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Big promises, bigger discontent

| R. RAMAKUMAR
Published : Mar 2, 2016, 6:20 am IST
Updated : Mar 2, 2016, 6:20 am IST

1 Arun Jaitley’s Budget 2016-17 clearly has a conservative fiscal stance.

1 Arun Jaitley’s Budget 2016-17 clearly has a conservative fiscal stance. Mr Jaitley said that he has decided to adopt a “prudent” position by sticking to the targets for reduction of fiscal deficit and revenue deficit till 2017-18. Thus, fiscal deficit will decline from 3.9 per cent of the gross domestic product in 2015-16 to three per cent of the GDP in 2017-18. However, tax revenues are not supposed to rise as fast. The Budget annexures themselves show that gross tax revenue as share of GDP would rise only marginally, from 10.8 per cent in 2015-16 to 10.9 per cent in 2017-18. In other words, the fiscal consolidation map till 2018 is likely to be sharply contractionary.

In 2015-16, Mr Jaitley had sharply cut expenditure in sectors like agriculture and education. The allocation for the ministry of agriculture and farmer’s welfare was cut from Rs 25,917 cr in 2014-15 to Rs 22,958 cr in 2015-16. Similarly, the allocation for the ministry of human resource development was cut from Rs 68,875 cr in 2014-15 to Rs 67,586 cr in 2015-16. The reason: Mr Jaitley had kept his revenue projections unrealistically high in 2015-16 by jacking up revenue expected from disinvestment. The receipts from disinvestment were projected at Rs 69,500 cr for 2015-16 in last year’s Budget. However, due to market conditions turning “volatile and adverse”, the actual revenue was significantly lower.

The Budget documents state that the shortfall of disinvestment receipts was the main reason for the shortfall of Rs 36,036 crore in non-debt capital receipts. The saving grace for Mr Jaitley was the fall in oil prices, which led to higher excise duty collections in 2015-16; in its absence, he would have had to cut expenditures even more sharply.

In other words, if Mr Jaitley’s additional resource mobilisation plans, including disinvestment, meet the same fate as in 2015-16, the budgeted expenditures for 2016-17 are likely to be cut.

2 Mr Jaitley’s argument that he has budgeted for the highest ever expenditure for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) is factually incorrect as in earlier years the expenditure was higher than what’s been allocated for 2016-17. It is also a poor claim because the comparisons are made in nominal terms and not real terms. In real terms, the allocation for MGNREGS has been declining; in nominal terms, the expenditure on MGNREGS has remained stagnant. Given the two back-to-back years of drought in rural India, MGNREGS requires a significant boost in expenditure, and the budgeted allocation for 2016-17 is totally inadequate.

3 Mr Jaitley’s claim that credit supply to agriculture has risen sharply and that he would raise it to about Rs 9 lakh crore in 2016-17 needs closer examination. Recent data available for 2014 shows that only half of the agricultural credit extended would have actually reached the farmers. Large amounts of agricultural credit is given out as indirect finance; the share of agricultural loans below Rs 2 lakh is less than 45 per cent; more than one-quarter of agricultural loans are disbursed from the urban and metropolitan branches of banks; and most agricultural credit is supplied in the months of February and March, when very little agricultural activity takes place in villages. In other words, what is called agricultural credit is actually diverted to urban areas and large corporate groups involved in agri-business activities. The Budget does not, thus, critically look at the status of agricultural credit supply in India. It doesn’t address why farmers across the country are complaining of lack of credit if agricultural credit has indeed grown so fast

4 Mr Jaitley has put disproportionate emphasis on the implementation of the Direct Benefit Transfer (DBT) scheme using Aadhaar. The core issue here is the persistently poor spread of banking institutions in rural areas. As the spread of brick-and-mortar branches of banks is poor, banks are trying to rely on the banking correspondent model to reach customers. However, this model has not yet been demonstrated to be a success. The viability of the banking correspondent model depends on the commission paid to the agencies involved and both, banks and the government, are not ready to pay high commission rates. This is the main reason why the model has not been successful.

Further, through a vigorous campaign, banks have created large number of accounts in rural areas, but more than half of these are reportedly dormant. The alternative is to raise the quantum of transfers through the DBT scheme, which would potentially make the model viable. For this purpose, the government has been trying to pack up the DBT scheme with as many transfers of services as possible.

In this Budget, the effort has been to focus on fertiliser subsidies. But it is unclear how the transfer would be implemented, and how the quantum of transfer and eligibility would be fixed. It is very likely that the farmers will be left completely unprotected from the future rises in fertiliser prices. And this will render the continuing crisis of agriculture in rural areas even more acute.

Mr Jaitley’s Budget is marked by a number of tall claims. History shows that none of the tall claims made in the Budgets in the last two years have been realised, and expenditures have been eventually cut in most sectors/departments. A poor revenue record over the next year, a sure possibility given the sluggish projections of growth, is likely to raise pressure on expenditures in 2016-17 also. Are we staring at another year starting with tall promises and ending up with a series of disappointments Most likely.

The writer is a development economist and a professor at the Tata Institute of Social Sciences