9.1% as on 31st December 2016. Thanks to  non-performing assets (NPA), investors are ineligible or unwilling to borrow and banks are unable to lend. Hence, credit growth to all industries is at an all-time low, and turned negative in October 2016. Public sector banks (PSBs) will be hesitant in lending to those who are less creditworthy because they have a huge load of non-performing assets and not enough capital. 

To make matters worse, the Budget provided a measly Rs 10,000 Crore to recapitalise public sector banks, leaving the banks to fend for themselves. Unless government finds solutions, more woes are in store for the banks and industry, even while credit growth will remain tepid. The proposed infusion of capital of Rs. 10,000 Crores for PSBs means nothing as experts have suggested to infuse a much larger amount in the range Rs. 7080 thousand Crores.  

There is no initiative for resolving and restructuring the non-performing assets of the banks and thereby expanding the potential for higher institution lending to the corporate sector. Thus, the capitalization of PSU in the Budget is woefully inadequate. The only other way for the Banks is to dilute the Government’s equity or issue/raise fresh capital or sell their non-core assets. These are not easy avenues. It is not easy in today’s capital market for any of our public sector banks because their balance sheets are so weak, who is going to invest new capital in those Banks and secondly saving non-core assets is so difficult with every transaction are suspect. 

 The government has admitted that private investment is in the doldrums. The government is embarrassed by the fact that, in 2015-16, only 150,000 jobs were created (a far shot from the promise of creating 2 Crore jobs a year) while 1.5 million youth are entering into labour force on monthly basis. This is the twin challenge. Gross Fixed Capital Formation (GFCF) is a widely-used measure of investment, including private investment. According to the Economic Survey, growth of GFCF in the last three financial years was 4.9% (2014-15), 3.9% (2015-16) and (-) 0.2% (2016-17). 

 Riding on the cushion of tremendous GDP growth figures of 7.5- 8 % during the 10 years of UPA regime, 140 million people were indeed lifted out of poverty. But that will happen only when the growth is high and per capita income rises. If growth dips, then you cannot lift people out of poverty. 

 It is pertinent to mention that GDP growth figures for the fiscal 2016-17 is expected to 6.5 %, which is less than the figure of 7.6% projected at the start of the fiscal. Thus on account of demonetisation fiasco, the economy has lost at least 1.1% of GDP, that amounts to a whopping figure of 1.51 Lakh Crores. The spill over of demonetisation drag is expected to continue even during the first two quarters of the coming fiscal, thereby magnifying the losses. 

Social Sector Expenditure for financing developmental deficits: 

 Even though we have been among the fastest growing economies of the world, our social sector indicators leaves much to be desired and hence requires substantial investment in education, health, nutrition, social security and welfare of marginalized sections including women, children, minorities and other groups. Also these expenditure are part of the aggregate demand which fuels economic growth, typically when private sector expenditure is timid and insufficient. As may be noted that the Union Budget as percentage of GDP at market prices has declined consistently during this regime: the ratio was 14.2 % in 2012-13 which have fallen sharply to 12.7 % in 2017-18 BE. The declining expenditure-GDP ratio has had its consequences on overall social sector allocations. 

Allocations to Social Sector Programmes

 Despite the repeated rhetoric of the government regarding  rural sector bias of the successive budgets, allocation for social sectors in the Union Budget show minimal improvements in nominal terms and indeed a negative growth in allocations in real terms (after inflation adjustment), for key flagship social sector programmes including MGNREGA, NUHM, SSA among others. Sarva Shiksha Abhiyan outlays are projected to increase by a mere Rs. 1,000 Crore in 2017-18 (BE), from Rs. 22,500 Crore in 2016-17 (RE). The allocation for Mid-Day Meal scheme has witnessed a very small increase from Rs. 9,700 Crore in 2016- 17 (RE) to Rs. 10,000 Crore in 2017-18 (BE). 

The allocation for Rashtriya Madhyamik Shiksha Abhiyan too shows a marginal increase from Rs. 3,700 Crore in 2016-17 (RE) to Rs. 3,830 crore in 2017-18 (BE). There is a moderate rise in allocation for National Rural Drinking Water Programme from Rs. 6,000 crore in 2016-17 (RE) to Rs. 6,050 Crore in 201718 (BE); the outlay for Pradhan Mantri Gram Sadak Yojana remains stagnant at Rs. 19,000 core, and the budget for MGNREGA in 2017-18 (BE), at Rs. 48,000 Crore, is nearly the same as its outlay of Rs. 47,499 Crore in 2016-17 (RE). 

 The National Social Assistance Programme (which covers old age pension, widow pension and disability pension schemes) at Rs. 9,500 crore in 2017-18 (BE) too has remained at the same level as 2016-17 (RE). For Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the allocation for 2017-18 (BE) at Rs. 5,000 Crore is not much higher from the 2016-17 (RE) outlay of Rs. 4,883.5 Crore. (CBGA; A Response to Union Budget; 2017-18) 

 Reforms in UGC and Privatisation of Higher Education through Creation of HEFA 

 Quite strangely, FM’s Budget speech overlooked any discussion on the financing of ‘Right to Education’ and elementary education despite widely shared concerns on low learning levels and scope for much needed improvement. In 2017-18 (BE), MHRD has been allocated with Rs. 79,686 Crores, 58 percent of which is allocated for Dept. of School Education and Literacy and 42 percent for Dept. of Higher Education. However, the devil lies in the details. 

 The funding role of the UGC have been halved within two fiscal years: allocation for UGC has declined sharply from close to Rs. 9700 Crores to Rs. 4691 Crores in 2017-18 while a non profit body, Higher Education Financing Agency (HEFA) has been created to leverage funds from market borrowings and CSR to finance the infrastructural needs of the institutions. The allocations to institutes through HEFA will be in the form of loans to be recovered through charging/ levying user fees.

 This is nothing but backdoor privatisation of higher education and will necessarily have disastrous consequences for the equity and access in higher education across social groups with the marginalised sections of the society at the receiving end of the stick

 The insignificant priority accorded to UGC and Central University funding mean that the higher educational institutions will need to either raise student fees or face a difficult situation when it comes to maintaining their infrastructure. It also alludes towards the unwillingness of the government to implement 7th PC recommendations as the allocations for UGC and Central Universities have been increased merely by Rs.330 Crores. 

 Apart from these dismal figures, there are disturbing references in the Budget Speech of Finance Minister which allude towards government’s intention in favour of PPPs and commercialization of education. The finance minister announced to impart greater administrative and academic autonomy to Good quality institutions in which Colleges will be identified based on accreditation and ranking, and given autonomous status. This is a dangerous move that will disintegrate the coherent structure of the University education system and will eventually lead to privatization of the institution.

 Yet another point of grave concern is the emphasis on MOOCS and proposal of launching of SWAYAM platform with at least 350 online courses to be implemented through virtual classes. On the one hand National Education policy talks about improving quality of education, on the other hand government is proposing mediocre means for provisioning of higher education through MOOCs and virtual classes, discussion forums and tests. 

 It is ludicrous to note that government wishes teach higher education courses through DTH despite having enormous pool of qualified and competent teachers waiting for jobs for years. Despite having enough institutions of repute to teach courses in foreign languages and offer advanced training, the government seems to misallocate scarce financial resources by a launching programmes such as National Initiative for Technology Transfer, Uchhatar Avishkar Abhiyan which will invite backdoor entry of private players. 


 Budgetary allocations for health sector as a proportion of GDP at market prices has remained stagnant, with marginal increase to 0.30 percent in 2017-18 (BE) from 0.26 percent in 2016-17 (BE). However, this falls short of meeting the long standing demand (articulated in the Draft National Health Policy, 2015 as well as in the 12th FYP) of increasing the total allocation for health sector to at least 2.5 percent of GDP (Centre and States combined). Further, the NRHM framework document had recommended that the contribution of the Centre should be 50 percent; but the current allocation falls short of this target. 

 Reproductive and Child Health (RCH) (a critical component under NHM) is a key area of intervention for the maternal and child health. Given the commitment towards Sustainable Development Goals (SDGs), the government does target reducing the MMR from 167 in 201113 to 100 by 2018-2020. However, the allocations for the RCH Flexi pool (including Routine Immunisation, Pulse Polio Immunisation, NIDDCP, etc.) witness a decline from Rs. 7,775 Crore in 2016 (BE) to Rs. 5,966 Crore in 2017-18 (BE).

 One positive aspect (a rarity!) of the budget 2017-18 that the sub-components (“Human Resources for Health and Medical) under NHM which have received substantially higher allocations than previous year: from Rs. 5,226 Crore in 2016-17 (BE) to Rs. 8,383 Crore in 2017-18 (BE). The bulk of the increase under “Human Resources for Health and Medical Education” is for upgrading District Hospitals, allocation for which increases from Rs. 445 Crore in 2016-17 (BE) to Rs. 3,300 Crore in 2017-18 (BE). 

The Parliamentary Standing Committee on Health and Family Welfare also brought to the fore the issue of shortages in human resources in the health sector which have affected the delivery of services adversely. This seems to have been followed up by the government with earnest. The increase under these heads would help improve the quality of healthcare delivery. Thus, the increase in the overall allocations for the health budget and emphasis on dealing with the shortages pertaining to human resources and infrastructure are steps in the right direction. (CBGA; A Response to Union Budget 2017-18) 

 There has also been no concrete announcement for ensuring the availability of free generic medicines. This is a critical area of concern as the NSSO data tells that nearly 70 percent of the out-of-pocket (OOP) burden is due to expenditure on medicines. Making free medicines available in all public health facilities will substantially impact the credibility of the public health system and strengthen utilisation. (CBGA; A response to Union Budget 2017-18). 

 The two sub-missions under the NHM are National Rural Health Mission (NRHM) and National Urban Health Mission (NUHM). While NRHM allocation does see an increase of around Rs. 3000 Crore in this budget over 201617 (BE), allocation for NUHM has decreased from Rs. 950 crore in 2016-17 BE to Rs. 752 Crore in 2017-18 BE. 

 Health expenditure for urban people has been illogically deprioritised. NUHM envisages meeting health care needs of the urban population with a focus on urban poor, by making available primary health care services and reducing their OOP expenses. As urbanisation increases with migration of labour from rural areas to cities, the health needs of the urban population, especially the poor, require attention. The reduction in allocations for NUHM raises concern as, on one hand, the government is pushing for the development of smart cities but, on the other, it does not seem to be preparing for the challenges posed by increase in population of urban poor. (CBGA; A response to Union Budget 2017-18)

 Deplorable Neglect of Rural Sector: MGNREGA and Farm Sector


 The allocations for the demand driven guarantee programme has been stagnant in nominal terms: it was Rs. 47499 Crores on 2016-17 RE and for 2017-18 the amount being Rs. 48,000 Crores. Given that in 2016-17 Budget, the initial MGNREGA allocation was at Rs 38,500 Crores, while the supplementary allocations raised it to Rs 47,500 Crores, this would mean that actual increase isn’t the massive 25 per cent, as FM Jaitley announced during his budget speech, but a meagre 1 per cent, or by Rs 500 Crores. It may be noted here that there is a pending liability of Rs 13000 Crores for fiscal 2016-17. 

 Keeping this figure in mind, there is infact a decline even in nominal terms for MGNREGA allocations. As per the information provided by People’s Action for Employment Guarantee (PAEG), 22 out of 34 states have negative balances. As per the Rural Development ministry’s own data a total of Rs 3,469 Crores in pending liabilities have already piled up, even as they have spent 93 per cent of the funds available for this financial year. 

 This is likely to dramatically go up over the next two months, as traditionally demand for work has peaked during this season.  In fact, the state-based requirement of MGNREGA funds is actually much higher, because not only of  demonetisation, which has significantly impacted the agricultural sector, but also because of the terrible drought that affected vast swathes of south and west India. (PAEG). 


 There is an acute distress in the farm sector. The government seems to be totally oblivious to the plight of the farming community. The best signal to the farmer is a remunerative price for his produce. The Finance Minister has not even uttered the phrase ‘Minimum Support Price’ in his speech. The farming community has been totally cheated by the budget. 

Further, it is a tradition followed by the Government of India to initiate measures to compensate the farmers hit by natural calamities. But there was no support extended to the farmers who suffered due to fund crunch caused by demonetisation even though demonetisation was a calamity caused by the government itself. 

 The government declared last year that the 30 percent of the farmers in the country would be covered by this insurance scheme in the first year of its implementation and would cover 50 percent of them in the third year. But farmers covered by this insurance have increased only by 3 percentage points. Only 24 percent of the farmers are covered in the first year of its implementation,”, meaning that the insurance companies have turned out to be major benefactors of this scheme meant for the farmers. 

 FM had announced that Rs 12,000 Crores have been spent in insurance whereas only Rs 5,500 crores were allocated for the purpose. Since the number of insurance claimants has not increased notably, the phenomenal increase in expenditure can safely be assumed as an outcome of profiteering of the insurance companies, the budget proposed neither to ensure that loans meant for farmers reach the poorest and needy ones nor to decrease the loan burden on them by any means of waivers. 

 In sum, in the aftermath of disruptions caused by man- made Tsunami of demonetisation, the people of the country were expecting fireworks; instead it was a damp squib. It is just ‘sher-o shayari’ in the budget. There is nothing for farmers, unorganised sector and youth and nothing for job creation. There is no clear vision. The main issue facing India today is creation of jobs. On that front there was nothing. No vision, no idea at all. There was nothing in the budget for poor, unemployed and farmers. Farmers are suffering and there is a need for waiving their loans. There was nothing in the budget.